<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to .
-------------- ------------
Commission File Number 1-12542
UTI ENERGY CORP.
----------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 23-2037823
- -------------------------------------------------- ------------------------------------------
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
</TABLE>
SUITE 225N
16800 GREENSPOINT PARK
HOUSTON, TEXAS 77060
- ---------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
(281) 873-4111
----------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former Address)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each class of registrant's common
stock, as of the latest practicable date.
16,489,281 SHARES OF COMMON STOCK AT MAY 3, 1999.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998........................................................ 3
Condensed Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and 1998................................................ 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998................................... 5
Notes to Condensed Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................................. 20
Item 2. Changes in Securities......................................................... 20
Item 6. Exhibits and Reports on Form 8-K.............................................. 21
Signatures.................................................................... 22
</TABLE>
- 2 -
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM I. CONDENSED CONSOLIDATED FINANCIAL INFORMATION
UTI ENERGY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................................................ $ 20,320 $ 10,337
Accounts receivable, net of allowance for doubtful accounts
accounts of $2,219 in 1999 and $1,919 in 1998 .......................................... 20,180 25,485
Other receivables ........................................................................ 176 3,250
Deferred income taxes .................................................................... 2,075 --
Materials and supplies ................................................................... 631 887
Prepaid expenses ......................................................................... 8,136 4,598
------------ ------------
51,518 44,557
PROPERTY AND EQUIPMENT
Land ..................................................................................... 1,224 1,224
Buildings and improvements ............................................................... 3,324 3,324
Machinery and equipment .................................................................. 196,341 202,698
Oil and gas working interests ............................................................ 1,991 1,943
Construction in process .................................................................. 3,577 2,729
------------ ------------
206,457 211,918
Less accumulated depreciation and amortization ........................................... 47,648 47,070
------------ ------------
158,809 164,848
GOODWILL, less accumulated amortization of $2,460 in 1999
and $2,086 in 1998 ..................................................................... 20,417 20,791
OTHER ASSETS ............................................................................. 1,706 1,871
------------ ------------
$ 232,450 $ 232,067
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ......................................................................... $ 12,121 $ 17,649
Accrued payroll costs .................................................................... 2,352 2,387
Accrued health insurance ................................................................. 1,288 1,284
Other accrued expenses ................................................................... 2,730 2,599
------------ ------------
18,491 23,919
LONG-TERM DEBT, less current portion ..................................................... 31,840 31,721
DEFERRED INCOME TAXES .................................................................... 35,876 31,625
OTHER LIABILITIES ........................................................................ 656 656
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, $.001 par value, 5,000 shares authorized, 17,092 issued and 16,489
outstanding in 1999, 16,612 shares issued and 16,009 outstanding in 1998 ............... 17 17
Additional capital ....................................................................... 130,522 128,825
Retained earnings ........................................................................ 25,053 25,309
Treasury Stock, 603 shares in 1999 and 1998, at cost ..................................... (10,005) (10,005)
------------ ------------
145,587 144,146
------------ ------------
$ 232,450 $ 232,067
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 4
UTI ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1999 1998
-------- --------
<S> <C> <C>
REVENUES .................................... $ 32,536 $ 48,317
COST OF REVENUES ............................ 25,907 35,390
-------- --------
GROSS PROFIT ................................ 6,629 12,927
OTHER COSTS AND EXPENSES
Selling, general and administrative ......... 2,724 2,728
Provisions for bad debts .................... 292 429
Other charge (note 5) ....................... 260 --
Depreciation and amortization ............... 5,834 3,801
-------- --------
9,110 6,958
-------- --------
OPERATING INCOME (LOSS) ..................... (2,481) 5,969
OTHER INCOME (EXPENSE)
Interest expense ............................ (1,028) (879)
Interest income ............................. 126 647
Other, net (note 4) ......................... 2,955 103
-------- --------
2,053 (129)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES ........... (428) 5,840
INCOME TAXES ................................ (172) 2,293
-------- --------
NET INCOME (LOSS) ........................... $ (256) $ 3,547
======== ========
BASIC EARNINGS (LOSS) PER COMMON SHARE ...... $ (0.02) $ 0.22
======== ========
DILUTED EARNINGS (LOSS) PER COMMON SHARE .... $ (0.02) $ 0.21
======== ========
AVERAGE COMMON SHARES OUTSTANDING
Basic ....................................... 16,211 16,151
Diluted ..................................... 16,469 17,256
</TABLE>
See notes to condensed consolidated financial statements.
- 4 -
<PAGE> 5
UTI ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) .................................................................... $ (256) $ 3,547
Adjustments to reconcile net income (loss) to net cash
provided by operations
Depreciation ................................................................. 5,293 3,491
Amortization ................................................................. 541 310
Deferred income taxes ........................................................ 2,176 240
Amortization of debt discount ................................................ 119 119
Stock compensation expense ................................................... -- 11
Provisions for bad debts ..................................................... 300 --
Gain on disposals of fixed assets ............................................ (2,897) (54)
Changes in operating assets and liabilities, net of effect of disposition
Receivables and prepaids .................................................. 4,541 4,243
Materials and supplies .................................................... 8 (154)
Accounts payable and accruals ............................................. (5,060) (5,926)
Other ..................................................................... (2) (661)
-------- --------
Net cash provided by operating activities ............................ 4,763 5,166
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................................................................. (999) (11,352)
Net proceeds from disposition ........................................................ 4,935 --
Proceeds from sale of property and equipment ......................................... 145 188
-------- --------
Net cash provided (used) by investing activities ..................... 4,081 (11,164)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt ......................................................... -- (19)
Repurchased Stock .................................................................... -- (8,417)
Proceeds from exercise of stock options .............................................. 1,139 --
-------- --------
Net cash provided (used) by financing activities ................... 1,139 (8,436)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................. 9,983 (14,434)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................................... 10,337 58,347
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................................... $ 20,320 $ 43,913
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
- 5 -
<PAGE> 6
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
as of March 31, 1999 have been prepared in accordance with generally
accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a
fair presentation of the financial position and operating results for
the interim periods have been included. The results of operations for
the three months ended March 31, 1999 are not necessarily indicative of
the results for the entire year ending December 31, 1999. For further
information, refer to the Consolidated Financial Statements and
footnotes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use. This statement
provides guidance on accounting for the cost of software developed or
obtained for internal use and is effective for fiscal years beginning
after December 15, 1998. The Company adopted this standard in the first
quarter of 1999. The change did not have a significant effect on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 133, which is
effective for fiscal years beginning after June 15, 1999, requires all
derivatives to be recognized at fair value on the balance sheet. The
Company plans to adopt SFAS 133 no later than January 1, 2000. The
change is not expected to have a significant effect on the Company's
financial statements.
Reclassifications
Certain items in the prior period's financial statements have been
reclassified to conform with the presentation in the current period.
- 6 -
<PAGE> 7
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
3. ACQUISITIONS
On April 9, 1998, the Company acquired Peterson Drilling Company
("Peterson"), for a total purchase price of $20.4 million in cash,
which the Company funded from cash on hand following the public
offering in October 1997. Peterson's assets included eight drilling
rigs, as well as related drilling equipment, office facilities in
Midland, Texas and approximately $4.5 million in net working capital.
The acquisition has been accounted for under the purchase method of
accounting. Goodwill of $3.6 million has been recorded related to this
acquisition.
On June 24, 1998, the Company acquired the land drilling assets of
LaMunyon Drilling Corporation for $12.2 million in cash, which the
Company funded from cash on hand following the Company's public
offering in October 1997. The acquired assets consisted of five land
drilling rigs, related spare parts, office equipment and rolling stock.
The acquisition has been accounted for using the purchase method of
accounting. No goodwill was recorded because the estimated fair market
value of the assets acquired exceeded the purchase price.
On July 31, 1998, the Company acquired Suits Enterprises, Inc.
("Suits") for approximately $11.1 million, comprised of $2.9 million in
cash, $7.8 million in 7% four-year notes and 100,000 five-year warrants
of Common Stock. Warrants to purchase 75,000 shares of Common Stock are
exercisable at $26.50 per share and warrants to purchase 25,000 shares
of Common Stock are exercisable at $35.00 per share. Included in the
acquisition are Suits' seven complete drilling rigs plus assorted spare
parts and drilling equipment and a fleet of rolling stock. The
acquisition has been accounted for using the purchase method of
accounting. No goodwill was recorded because the estimated fair market
value of the assets acquired exceeded the purchase price.
4. DISPOSITIONS
In March 1999, the Company sold certain assets of International
Petroleum Service Company, its wholly owned Pennsylvania subsidiary, to
an unrelated party for $5.6 million. A pre-tax gain of $2.8 million was
realized as a result of the sale. Included in the sale were five
drilling rigs, related support equipment, rolling stock, spare parts,
tools and inventory.
5. OTHER CHARGE
In the first quarter of 1999, the Company incurred a charge related to
a series of actions taken to improve efficiency, increase productivity
and make the Company more competitive in the market place. The actions
included the reduction of regional operating offices from seven to four
and reduced the Company's administrative staff by twenty-six
individuals. The other charge of approximately $.3 million consisted
primarily of employee-related expenses associated with these
reductions.
- 7 -
<PAGE> 8
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------
1999 1998
----------------- ----------------
(in thousands, except per share amounts)
<S> <C> <C>
Numerator:
----------
Net income (loss).................................. $ (256) $ 3,547
================= ================
Denominator:
------------
Denominator for basic earning (loss) per
share - weighted-average shares.................. 16,211 16,151
Effect of dilutive securities:
Stock options................................. 200 967
Warrants...................................... 58 138
----------------- ----------------
Dilutive potential common shares.............. 258 1,105
----------------- ----------------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions................ 16,469 17,256
================= ================
Basic earnings (loss) per share.................... $ (0.02) $ 0.22
================= ================
Diluted earnings (loss) per share.................. $ (0.02) $ 0.21
================= ================
</TABLE>
7. CONTINGENCIES
The Company is involved in several claims arising in the ordinary
course of business. In the opinion of management, all of these claims
are covered by insurance and these matters will not have a material
adverse effect on the Company's financial position.
The Company is partially self-insured for employee health insurance
claims and for workers compensation for years prior to 1999. The
Company incurs a maximum of $100,000 per employee under medical claims
and a maximum of $250,000 per event for workers compensation claims.
Although the Company believes that adequate reserves have been provided
for expected liabilities arising from its self-insured obligations, it
is reasonably possible that management's estimates of these liabilities
will change over the near term as circumstances develop.
- 8 -
<PAGE> 9
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
8. INDUSTRY SEGMENT INFORMATION
The Company has two reportable segments: land drilling and pressure
pumping. The Company's reportable segments are business units that
offer different services.
The Company evaluates performance and allocates resources based on
profit or loss from operations before other income (expense) and income
taxes. The accounting policies of the reportable segments are the same
as those described in the summary of significant accounting policies.
The other category in the segment breakdown is attributable to
investments in oil and gas properties. This segment has not met the
quantitative thresholds for determining reportable segments. There are
no intersegment sales and transfers.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Revenues:
---------
Land Drilling ................................. $27,572 $43,381
Pressure Pumping .............................. 4,927 4,884
Other ......................................... 37 52
------- -------
$32,536 $48,317
======= =======
Selling, General and Administrative:
------------------------------------
Land Drilling ................................. $ 882 $ 977
Pressure Pumping .............................. 909 799
Other ......................................... -- --
------- -------
1,791 1,776
Corporate ..................................... 933 952
------- -------
$ 2,724 $ 2,728
======= =======
</TABLE>
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<PAGE> 10
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
8. INDUSTRY SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Operating Income (Loss):
------------------------
Land Drilling(1) ............................ $ (1,860) $ 6,081
Pressure Pumping(1) ......................... 616 846
Other(1) .................................... 8 11
-------- --------
(1,236) 6,938
Other Charge ................................ (260) --
Corporate ................................... (985) (969)
-------- --------
$ (2,481) $ 5,969
======== ========
Depreciation and Amortization:
------------------------------
Land Drilling ............................... 5,444 3,529
Pressure Pumping ............................ 322 240
Other ....................................... 15 15
-------- --------
5,781 3,784
Corporate ................................... 53 17
-------- --------
$ 5,834 $ 3,801
======== ========
Capital Expenditures:
---------------------
Land Drilling ............................... $ 335 $ 10,964
Pressure Pumping ............................ 664 383
Other ....................................... -- --
-------- --------
999 11,347
Corporate ................................... -- 5
-------- --------
$ 999 $ 11,352
======== ========
</TABLE>
- -----------------------
(1) Operating income (loss) is total operating revenues less operating
expenses, depreciation and amortization and does not include general
corporate expenses, other charge, other income (expense) or income
taxes.
- 10 -
<PAGE> 11
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
8. INDUSTRY SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Segment Assets:
---------------
Land Drilling...................... $ 191,544 $ 204,283
Pressure Pumping................... 13,410 14,799
Other.............................. 386 404
---------- ------------
205,340 219,486
Corporate.......................... 27,110 12,581
---------- ------------
$ 232,450 $ 232,067
========== ============
</TABLE>
9. SUBSEQUENT EVENTS
On April 26, 1999, the Company and Norton Drilling Services, Inc.
(Norton) jointly announced that the boards of both companies approved
the sale of Norton to the Company for shares of the Company's Common
Stock. According to the terms of the transaction, each Norton
shareholder will receive one share of the Company's Common Stock for
3.8 shares of Norton common stock. As of February 28, 1999, Norton
reported 4,934,321 shares outstanding. The value of the transaction is
approximately $13.6 million. Included in the transaction are Norton's
sixteen drilling rigs, three of which are located in South Texas, two
in Wyoming, and the remaining eleven in New Mexico and West Texas.
Completion of this transaction is subject to approval by Norton's
stockholders and various other governmental approvals and other
customary closing conditions.
In addition, on April 27, 1999, the Board of Directors of Fracmaster,
Ltd., an international oil and gas services company headquartered in
Calgary, Alberta, accepted the Company's bid, in partnership with its
largest shareholder, REMY Capital Partners III, L.P. ("REMY"), for a
joint venture to purchase all or substantially all of the assets of
Fracmaster Ltd. UTI intends to invest up to $15.0 million in the joint
venture with the remainder of the joint venture's capital to be
provided by REMY and/or other third parties. UTI expects to have a
minority interest in the joint venture. The transaction is subject to
approval of the Court of Queen's Bench of Alberta and regulatory
approvals and other customary closing conditions.
- 11 -
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
UTI is a leading provider of onshore contract drilling services to
exploration and production companies and operates one of the largest land
drilling rig fleets in the United States. The Company's drilling operations are
currently concentrated in the prolific oil and natural gas producing basins of
Texas, Oklahoma and New Mexico. The Company's rig fleet consists of 104 land
drilling rigs that are well suited to the requirements of its markets. The
Company's contract drilling services are performed through four regional
drilling units and are marketed under the names FWA Drilling Company,
FWA/Peterson Drilling Company, Southland Drilling Company and Triad Drilling
Company. The Company also provides pressure pumping services in the Appalachian
Basin.
Beginning in 1995, the Company made a strategic decision to focus its
efforts on the expansion of its land drilling operations to take advantage of
improving market conditions and the benefits arising from consolidation in the
land drilling industry. To effect this strategy, the Company disposed of its
oilfield distribution business in September 1995 and immediately embarked on a
directed acquisition program aimed at expanding the Company's presence in the
oil and natural gas producing regions in the United States. Pursuant to this
strategy, the Company acquired 66 rigs in five transactions during 1995, 1996
and 1997. The Company acquired an additional 20 rigs in three transactions
during 1998. As a result of these acquisitions and increased rig utilization and
dayrates caused by favorable market conditions, the Company's revenues grew
substantially during 1996 and 1997. During the latter part of 1997 and during
1998, however, the Company and the United States contract drilling industry, in
general, experienced significant declines in demand and pricing for their
services. These depressed market conditions have resulted in the Company's fleet
utilization decreasing to 34% during the first quarter of 1999 from 44% for the
first quarter of 1998.
The Company currently does not expect market conditions in the contract
drilling industry to improve until commodity prices of oil and natural gas
increase substantially. Although conditions in the contract drilling industry
have significantly declined over prior periods and further declines are
possible, the Company believes that its strong liquidity position and balance
sheet provide it with the financial flexibility to withstand continued or
additional deterioration in market conditions and the ability to react quickly
to opportunities in the contract drilling industry.
In response to these depressed industry conditions, the Company
undertook a series of actions during the first quarter of 1999 designed to
improve efficiency, increase productivity and make the Company more competitive
in the market place. These actions included the streamlining of certain contract
drilling operations and certain personnel changes. This consolidation of
operations reduced the Company's number of regional operating units from seven
to four and reduced the Company's administrative staff by twenty-six
individuals. As a result of these actions, the Company recorded a one-time other
charge during 1999 of $.3 million, which consisted primarily of employee-related
expenses. In addition, the Company sold certain non-strategic assets of its
Appalachian Basin contract drilling division for $5.6 million, which resulted in
the Company recording a one-time gain of approximately $2.8 million during the
first quarter of 1999. As a result of these initiatives, the Company believes
that it has brought its cost and operating structure more in line with current
industry conditions and has strengthened its balance sheet.
- 12 -
<PAGE> 13
During April of 1999, the Company announced two pending transactions.
The Company and Norton Drilling Services, Inc. ("Norton") jointly announced that
the boards of both companies have approved the sale of Norton to the Company for
shares of the Company's Common Stock. Norton's assets consist of 16 drilling
rigs which operate in the Permian Basin, South Texas and the Rockies. Completion
of this transaction is subject to approval by Norton's stockholders and various
other governmental approvals and other customary closing conditions.
The Company also announced that the Board of Directors of Fracmaster,
Ltd., an international oil and gas services company headquartered in Calgary,
Alberta, has accepted the Company's bid, in partnership with its largest
shareholder, REMY Capital Partners III, L.P. ("REMY"), for a joint venture to
purchase all or substantially all of the assets of Fracmaster Ltd. UTI intends
to invest up to $15.0 million in the joint venture with the remainder of the
joint venture's capital to be provided by REMY and/or other third parties. UTI
expects to have a minority interest in the joint venture. The transaction is
subject to approval of the Court of Queen's Bench of Alberta and regulatory
approvals and other customary closing conditions.
Results of Operations
The Company views the number of rigs actively drilling in the United
States as a barometer of the overall strength of the domestic oilfield service
industry. Without giving effect to acquisitions, variations in revenues and
gross margins of the Company's core business generally follow the rig count
trend.
The following table presents certain results of operations data for the
Company and the average United States rig count as reported by Baker Hughes
Inc.(1) for the periods indicated:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Operating Data:
- ---------------
Average U.S. land rig count ................... 423 787
Number of owned rigs (at end of period) ....... 104 89
Average number of rigs owned during period .... 108 89
Contract Drilling:
- ------------------
Operating days(2) ............................. 3,287 5,272
Utilization rates(3) .......................... 34% 66%
Pressure Pumping:
- -----------------
Cementing jobs ................................ 512 508
Stimulation jobs .............................. 179 209
Financial Data (in thousands):
- ------------------------------
Revenues ...................................... $ 32,536 $ 48,317
Gross profit .................................. $ 6,629 $ 12,927
As a percentage of revenue .................... 20.4% 26.8%
Operating income (loss) ....................... $ (2,481) $ 5,969
</TABLE>
- ------------------------
(1) Baker Hughes, Inc. is an international oilfield service and equipment
company which, for more than twenty years, has conducted and published
a weekly census of active drilling rigs. Its active rig count is
generally regarded as an industry standard for measuring industry
activity levels.
- 13 -
<PAGE> 14
(2) An operating day is defined as a day during which a rig is being
operated, mobilized, assembled or dismantled while under contract.
(3) Utilization rates are based on a 365-day year and are calculated by
dividing the number of rigs utilized by the total number of rigs in the
Company's drilling fleet, including stacked rigs. A rig is considered
utilized when it is being operated, mobilized, assembled or dismantled
while under contract. For the quarter ended March 31, 1999, the
utilization rate of the Company's rigs, excluding stacked rigs, was
39%.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Revenues by business segment for the three months ended March 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31, %
------------------------ Increase
1999 1998 (Decrease)
---------- ---------- ----------
<S> <C> <C> <C>
(in thousands)
Revenues:
---------
Land Drilling $ 27,572 $ 43,381 (36.4)%
Pressure Pumping 4,927 4,884 .9 %
Other 37 52 (28.8)%
---------- ----------
$ 32,536 $ 48,317 (32.7)%
========== ==========
</TABLE>
Land drilling revenues decreased as a result of depressed market
conditions resulting in decreased utilization rates and dayrates and prices
received on footage and turnkey contracts during 1999. The increase in pressure
pumping revenue is a result of an increase in pressure pumping rates, which have
not been adversely affected by declining oil and natural gas prices to the same
extent as the Company's land drilling operations.
Gross profit by business segment for the three months ended
March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------------------------------
1999 % 1998 %
-------- -------- --------- --------
<S> <C> <C> <C> <C>
(in thousands)
Gross Profit:
-------------
Land Drilling $ 4,766 17.3% $ 10,991 25.3%
Pressure Pumping 1,840 37.3% 1,910 39.1%
Other 23 62.2% 26 50.0%
-------- ---------
$ 6,629 20.4% $ 12,927 26.8%
======== =========
</TABLE>
Land drilling gross profit decreased due to depressed market conditions
along with three abnormal events in the first quarter of 1999: a rig move from
one market to another, a Department of Labor audit assessment and an unfavorable
court decision on a workers compensation claim. Each event was approximately $.2
million. Gross profit per job decreased in pressure pumping for the three months
ended March 31, 1999 compared to the same period of 1998 due to mix of jobs
performed.
- 14 -
<PAGE> 15
The other charge of $.3 million for the three months ended
March 31, 1999 was related to a series of actions taken to improve efficiency,
increase productivity and make the Company more competitive in the market place.
The actions included the reduction of regional operating offices from seven to
four and reduced the Company's administrative staff by twenty-six individuals.
The other charge consisted primarily of employee-related expenses associated
with these reductions.
Depreciation and amortization expense increased $2.0 million during the
three months ended March 31, 1999, compared to the three months ended
March 31, 1998, primarily due to acquisitions consummated during 1998.
Interest expense increased $.1 million during the quarter ended
March 31, 1999 compared to the quarter ended March 31, 1998. This increase was
primarily due to an increase in outstanding debt for the three months ended
March 31, 1999 compared to the same period of 1998. Average debt outstanding was
$31.8 million during the quarter ended March 31, 1999 compared to $23.9 million
for the quarter ended March 31, 1998. The effective interest rate for the
quarter ended March 31, 1999 was 12.9% compared to 14.7% for the quarter ended
March 31, 1998.
Income taxes decreased $2.5 million during the quarter ended
March 31, 1999, compared to the quarter ended March 31, 1998, primarily due to
lower taxable income in 1999. The Company's effective tax rate for the quarter
ended March 31, 1999 was 40.2% and 39.3% for the quarter ended March 31, 1998,
with the increase primarily attributable to goodwill amortization associated
with acquisitions that are nondeductible for tax purposes.
Liquidity and Capital Resources
Working Capital
Working capital as of March 31, 1999 was $33.0 million compared to
$20.6 million as of December 31, 1998. The Company's primary cash needs
historically have been to fund working capital requirements, make capital
expenditures to replace and expand its drilling rig fleet and for acquisitions.
The Company's ongoing operations have been funded through available cash, cash
provided from operations and borrowings under the Company's line of credit with
Mellon Bank, N.A., as amended (the "Working Capital Line"). To date,
acquisitions have been funded with available cash, borrowings and issuances of
Common Stock and warrants to purchase Common Stock.
The Company had $20.3 million in cash and cash equivalents and no
borrowings under the Working Capital Line as of March 31, 1999, compared to
$10.3 million in cash and cash equivalents and no borrowings under the Working
Capital Line as of December 31, 1998. In March 1999, the Company sold certain
non-strategic assets located in the Appalachian Basin for $5.6 million in cash.
The Company intends to utilize these available cash resources, together with its
cash flow from operations, to continue to fund its operations and to fund its
stock repurchase program of up to $10.0 million.
Net cash provided by operations was $4.8 million and $5.2 million, for
the three months ended March 31, 1999 and 1998, respectively. Such funds were
retained in 1999 and primarily utilized to fund capital expenditures in 1998.
Capital expenditures for the three months ended March 31, 1999 and 1998 were
$1.0 million and $11.4 million, respectively.
- 15 -
<PAGE> 16
Long Term Debt Facilities
Working Capital Line. On June 19, 1998, the Company entered into an
amended Working Capital Line, which now provides for maximum borrowings of up to
$30.0 million. Under the Working Capital Line, up to $1.6 million may be
utilized for letters of credit. Borrowings under the Working Capital Line bear
interest at the lower of the bank's prime rate or a LIBOR-based rate. Borrowings
under the Working Capital Line mature on June 30, 2000 and are secured by all of
the Company's accounts receivable and inventory (excluding the Company's
drilling rigs, drilling equipment or drill pipe). The Working Capital Line
contains covenants and restrictions customary in financial instruments of this
type, including covenants relating to the maintenance of financial ratios,
changes in control of the Company and limits on capital expenditures. As of
March 31, 1999, the Company had no outstanding borrowings under this facility.
Subordinated Notes. On April 11, 1997, the Company issued $25.0 million
principal amount of 12.0% Subordinated Notes due 2001 (the "Subordinated
Notes"). The Subordinated Notes were issued at a 2.0% discount along with
seven-year warrants to purchase 1.2 million shares of Common Stock at an
exercise price of $10.83 per share, of which warrants to purchase 720,000 shares
of Common Stock were exercised in connection with the Company's October 1997
public offering. The Subordinated Notes contain various affirmative and negative
covenants customary in such private placements, including restrictions on
additional indebtedness (unless certain pro forma financial coverage ratios are
met), restrictions on dividends, distributions and other restricted payments.
Promissory Notes. On July 31, 1998, the Company issued $7.8 million
principal amount of unsecured promissory notes. The notes bear interest at 7.0%
and mature on July 31, 2002. The notes were issued in connection with an
acquisition.
Acquisitions
Peterson. On April 9, 1998, the Company acquired Peterson Drilling
Company ("Peterson"), for a total purchase price of $20.4 million in cash, which
the Company funded from cash on hand following the public offering in
October 1997. Peterson's assets included eight drilling rigs, as well as related
drilling equipment, office facilities in Midland, Texas and approximately $4.5
million in net working capital. The acquisition has been accounted for under
the purchase method of accounting. Goodwill of $3.6 million has been recorded
related to this acquisition.
LaMunyon. On June 24, 1998, the Company acquired the land drilling
assets of LaMunyon Drilling Corporation for $12.2 million in cash,
which the Company funded from cash on hand following the Company's public
offering in October 1997. The acquired assets consisted of five land drilling
rigs, related spare parts, office equipment and rolling stock. The acquisition
has been accounted for using the purchase method of accounting. No goodwill was
recorded because the estimated fair market value of the assets acquired exceeded
the purchase price.
- 16 -
<PAGE> 17
Suits. On July 31, 1998, the Company acquired Suits Enterprises, Inc.
("Suits") for a total of approximately $11.1 million, comprised of $2.9 million
in cash, $7.8 million in 7% four-year notes and 100,000 five-year warrants of
Common Stock. Warrants to purchase 75,000 shares of Common Stock are exercisable
at $26.50 per share, and warrants to purchase 25,000 shares of Common Stock are
exercisable at $35.00 per share. Included in the acquisition are Suits' seven
complete drilling rigs plus assorted spare parts, drilling equipment and a fleet
of rolling stock. The acquisition has been accounted for using the purchase
method of accounting. No goodwill was recorded because the estimated fair market
value of the assets acquired exceeded the purchase price.
Stock Repurchase Program
On February 18, 1998, the Board of Directors of the Company approved a
stock repurchase by the Company of up to $10.0 million of Common Stock pursuant
to transactions effected from time to time in the open market. As of
May 3, 1999, the Company had utilized $3.3 million to repurchase 293,900 shares
of Common Stock at an average purchase price of $11.15 per share. The Company
expects to continue this stock repurchase program during 1999.
Future Acquisitions and Capital Needs
Management believes its internally generated cash, availability under
the Working Capital Line and cash balances on hand will be sufficient to meet
its working capital, capital expenditure and debt service requirements for the
next twelve months, including the Company's proposed investment in the joint
venture that could be purchasing the assets of Fracmaster and the repayment of
Norton's debt upon the closing of that transaction. The Company believes that
its strong liquidity position also provides it with the financial flexibility to
react quickly to opportunities in the contract drilling industry, including
opportunities to make strategic acquisitions that the Company deems advisable
given current industry conditions.
Year 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
Year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
The Company's plan to resolve the Year 2000 Issue involves the
following four phases: assessment, remediation, testing and implementation. To
date, the Company has fully completed its assessment of all systems that it
believes could be significantly affected by the Year 2000. The completed
assessment indicated that most of the Company's significant information
technology systems could be affected, particularly the general ledger accounting
system. The Company does not believe that the Year 2000 Issue presents a
material exposure as it relates to the Company's services. In addition, the
Company has gathered information about the Year 2000 compliance status of its
significant suppliers and subcontractors and continues to monitor their
compliance.
- 17 -
<PAGE> 18
For its information technology exposures, to date, the Company is 40%
complete on the remediation phase and expects to complete software reprogramming
and replacement no later than July 31, 1999. Once software is reprogrammed or
replaced for a system, the Company begins testing and implementation. These
phases run concurrently for different systems with all remediated systems
expected to be fully tested and implemented by August 31, 1999 with 100%
completion targeted for October 31, 1999.
The Company has contacted its significant suppliers and subcontractors
and, to date, the Company is not aware of any third parties with a Year 2000
Issue that would materially impact the Company's results of operations,
liquidity or capital resources. However, the Company has no means of ensuring
that third parties will be Year 2000 ready. The inability of third parties to
complete their Year 2000 resolution process in a timely fashion could materially
impact the Company by causing such third parties to fail to timely deliver or
supply needed material and services to or on behalf of the Company, thereby
materially adversely affecting the Company's ability to deliver its services in
a timely and cost-effective manner in accordance with Company standards or by
causing third party customer's operations to temporarily shut-down or delay
operations, thereby materially affecting demand for the Company's services. The
effect of non-compliance by third parties is not determinable.
The Company will utilize both internal and external resources to
reprogram or replace, test and implement the software and operating equipment
for Year 2000 modifications. The total cost of the Year 2000 Project is
estimated at $1.0 million and is being funded through operating cash flows. To
date, the Company has incurred approximately $.4 million for new systems related
to all phases of the Year 2000 Project, which has been capitalized. The total
remaining project costs is attributable to the purchase of new software and
operating equipment, which will also be capitalized.
Management of the Company believes we have an effective program in
place to resolve the Year 2000 Issue in a timely manner. However, the Company
has not yet completed all necessary phases of the Year 2000 Project. Disruptions
in the economy generally resulting from Year 2000 Issues could also materially
adversely affect the Company. The Company could be subject to litigation for
computer systems product failure, including equipment shutdown or failure to
properly date business records. The amount of potential liability and lost
revenue cannot be reasonably estimated at this time.
The Company currently has no contingency plans in place in the event it
does not complete all phases of the Year 2000 Project. The Company plans to
evaluate the status of completion in July 1999 and determine whether such plans
are necessary.
Risks Associated With Forward-Looking Statements
From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995). Words such as "anticipate", "believe", "expect",
"estimate", "project" and similar expressions are intended to identify such
forward-looking statements. Forward-looking statements may be made by management
orally or in writing, including but not limited to, in press releases, as part
of the "Business", "Properties" and "Management's Discussion and Analysis of
Financial Condition and Results of Operation" contained in this report, and in
the Company's other filings with the Securities and Exchange Commission under
the Securities Act of 1933 and the Securities Exchange Act of 1934.
- 18 -
<PAGE> 19
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Such forward-looking statements
are subject to certain risks, uncertainties and assumptions, including without
limitation those identified below. Should one or more of these risks or
uncertainties materialize or should any of the underlying assumptions prove
incorrect, actual results of current and future operations may vary materially
from those anticipated, estimated or projected. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
their dates.
Among the factors that will have a direct bearing on the Company's
results of operations and the contract drilling service industry in which it
operates are changes in the price of oil and natural gas and the volatility of
the contract drilling service industry in general, including the effects of
recent downturns in prices for oil and natural gas; and risks that a
continuation of current industry conditions or further decline in industry
conditions will adversely effect the demand for and pricing of the Company's
services; any difficulties associated with the Company's ability to successfully
integrate recent acquisitions and uncertainties that the Company can complete
its pending transactions which are subject to various regulatory and other
approvals; contractual risk associated with turnkey and footage contracts; the
presence of competitors with greater financial resources; labor shortages;
operating risks inherent in the contract drilling service industry, such as
blowouts, explosions, cratering, sour gas, well fires and spills; domestic and
world-wide political stability and economic growth; risks associated with the
Year 2000 Issue and other risks associated with the Company's successful
execution of internal operating plans as well as regulatory uncertainties and
legal proceedings.
The risks related to the Year 2000 Issue and the dates on which the
Company believes its Year 2000 Project will be completed are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
third-party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved, or that there will not be a
delay in, or increased costs associated with the implementation of the Company's
Year 2000 Project. Specific factors that might cause differences between the
estimates and actual results, include but are not limited to, the availability
and cost of personnel trained in these areas, the ability to locate and correct
all relevant computer codes, timely responses to and corrections by third
parties and suppliers, the ability to implement interfaces between the new
systems and the systems not being replaced and similar uncertainties. Due to the
general uncertainty inherent in the Year 2000 Project, resulting in part from
uncertainty of the Year 2000 readiness of third parties and the interconnection
of global businesses, the Company cannot ensure its ability to timely and cost
effectively resolve problems associated with the Year 2000 Issue that may affect
its operations and business or expose it to third-party liability.
- 19 -
<PAGE> 20
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in several claims arising in the ordinary
course of business. In the opinion of management, all of these claims are
covered by insurance and these matters will not have a material adverse effect
on the Company's financial position.
The Company and its operating subsidiaries are sometimes named as a
defendant in litigation usually relating to personal injuries alleged to result
from negligence. The Company maintains insurance coverage against such claims to
the extent deemed prudent by management.
There can be no assurance that the Company will be able to maintain
adequate insurance in the future at rates it considers reasonable and there can
be no assurance that insurance will continue to be available on terms as
favorable as those that currently exist. The occurrence of an adverse claim in
excess of the coverage limits maintained by the Company could have a material
adverse effect on the Company's financial condition and results of operations.
ITEM 2. CHANGES IN SECURITIES
On February 18, 1998, the Board of Directors of the Company approved a
stock repurchase by the Company of up to $10.0 million of Common Stock pursuant
to transactions effected from time to time in the open market. As of
May 3, 1999, the Company had utilized $3.3 million to repurchase 293,900 shares
of Common Stock at an average purchase price of $11.15 per share. The Company
expects to continue this stock repurchase program during 1999.
- 20 -
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Title or Description
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 - Rights Agreement, dated February 26, 1999, between UTI Energy Corp. and
ChaseMellon Shareholder Services, L.L.C. as Rights Agent (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, dated
February 26, 1999, filed with the Securities and Exchange Commission on
March 4, 1999).
3.2 - Certificate of Designation, Powers, Preferences and Rights of Series I Preferred
Stock, dated February 26, 1999 (incorporated by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K, dated February 26, 1999, filed with
the Securities and Exchange Commission on March 4, 1999).
3.3 - Form of Right Certificate (incorporated by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K, dated February 26, 1999, filed with
the Securities and Exchange Commission on March 4, 1999).
10.1* - Agreement and Plan of Merger dated April 26, 1999 by and among the
Company and Norton Drilling Services, Inc. pursuant to Section 6.01(b)(2) of
Regulation S-K, the Company has omitted certain schedules and annexes to this
agreement relating to shareholders executing irrevocable proxies, certain stock
option grants and disclosure letters relating to representations and warranties.
Such items will be provided to the Commission upon request.
27.1* - Financial Data Schedule.
*Filed herewith.
(b) Reports on 8-K
To report a Shareholder Rights Plan, pursuant to Item 5 of Form
8-K, the Company filed a Form 8-K with the Securities and Exchange
Commission dated February 26, 1999.
</TABLE>
- 21 -
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UTI ENERGY CORP.
(REGISTRANT)
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------- -------------------------------------- ------------------
<S> <C> <C>
/s/ John E. Vollmer III Vice President, Treasurer and
- -------------------------------- Chief Financial Officer May 17, 1999
John E. Vollmer III
Signed on behalf of the registrant and as principal financial officer.
/s/ Bruce Sauers Vice President and Chief
- -------------------------------- Accounting Officer May 17, 1999
Bruce Sauers
</TABLE>
- 22 -
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C> <C>
3.1 - Rights Agreement, dated February 26, 1999, between UTI Energy Corp. and
ChaseMellon Shareholder Services, L.L.C. as Rights Agent (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, dated
February 26, 1999, filed with the Securities and Exchange Commission on
March 4, 1999).
3.2 - Certificate of Designation, Powers, Preferences and Rights of Series I Preferred
Stock, dated February 26, 1999 (incorporated by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K, dated February 26, 1999, filed with
the Securities and Exchange Commission on March 4, 1999).
3.3 - Form of Right Certificate (incorporated by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K, dated February 26, 1999, filed with
the Securities and Exchange Commission on March 4, 1999).
10.1* - Agreement and Plan of Merger dated April 26, 1999 by and among the
Company and Norton Drilling Services, Inc. pursuant to Section 6.01(b) (2) of
Regulation S-K, the Company has omitted certain schedules and annexes to this
agreement relating to shareholders executing irrevocable proxies, certain stock
option grants and disclosure letters relating to representations and warranties.
Such items will be provided to the Commission upon request.
27.1* - Financial Data Schedule.
</TABLE>
- -------
* Filed herewith.
<PAGE> 1
EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER
AMONG
UTI ENERGY CORP.,
NDS ACQUISITION CORP.,
NORTON DRILLING SERVICES, INC. ("NDS")
AND THE PRIMARY STOCKHOLDERS OF NDS
DATED AS OF APRIL 26, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
THE MERGER
1.1 The Merger; Effective Time of the Merger......................................................1
1.2 Closing.......................................................................................2
1.3 Effects of the Merger.........................................................................2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock.......................................................................2
(a) Stock of Sub............................................................................2
(b) Cancellation of Treasury Stock and Related Party Stock...................................3
(c) Exchange Ratio for NDS Common Stock......................................................3
(d) Conversion of Stock Options..............................................................4
(e) Adjustment of Conversion Number..........................................................4
2.2 Exchange of Certificates......................................................................4
(a) Exchange Procedures......................................................................4
(b) Distributions with Respect to Shares Prior to Exchange of Certificates...................5
(c) No Further Ownership Rights in NDS Common Stock..........................................5
(d) No Fractional Shares.....................................................................6
(e) No Liability. ..........................................................................6
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of NDS........................................................7
(a) Organization, Standing and Power........................................................7
(b) Capital Structure.......................................................................7
(c) Authority; No Violations; Consents and Approvals........................................8
(d) SEC Documents..........................................................................10
(e) Information Supplied...................................................................11
(f) Absence of Certain Changes or Events...................................................12
(g) No Undisclosed Material Liabilities....................................................12
(h) No Default.............................................................................13
(i) Compliance with Applicable Laws........................................................13
(j) Litigation.............................................................................13
(k) Taxes..................................................................................14
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
(l) Employee Matters; ERISA................................................................16
(m) Labor Matters..........................................................................19
(n) Intangible Property....................................................................20
(o) Environmental Matters..................................................................21
(p) Opinion of Financial Advisor...........................................................23
(q) State Takeover Statutes; Vote Required.................................................23
(r) Intentionally Omitted..................................................................24
(s) Intentionally Omitted..................................................................24
(t) Insurance..............................................................................24
(u) Brokers................................................................................24
(v) Material Contracts and Agreements......................................................24
(w) Title to Properties....................................................................25
(x) Representations Relating to Sunny Plants, Inc. and Lobell Corporation .................26
3.2 Representations and Warranties of UEC and Sub...............................................26
(a) Organization, Standing and Power.......................................................26
(b) Capital Structure......................................................................26
(c) Authority; No Violations, Consents and Approvals.......................................27
(d) SEC Documents..........................................................................28
(e) Information Supplied...................................................................29
(f) Absence of Certain Changes or Events...................................................29
(g) No Undisclosed Material Liabilities....................................................30
(h) Litigation.............................................................................30
(i) No Vote Required.......................................................................30
(j) Material Contracts and Agreements......................................................30
(k) Broker Fees............................................................................30
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS OF NDS
4.1 Conduct of Business by NDS Pending the Merger...............................................31
(a) Ordinary Course........................................................................31
(b) Dividends; Changes in Stock............................................................31
(c) Issuance of Securities.................................................................31
(d) Governing Documents....................................................................32
(e) No Acquisitions........................................................................32
(f) No Dispositions........................................................................32
(g) No Dissolution, Etc....................................................................32
(h) Certain Employee Matters...............................................................32
(i) Indebtedness; Leases; Capital Expenditures.............................................33
(j) Taxes..................................................................................34
(k) Accounting.............................................................................34
4.2 No Solicitation.............................................................................34
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access to Information.......................................................................36
5.2 NDS Stockholders' Meeting...................................................................37
5.3 Legal Conditions to Merger..................................................................37
5.4 Intentionally Omitted.......................................................................37
5.5 Stock Options...............................................................................37
5.6 Indemnification; Directors' and Officers' Insurance.........................................38
5.7 Agreement to Defend.........................................................................39
5.8 Intentionally Omitted.......................................................................39
5.9 Public Announcements........................................................................39
5.10 Other Actions...............................................................................39
5.11 Advice of Changes; SEC Filings..............................................................39
5.12 Reorganization..............................................................................39
5.13 Intentionally Omitted.......................................................................40
5.14 Letter of NDS's Accountants.................................................................40
5.15 Stock Options...............................................................................40
5.16 Other Benefits..............................................................................40
5.17 Employment Agreements.......................................................................40
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger..................................41
(a) NDS Stockholder Approval...............................................................41
(b) AMEX Listing...........................................................................41
(c) Other Approvals........................................................................41
(d) S-4....................................................................................41
(e) No Injunctions or Restraints...........................................................41
6.2 Conditions of Obligations of UEC and Sub....................................................42
(a) Representations and Warranties.........................................................42
(b) Performance of Obligations of NDS......................................................42
(d) Certifications and Opinion.............................................................42
(e) Good Standing Certificates.............................................................43
(f) Tax Opinion............................................................................43
6.3 Conditions of Obligations of NDS............................................................44
(a) Representations and Warranties.........................................................44
(b) Performance of Obligations of UEC and Sub..............................................44
(c) Certifications and Opinion.............................................................44
(d) Tax Opinion............................................................................45
(e) Fairness Opinion.......................................................................45
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination.................................................................................46
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
7.2 Effect of Termination.......................................................................47
7.3 Amendment...................................................................................50
7.4 Extension; Waiver...........................................................................50
ARTICLE VIII
GENERAL PROVISIONS
8.1 Payment of Expenses.........................................................................50
8.2 Nonsurvival of Representations, Warranties and Agreements...................................50
8.3 Notices.....................................................................................50
8.4 Limited Joinder by Primary Stockholders.....................................................51
(a) General Indemnity by the Primary Stockholders........................................51
(b) Indemnification Basket; Limitation; Effect of Materiality Qualifiers; Pro
Rata Obligation......................................................................52
(c) Waiver of Contribution...............................................................53
(d) Covenant Not to Compete With the Business............................................53
8.5 Interpretation: Certain Definitions........................................................54
8.6 Counterparts................................................................................54
8.7 Entire Agreement; No Third-Party Beneficiaries..............................................54
8.8 Governing Law...............................................................................55
8.9 No Remedy in Certain Circumstances..........................................................55
8.10 Assignment..................................................................................55
8.11 Enforcement of the Agreement................................................................55
</TABLE>
ANNEXES
Annex A - List of Stockholders Executing Irrevocable Proxy and Form of
Irrevocable Proxy
Annex B - List of Employees Receiving Options and Material Terms of Options
-iv-
<PAGE> 6
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Defined in Section
- ------------ ------------------
<S> <C>
Acquisition Proposal...................................................................... 4.2(a)
AMEX...................................................................................... 3.2(c)(iii)
Basket Amount............................................................................. 8.4(b)(i)
CERCLA.................................................................................... 3.1(o)(A)
Certificate of Merger..................................................................... 1.1
Certificates.............................................................................. 2.2(a)
Closing................................................................................... 1.1
Closing Date.............................................................................. 1.2
Code...................................................................................... Recitals
Confidentiality Agreements................................................................ 5.1
Constituent Corporations.................................................................. 1.3(a)
Conversion Number......................................................................... 2.1(c)
Current Balance Sheet..................................................................... 3.1(k)(i)
Damages................................................................................... 8.4(a)
DGCL...................................................................................... 1.1
Effective Time............................................................................ 1.1
Environmental Law......................................................................... 3.1(o)(A)
ERISA..................................................................................... 3.1(l)(i)
Exchange Act.............................................................................. 3.1(c)(iii)
FASB...................................................................................... 4.1(k)
Fractional Dividends...................................................................... 2.2(d)
GAAP...................................................................................... 3.1(d)
Governmental Entity....................................................................... 3.1(c)(iii)
Hazardous Material........................................................................ 3.1(o)(B)
HSR Act................................................................................... 3.2(c)(iii)
Indemnified Liabilities................................................................... 5.6(a)
Indemnified Parties....................................................................... 5.6(a)
Injunction................................................................................ 6.1(e)
IRS....................................................................................... 3.1(k)(ii)
Material Adverse Effect................................................................... 3.1(a)(ii)
Merger.................................................................................... Recitals
Merger Agreement.......................................................................... Preamble
NDS....................................................................................... Preamble
NDS Beneficiary........................................................................... 3.1(l)(i)
NDS Benefit Plans......................................................................... 3.1(l)(i)
NDS Common Stock.......................................................................... 2.1
NDS Disclosure Letter..................................................................... 3.1
NDS ERISA Affiliate....................................................................... 3.1(l)(ii)
NDS Intangible Property................................................................... 3.1(n)
NDS Litigation............................................................................ 3.1(j)
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C>
NDS Order................................................................................. 3.1(j)
NDS Permits............................................................................... 3.1(i)
NDS Representatives....................................................................... 4.2(a)
NDS SEC Documents......................................................................... 3.1(d)
NDS Stock Option.......................................................................... 5.5
NDS Stock Plans........................................................................... 5.5
Notice of Superior Proposal............................................................... 4.2(b)
Options................................................................................... 3.1(b)(ii)
OSHA...................................................................................... 3.1(o)(A)
PBGC...................................................................................... 3.1(l)(iv)
Primary Stockholder or Primary Stockholders............................................... Preamble
Proxy Statement........................................................................... 3.1(c)(iii)
Release................................................................................... 3.1(o)(C)
Released Parties.......................................................................... 8.4(d)
Remedial Action........................................................................... 3.1(o)(D)
Returns................................................................................... 3.1(k)(i)
S-4....................................................................................... 3.1(e)
SEC....................................................................................... 3.1(c))(iii)(A)
Securities Act............................................................................ 3.1(d)
Superior Proposal ........................................................................ 4.2(c)
Survival Period........................................................................... 8.4(b)(ii)
Surviving Corporation..................................................................... 1.3(a)
Sub....................................................................................... Preamble
Subsidiary................................................................................ 2.1(b)
Taxes..................................................................................... 3.1(k)
Termination Fee........................................................................... 7.2(b)
UEC Common Stock.......................................................................... 2.1(c)
UEC ...................................................................................... Preamble
UEC Disclosure Letter..................................................................... 3.2
UEC Indemnified Parties................................................................... 8.4(a)
UEC Litigation............................................................................ 3.2(d)
UEC SEC Documents......................................................................... 3.2(d)
UEC Stock Purchase Rights................................................................. 2.1(c)
Voting Debt............................................................................... 4.1(c)
</TABLE>
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<PAGE> 8
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 26, 1999 (this "Merger
Agreement"), among UTI Energy Corp., a Delaware corporation ("UEC"), NDS
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of UEC
("Sub"), Norton Drilling Services, Inc., a Delaware corporation ("NDS"), and the
stockholders of NDS signatory hereto (the "Primary Stockholders" and each a
"Primary Stockholder").
WHEREAS, the Boards of Directors of UEC, Sub and NDS have each approved
the merger of Sub with and into NDS (the "Merger") upon the terms and subject to
the conditions of this Merger Agreement, thus enabling UEC to acquire all of the
common stock of NDS solely in exchange for common stock of UEC;
WHEREAS, each of the stockholders of NDS listed on Annex A hereto has
executed contemporaneously with the execution of this Merger Agreement an
irrevocable proxy substantially in the form of Annex A hereto.
WHEREAS, at UEC's request, NDS has agreed to grant (2 business days
following announcement of the Merger to the public) the options described on
Annex B hereto to the employees of NDS listed on Annex B;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, UEC, Sub and NDS desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained, the
parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger; Effective Time of the Merger. Upon the terms and
conditions of this Merger Agreement and in accordance with the Delaware General
Corporation Law (the "DGCL"), Sub shall be merged with and into NDS at the
Effective Time (as hereinafter defined). The Merger shall become effective
immediately when a certificate of merger (the "Certificate of Merger"), prepared
and executed in accordance with the relevant provisions of the DGCL is duly
filed with the Secretary of State of the State of Delaware or, if agreed to by
the parties, at such time thereafter as is provided in the Certificate of Merger
(the "Effective Time"). The filing of the
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<PAGE> 9
Certificate of Merger shall be made as soon as practicable after the closing of
the Merger (the "Closing").
1.2 Closing. The Closing shall take place at 10:00 a.m. on a date
to be specified by the parties, which shall be no later than the second business
day after satisfaction (or waiver in accordance with this Merger Agreement) of
the latest to occur of the conditions set forth in Article VI (the "Closing
Date"), at the offices of Fulbright & Jaworski L.L.P., 1301 McKinney, Suite
5100, Houston, Texas, unless another date or place is agreed to in writing by
the parties.
1.3 Effects of the Merger.
(a) At the Effective Time: (i) Sub shall be merged with and
into NDS, the separate existence of Sub shall cease and NDS
shall continue as the surviving corporation (Sub and NDS are
sometimes referred to herein as the "Constituent
Corporations" and NDS is sometimes referred to herein as the
"Surviving Corporation") and the merger shall have such
effects as are set forth in Section 259 of the DGCL; (ii)
the Certificate of Incorporation of NDS shall be amended to
change NDS's authorized shares of capital stock to 1,000
shares, par value $.01 per share, of common stock, and as so
amended shall be the Certificate of Incorporation of the
Surviving Corporation; and (iii) the Bylaws of Sub as in
effect immediately prior to the Effective Time shall be the
Bylaws of the Surviving Corporation.
(b) The directors and officers of NDS at the Effective Time
shall, from and after the Effective Time, be the directors
and officers of the Surviving Corporation and shall serve
until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
common stock, par value $0.01 per share, of NDS ("NDS Common Stock") or capital
stock of Sub:
(a) Stock of Sub. Each share of common stock, par value $.01 per
share, of Sub issued and outstanding immediately prior to
the Effective Time will be converted into one share of
common stock, par value $.01 per share, of the Surviving
Corporation, and the stock of the
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<PAGE> 10
Surviving Corporation issued on that conversion will
constitute all of the issued and outstanding shares of
capital stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Related Party Stock. Each
share of NDS Common Stock and all other shares of capital
stock of NDS that are owned by NDS as treasury stock and any
shares of NDS Common Stock and all other shares of capital
stock of NDS owned in any case by UEC, any entity
controlling UEC or any wholly-owned Subsidiary (as
hereinafter defined) of such entities or by any wholly-owned
Subsidiary of NDS shall be canceled and retired and shall
cease to exist and no UEC Common Stock or cash in lieu of
fractional shares shall be delivered or deliverable in
exchange therefor. As used in this Merger Agreement, the
word "Subsidiary" means, with respect to any party, any
corporation or other organization, whether incorporated or
unincorporated, of which: (i) such party or any other
Subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which are
held by such party or any Subsidiary of such party that do
not have a majority of the voting interest in such
partnership); or (ii) at least a majority of the securities
or other interests having by their terms ordinary voting
power to elect a majority of the Board of Directors or
others performing similar functions with respect to such
corporation or other organization is, directly or
indirectly, owned or controlled by such party or by any one
or more of its Subsidiaries, or by such party and any one or
more of its Subsidiaries.
(c) Exchange Ratio for NDS Common Stock. Subject to the
provisions of Section 2.2(d) hereof, each share of NDS
Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled in
accordance with Section 2.1(b)) shall, at the Effective Time
and without the requirement of any action by the holder
thereof, be exchanged for and converted into .2631579 (the
"Conversion Number") shares of common stock, par value $.001
per share, of UEC ("UEC Common Stock"). All references in
this Merger Agreement to the UEC Common Stock to be received
pursuant to the Merger shall be deemed to include the stock
purchase rights established pursuant to that certain Rights
Agreement dated February 26, 1999, by and among USC and
Chase Mellon Shareholder Services, L.L.C. (The "UEC Stock
Purchase Rights"). All such shares of NDS Common Stock, when
so exchanged and converted, shall no longer be outstanding
and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights
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<PAGE> 11
with respect thereto, except the right to receive a
certificate representing the shares of UEC Common Stock and
cash in lieu of fractional shares of UEC Common Stock as
contemplated by Section 2.2(d), upon the surrender of such
certificate representing shares of NDS Common Stock in
accordance with Section 2.2, without interest.
(d) Conversion of Stock Options. Each outstanding NDS Stock
Option (as defined in Section 5.5) shall be converted as
provided in Section 5.5.
(e) Adjustment of Conversion Number. If, subsequent to the date
of this Agreement but prior to the Effective Time, the
number of shares of UEC Common Stock issued and outstanding
is changed as a result of a stock split, reverse stock
split, recapitalization, reclassification, exchange of
shares, or stock or cash dividends or other similar
transaction, the Conversion Number and other items dependent
thereon shall be appropriately and equitably adjusted
herein.
2.2 Exchange of Certificates.
(a) Exchange Procedures. As soon as reasonably practicable after
the Effective Time, UEC shall mail to each holder of record
of a certificate or certificates which, immediately prior to
the Effective Time, represented outstanding shares of NDS
Common Stock (the "Certificates") (other than NDS, UEC, any
entity controlling UEC or any wholly owned Subsidiaries of
any such entities): (i) a letter of transmittal (which shall
specify that delivery shall be effected and risk of loss and
title to the Certificates shall pass only upon delivery of
the Certificates to UEC and shall be in such form and have
such other provisions as UEC may reasonably specify); and
(ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing
shares of UEC Common Stock and any cash in lieu of a
fractional share of UEC Common Stock. Upon surrender of a
Certificate for cancellation to UEC or to such other agent
or agents as may be appointed by UEC and reasonably
acceptable to NDS, together with such letter of transmittal,
duly executed, and any other required documents, the holder
of such Certificate shall be entitled to receive in exchange
therefor a certificate representing that number of whole
shares of UEC Common Stock which such holder has the right
to receive pursuant to the provisions of this Article II and
any cash in lieu of fractional shares of UEC Common Stock as
contemplated by Section 2.2(d), and the Certificate so
surrendered shall forthwith be canceled. In the event of a
transfer of ownership of NDS Common Stock that is not
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<PAGE> 12
registered in the transfer records of NDS, a certificate
representing the appropriate number of shares of UEC Common
Stock may be issued to a transferee if the Certificate
representing such NDS Common Stock is presented to UEC
accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the
certificate representing shares of UEC Common Stock and cash
in lieu of any fractional shares of UEC Common Stock as
contemplated by this Section 2.2 and all dividends or other
distributions thereon with a record date after the Effective
Time as contemplated by Section 2.2(b).
(b) Distributions with Respect to Shares Prior to Exchange of
Certificates. No dividends or other distributions with
respect to UEC Common Stock declared or made after the
Effective Time with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate
with respect to the UEC Common Stock represented thereby as
a result of the exchange and conversion provided in Section
2.1(b), and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.2(d)
until the holder of such Certificate shall surrender such
Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be
paid to the holder thereof, without interest: (i) at the
time of such surrender, the amount of any cash payable in
lieu of a fractional share of UEC Common Stock to which such
holder is entitled pursuant to Section 2.2(d) and the amount
of dividends or other distributions with a record date after
the Effective Time theretofore paid with respect to such
whole shares of UEC Common Stock; and (ii) at the
appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time
but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of UEC
Common Stock.
(c) No Further Ownership Rights in NDS Common Stock. All shares
of UEC Common Stock issued in exchange for and upon the
conversion of NDS Common Stock in accordance with the terms
hereof (including any cash paid pursuant to Section 2.2(b)
or 2.2(d)) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of NDS
Common Stock, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any
other distributions with a record date prior to the
Effective Time that
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<PAGE> 13
may have been declared or made by NDS on such shares of NDS
Common Stock in accordance with the terms of this Merger
Agreement or prior to the date hereof and which remain
unpaid at the Effective Time, and after the Effective Time
there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the
shares of NDS Common Stock that were outstanding immediately
prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided
in this Article II.
(d) No Fractional Shares. No certificates or scrip representing
fractional shares of UEC Common Stock shall be issued
pursuant to this Article II, and, except as provided in this
Section 2.2(d), no dividend or other distribution, stock
split or interest shall relate to any such fractional
security, and such fractional interests shall not entitle
the owner thereof to vote or to any rights of a security
holder of UEC. In lieu of any fractional security, UEC shall
pay to each holder of shares of NDS Common Stock who would
otherwise have been entitled to a fraction of a share of UEC
Common Stock pursuant to this Article II, an amount in cash
(without interest) equal to such holder's proportionate
interest in the sum of (i) the fraction of a share of UEC
Common Stock to which such holder would otherwise have been
entitled, multiplied by $10.00, and (ii) the aggregate
dividends or other distributions that are payable with
respect to such shares of UEC Common Stock pursuant to
Section 2.2(b) (such dividends and distributions being
herein called the "Fractional Dividends"). For purposes of
determining whether a holder of shares of NDS Common Stock
is to receive payment in lieu of fractional shares, all
shares of NDS Common Stock held of record by such holder
shall be aggregated.
(e) No Liability. Neither NDS nor UEC shall be liable to any
holder of shares of NDS Common Stock or UEC Common Stock, as
the case may be, for such shares (or dividends or
distributions with respect thereto) or cash in lieu of
fractional shares of UEC Common Stock delivered to a public
official pursuant to any applicable abandoned property,
escheat or similar law.
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<PAGE> 14
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of NDS. Subject to the
exceptions set forth in the disclosure letter to be delivered to UEC and Sub in
connection herewith (the "NDS Disclosure Letter"), NDS represents and warrants
to UEC and Sub as follows:
(a) Organization, Standing and Power.
(i) Each of NDS and its Subsidiaries is a corporation, duly
organized, validly existing and in good standing under
the laws of its state of incorporation, has all
requisite corporate power and authority to own, lease
and operate its properties and to carry on its business
as now being conducted, and is duly qualified and in
good standing to do business in each jurisdiction in
which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such
qualification necessary, other than where the failure to
be so organized or so to qualify (individually or in the
aggregate) would not have a Material Adverse Effect (as
defined below) on NDS. NDS has delivered to UEC complete
and correct copies of its certificate of incorporation
and bylaws. Section 3.1(a) of the NDS Disclosure Letter
sets forth each direct, or indirect, Subsidiary of NDC
and its jurisdiction of incorporation.
(ii) As used in this Merger Agreement a "Material Adverse
Effect" shall mean any effect or change that is or would
be materially adverse to the business, operations,
assets, condition (financial or otherwise) or results of
operations of (i) in respect of NDS, NDS and its direct
and indirect Subsidiaries, taken as a whole, in the
amount of $25,000 (except that solely with respect to
Sections 6.2(a) and 7.1(c), such amount shall be
$250,000) and (ii) in respect of UEC, UEC and all of its
direct and indirect Subsidiaries taken as a whole;
provided, however, a Material Adverse Effect shall not
include (A) any effect or change, including changes in
national or international economic conditions, relating
to or affecting the United States land contract drilling
industry as a whole (including a decline in United
States or worldwide oil and gas commodity prices), (B)
changes, or possible changes, in foreign, Federal, state
or local statutes and regulations or (C) any action
taken or required to be taken to satisfy any requirement
imposed in connection with the review of the Merger
under the HSR Act.
(b) Capital Structure.
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<PAGE> 15
(i) Section 3.1(b)(i) of the NDS Disclosure Letter sets
forth the authorized, issued and outstanding capital
stock of NDS and each Subsidiary as well as any other
securities (including debt securities) of NDS or its
Subsidiaries. Except as set forth on Section 3.1(b)(i)
to the NDS Disclosure Letter, all outstanding shares of
capital stock of NDS and its Subsidiaries have been duly
authorized and validly issued and are fully paid and
non-assessable and were not issued in violation of any
preemptive rights or other preferential rights of
subscription or purchase other than those that have been
waived or otherwise cured or satisfied and all such
shares owned by NDS, or a direct or indirect wholly
owned Subsidiary of NDS, are free and clear of all
liens, charges, encumbrances, claims and options of any
nature.
(ii) Section 3.1(b)(ii) of the NDS Disclosure Letter sets
forth the material terms (including exercise price,
vesting schedule, date of grant, date of expiration and
number of shares of NDS Common Stock or other securities
underlying the securities) underlying all options,
warrants, rights, commitments (including pre-emptive
rights) or agreements (collectively, "Options") to which
NDS or any Subsidiary of NDS is bound to issue, deliver,
sell, purchase, redeem or acquire or cause to be issued,
delivered, sold, purchased, redeemed or acquired, shares
of NDS Common Stock, capital stock of a Subsidiary or
any other securities of NDS or its Subsidiaries.
(iii) There are not as of the date hereof, and there will not
be at the Effective Time, any stockholder agreements,
voting trusts or other agreements or understandings
(except for proxies being signed as set forth in Annex
A) to which NDS is a party or by which it is bound
relating to the voting of any shares of the capital
stock of NDS. There are no restrictions on NDS to vote
the capital stock of any of its Subsidiaries.
(c) Authority; No Violations; Consents and Approvals.
(i) The Board of Directors of NDS has approved the Merger
and this Merger Agreement, by vote of the directors with
no negative vote, and declared the Merger and this
Merger Agreement to be in the best interests of the
stockholders of NDS. The directors of NDS have advised
NDS and UEC that they intend to vote or cause to be
voted all of the shares of NDS Common Stock for which
they have voting power in favor of approval of the
Merger and this Merger Agreement. NDS has all requisite
corporate power and authority to enter
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<PAGE> 16
into this Merger Agreement and, subject, with respect to
consummation of the Merger, to approval of this Merger
Agreement and the Merger by the stockholders of NDS in
accordance with the DGCL, to consummate the transactions
contemplated hereby. The execution and delivery of this
Merger Agreement and the consummation of the
transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part
of NDS, subject, with respect to consummation of the
Merger, to approval of this Merger Agreement and the
Merger by the stockholders of NDS in accordance with the
DGCL. This Merger Agreement has been duly executed and
delivered by NDS and, subject, with respect to
consummation of the Merger, to approval of this Merger
Agreement and the Merger by the stockholders of NDS in
accordance with the DGCL, and assuming this Merger
Agreement constitutes the valid and binding obligation
of UEC and Sub, constitutes a valid and binding
obligation of NDS enforceable in accordance with its
terms, subject, as to enforceability, to bankruptcy,
insolvency, reorganization and other laws of general
applicability relating to or effecting creditors' rights
and to general principles of equity and limitations
imposed on indemnity obligations by applicable federal
and state securities laws.
(ii) Except as set forth on Section 3.1(c)(ii) to the NDS
Disclosure Letter, the execution and delivery of this
Merger Agreement by NDS does not, and the consummation
by NDS of the transactions contemplated hereby and
compliance with the provisions hereof will not, conflict
with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a
material benefit under, or result in the creation of any
lien, security interest, charge or encumbrance upon any
of the properties or assets of NDS or any of its
Subsidiaries under, any provision of (A) the Certificate
of Incorporation or Bylaws of NDS or any provision of
the comparable charter or organizational documents of
any of its Subsidiaries, (B) any loan or credit
agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession,
franchise or license applicable to NDS or any of its
Subsidiaries or (C) assuming the consents, approvals,
authorizations or permits and filings or notifications
referred to in Section 3.1(c)(ii) to the NDS Disclosure
Letter and in
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<PAGE> 17
subparagraph (iii) of this Section 3.1(c) are duly and
timely obtained or made and the approval of the Merger
and this Merger Agreement by the stockholders of NDS has
been obtained, any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to NDS or
any of its Subsidiaries or any of their respective
properties or assets, other than, in the case of clause
(B) or (C), any such conflicts, violations, defaults,
rights, liens, security interests, charges or
encumbrances that, individually or in the aggregate,
would not have a Material Adverse Effect on NDS,
materially impair the ability of NDS to perform its
obligations hereunder or prevent in any material respect
the consummation of any of the transactions contemplated
hereby.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or permit
from, any U.S. or non-U.S. court, administrative agency
or commission or other governmental authority or
instrumentality (a "Governmental Entity"), is required
by, or with respect to, NDS or any of its Subsidiaries
in connection with the execution and delivery of this
Merger Agreement by NDS or the consummation by NDS of
the transactions contemplated hereby, as to which the
failure to obtain or make would have a Material Adverse
Effect, except for: (A) the filing with the Securities
and Exchange Commission (the "SEC") of (1) a proxy
statement in preliminary and definitive form relating to
the meeting of NDS's stockholders to be held in
connection with the Merger (the "Proxy Statement") and
(2) such reports under Section 13(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
and such other compliance with the Exchange Act and the
rules and regulations thereunder, as may be required in
connection with this Merger Agreement and the
transactions contemplated hereby; (B) the filing of the
Certificate of Merger with the Secretary of State of the
State of Delaware; (C) such filings and approvals as may
be required by any applicable state securities, "blue
sky" or takeover laws, or environmental laws or (D) the
filing of a premerger notification report by NDS under
the HSR Act (if required by NDS), and the expiration or
termination of the applicable waiting period with
respect thereto.
(d) SEC Documents. NDS has made available to UEC (or such
information was readily accessible through the SEC Edgar
Website) a true and complete copy of each report, schedule,
registration
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<PAGE> 18
statement and definitive proxy statement filed by NDS with
the SEC since December 31, 1995 and prior to the date of
this Merger Agreement (the "NDS SEC Documents") which are
all the documents that NDS was required to file with the SEC
since such date. As of their respective dates, the NDS SEC
Documents complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder
applicable to such NDS SEC Documents, and none of the NDS
SEC Documents contained, when filed, any untrue statement of
a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The consolidated financial statements
of NDS included in the NDS SEC Documents complied as to form
in all material respects with the published rules and
regulations of the SEC with respect thereto, were prepared
in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto
or, in the case of the unaudited statements, as permitted by
Rule 10-01 of Regulation S-X of the SEC) and fairly present
in accordance with applicable requirements of GAAP (subject,
in the case of the unaudited statements, to normal year-end
adjustments and other adjustments discussed therein) the
consolidated financial position of NDS and its consolidated
Subsidiaries as of their respective dates and the
consolidated results of operations and the consolidated cash
flows of NDS and its consolidated Subsidiaries for the
periods presented therein.
(e) Information Supplied. None of the information supplied or to
be supplied by NDS for inclusion or incorporation by
reference in the Registration Statement on Form S-4 to be
filed with the SEC in connection with the issuance of shares
of UEC Common Stock in the Merger (the "S-4") will, at the
time the S-4 is filed with the SEC or when it becomes
effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading, and none of the
information supplied or to be supplied by NDS and included
or incorporated by reference in the Proxy Statement will, at
the date mailed to stockholders of NDS or at the time of the
meeting of such stockholders to be held in connection with
the Merger, contain any untrue statement of a material fact
or omit to state any material fact required to be stated
therein or necessary in order to make the statements
therein, in light
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<PAGE> 19
of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any
event with respect to NDS or any of its Subsidiaries, or
with respect to other information supplied by NDS for
inclusion in the Proxy Statement or S-4, shall occur that is
required to be described in an amendment of, or a supplement
to, the Proxy Statement or the S-4, such event shall be so
described, and such amendment or supplement shall be
promptly filed with the SEC and, as required by law,
disseminated to the stockholders of NDS. The Proxy
Statement, insofar as it relates to NDS or its Subsidiaries
or other information supplied by NDS for inclusion therein,
will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations
thereunder, except that no representations or warranties are
made by NDS with respect to statements made or incorporated
by reference therein based on information supplied by UEC or
any of its Subsidiaries.
(f) Absence of Certain Changes or Events. Except as disclosed
in, or reflected in the financial statements included in,
the NDS SEC Documents or on Section 3.1(f) to the NDS
Disclosure Letter, or except as contemplated by this Merger
Agreement, since February 28, 1999, there has not been: (i)
any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with
respect to any of NDS's capital stock; (ii) any amendment of
any material term of any outstanding equity security of NDS
or any Subsidiary; (iii) any repurchase, redemption or other
acquisition by NDS or any Subsidiary of any outstanding
shares of capital stock or other equity securities of, or
other ownership interests in, NDS or any Subsidiary, except
as contemplated by NDS Benefit Plans; (iv) any material
change in any method of accounting or accounting practice by
NDS or any Subsidiary; or (v) a Material Adverse Effect with
respect to NDS.
(g) No Undisclosed Material Liabilities. Except as disclosed in
the NDS SEC Documents or on Section 3.1(g) to the NDS
Disclosure Letter, there are no liabilities of NDS or any of
its Subsidiaries of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise,
that would have a Material Adverse Effect on NDS, other
than: (i) liabilities adequately provided for on the Current
Balance Sheet; (ii) liabilities incurred in the ordinary
course of business since February 28, 1999; (iii)
liabilities under this Merger Agreement; and (iv) except as
disclosed on Section 3.1(l)(i) to the NDS Disclosure Letter.
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<PAGE> 20
(h) No Default. Neither NDS nor any of its Subsidiaries is in
default or violation (and no event has occurred which, with
notice or the lapse of time or both, would constitute a
default or violation) of any term, condition or provision of
(i) in the case of NDS and its Subsidiaries, their
respective charter and bylaws, (ii) except as disclosed in
Section 3.1(h) to the NDS Disclosure Letter, any note, bond,
mortgage, indenture, license, agreement or other instrument
or obligation to which NDS or any of its Subsidiaries is now
a party or by which NDS or any of its Subsidiaries or any of
their respective properties or assets may be bound or (iii)
any order, writ, injunction, decree, statute, rule or
regulation applicable to NDS or any of its Subsidiaries,
except in the case of (ii) and (iii) for defaults or
violations which in the aggregate would not have a Material
Adverse Effect on NDS.
(i) Compliance with Applicable Laws. NDS and its Subsidiaries
hold all permits, licenses, variances, exemptions, orders,
franchises and approvals of all Governmental Entities
necessary for the lawful conduct of their respective
businesses (the "NDS Permits"), except where the failure so
to hold would not have a Material Adverse Effect on NDS. NDS
and its Subsidiaries are in compliance with the terms of the
NDS Permits, except where the failure so to comply would not
have a Material Adverse Effect on NDS. Except as disclosed
in the NDS SEC Documents or as set forth on Section 3.1(i)
to the NDS Disclosure Letter, the businesses of NDS and its
Subsidiaries are not being conducted in violation of any
law, ordinance or regulation of any Governmental Entity,
except for possible violations which would not have a
Material Adverse Effect on NDS. Except as set forth on
Section 3.1(i) to the NDS Disclosure Letter, no
investigation or review by any Governmental Entity with
respect to NDS or any of its Subsidiaries is pending or, to
the best knowledge of NDS, threatened, other than those the
outcome of which would not have a Material Adverse Effect on
NDS.
(j) Litigation. Except as disclosed in the NDS SEC Documents or
in the NDS litigation report included in Section 3.1(j) of
the NDS Disclosure Letter, there is no (i) suit, action or
proceeding pending, or, to the best knowledge of NDS,
threatened against or affecting NDS or any Subsidiary of NDS
("NDS Litigation"), or (ii) judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator
outstanding against NDS or any Subsidiary of NDS ("NDS
Order"), that could (in any case) have a Material Adverse
Effect on NDS or prevent NDS from consummating the
transactions contemplated by this Merger Agreement.
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<PAGE> 21
(k) Taxes.
(i) Except as set forth on Section 3.1(k)(i) to the NDS
Disclosure Letter, each of NDS, each of its Subsidiaries
and any affiliated, combined or unitary group of which
any such corporation is or was a member has (A) timely
(taking into account any extensions) filed in correct
form all federal and all material state, local and
non-U.S. returns, declarations, reports, estimates,
information returns and statements ("Returns") required
to be filed by or with respect to it in respect of any
Taxes (as hereinafter defined), (B) timely paid all
Taxes that are due and payable (except for audit
adjustments that would not have a Material Adverse
Effect on NDS in the aggregate or to the extent that
liability therefor is reserved for in NDS's unaudited
balance sheet at February 28, 1999 included in the most
recent Quarterly Report on Form 10-Q of NDS (the
"Current Balance Sheet")) for which NDS or any of its
Subsidiaries may be liable, (C) established reserves
that are included in the Current Balance Sheet that are
adequate for the payment of all Taxes not yet due and
payable with respect to the results of operations of NDS
and its Subsidiaries through the date of the Current
Balance Sheet, and (D) complied in all respects with all
applicable laws, rules and regulations relating to the
payment and withholding of Taxes and has in all respects
timely withheld from employee wages and paid over to the
proper governmental authorities all amounts required to
be so withheld and paid over, except where such failure
to comply or to withhold would not have a Material
Adverse Effect on NDS.
(ii) Section 3.1(k)(ii) to the NDS Disclosure Letter sets
forth the last taxable period through which the federal
income Tax Returns of NDS and any of its Subsidiaries
have been examined by the Internal Revenue Service
("IRS") or otherwise closed. Except to the extent being
contested in good faith, all deficiencies asserted as a
result of such examinations and any examination by any
applicable state, local or non-U.S. taxing authority
have been paid, fully settled or adequately provided for
in the Current Balance Sheet. Except as set forth in the
NDS SEC Documents or as set forth in Section 3.1(k)(ii)
to the NDS Disclosure Letter, no federal, state, local
or non-U.S. Tax audits or other administrative
proceedings or court proceedings are presently
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<PAGE> 22
pending with regard to any Taxes for which NDS or any of
its Subsidiaries would be liable, and no deficiency for
any such Taxes has been proposed, asserted or assessed
pursuant to any such examination against NDS or any of
its Subsidiaries by any federal, state, local or
non-U.S. taxing authority with respect to any period.
(iii) Except as disclosed on Section 3.1(k)(iii) to the NDS
Disclosure Letter, neither NDS nor any of its
Subsidiaries has executed or entered into (or prior to
the close of business on the Closing Date will execute
or enter into) with the IRS or any other taxing
authority (A) any agreement or other document extending
or having the effect of extending the period for
assessments or collection of any Taxes for which NDS or
any of its Subsidiaries would be liable or (B) a closing
agreement pursuant to Section 7121 of the Code, or any
predecessor provision thereof or any similar provision
of state, local or non-U.S. Tax law that relates to the
assets or operations of NDS or any of its Subsidiaries.
(iv) Except as disclosed on Section 3.1(k)(iv) to the NDS
Disclosure Letter, there are no liens or security
interests on any of the assets of NDS or any of its
Subsidiaries that arose in connection with any failure
or alleged failure to pay any Tax other than for Taxes
which are not yet delinquent.
(v) Except as disclosed on Section 3.1(k)(v) to the NDS
Disclosure Letter, neither NDS nor any of its
Subsidiaries is a party to an agreement that provides
for the payment of any amount that would constitute a
"parachute payment" within the meaning of Section 280G
of the Code.
(vi) Neither NDS nor any of its Subsidiaries has made an
election under 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 NDS
or any of its Subsidiaries.
(vii) Except as set forth in NDS SEC Documents or as disclosed
on Section 3.1(k)(vii) to the NDS Disclosure Letter,
neither NDS nor any of its Subsidiaries is a party to,
is bound by or has any obligation under any tax sharing
agreement, tax indemnity agreement or similar agreement
or arrangement.
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<PAGE> 23
(viii) Except as disclosed on Section 3.1(k)(viii) to the NDS
Disclosure Letter, neither NDS nor any of its
Subsidiaries has any liability for Taxes under Treas.
Reg. Section 1.1502-6, or any similar provision of
state, local or non-U.S. law, except for Taxes of the
affiliated group of which NDS is the common parent
corporation, within the meaning of Section 1504(a)(1) of
the Code or any similar provision of state, local or
non-U.S. law.
(ix) Neither NDS nor any of its Subsidiaries has participated
in any international boycott within the meaning of
Section 999 of the Code.
(x) Except as disclosed on Section 3.1(k)(x) to the NDS
Disclosure Letter and minor locations not material to
the business of NDS and its U.S. Subsidiaries, neither
NDS nor any of its Subsidiaries has had a permanent
establishment in any foreign country, as defined in any
applicable treaty or convention between the United
States and such foreign country.
(xi) Neither NDS nor any of its Subsidiaries has been a
United States real property holding corporation within
the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii)
of the Code.
For purposes of this Merger Agreement, "Taxes" shall mean all federal,
state, local, non-U.S. and other taxes, charges, fees, levies, imposts, duties,
licenses or other assessments, together with any interest, penalties, additions
to tax or additional amounts imposed by any taxing authority.
(l) Employee Matters; ERISA.
(i) Benefit Plans. Section 3.1(l)(i) to the NDS Disclosure
Letter contains a true and complete list and description
of each of the following items: each employee benefit
plan, program or arrangement covering any current or
former officer, director, employee or independent
contractor of NDS (or any of its Subsidiaries) or any of
their dependents or beneficiaries (each, a "NDS
Beneficiary") including, but not limited to, any
"employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), whether or not terminated or
covered by ERISA, if NDS or any of its Subsidiaries
could have statutory
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<PAGE> 24
or contractual liability with respect thereto on or
after the date hereof. The items described above,
together with each management, employment, deferred
compensation, severance, change in control, bonus or
other contract for personal services with or covering
any NDS Beneficiary, whether or not terminated, if NDS
or any of its Subsidiaries could have statutory or
contractual liability with respect thereto on or after
the date hereof, are referred to collectively herein as
the "NDS Benefit Plans."
(ii) Contributions and Payments. All material contributions
and other material payments required to have been made
by NDS or any entity required to be aggregated therewith
pursuant to Code Section 414 (a "NDS ERISA Affiliate")
with respect to any NDS Benefit Plan (or to any person
pursuant to the terms thereof) have been or will be
timely made and all such amounts properly accrued
through the date of this Merger Agreement have been
reflected in the financial statements of NDS included in
the NDS SEC Documents.
(iii) Qualification; Compliance. Each NDS Benefit Plan that is
intended to be "qualified" within the meaning of Code
Section 401(a) has been determined by the IRS to be so
qualified or the applicable remedial period applicable
to the Plan will not have ended prior to the Effective
Time, and, to the best knowledge of NDS, no event or
condition exists or has occurred that would reasonably
be expected to result in the revocation or denial of any
such determination which would have a Material Adverse
Effect on NDS. With respect to each NDS Benefit Plan,
NDS and each NDS ERISA Affiliate are in compliance with,
and each NDS Benefit Plan and related source of benefit
payment is and has been operated in compliance with, all
applicable laws, rules and regulations governing such
plan or source, including, without limitation, ERISA,
the Code and applicable local law (including non-U.S.
law), except for violations that would not have a
Material Adverse Effect on NDS. To the best knowledge of
NDS, except as set forth in Section 3.1(l)(iii) to the
NDS Disclosure Letter, no NDS Benefit Plan is subject to
any ongoing audit, investigation, or other
administrative proceeding of the IRS, the Department of
Labor, or any other federal, state, or local
governmental entity or is scheduled to be subject to
such an audit, investigation or proceeding.
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<PAGE> 25
(iv) Liabilities. With respect to the NDS Benefit Plans,
individually and in the aggregate, and, to the best
knowledge of NDS, there exists no condition or set of
circumstances that could subject NDS or any NDS ERISA
Affiliate to any liability arising under the Code, ERISA
or any other applicable law (including, without
limitation, any liability to or under any such plan or
to the Pension Benefit Guaranty Corporation ("PBGC"), or
under any indemnity agreement to which NDS or any NDS
ERISA Affiliate is a party), which liability, excluding
liability for benefit claims, funding obligations and
PBGC insurance premiums, each payable in the ordinary
course, would have a Material Adverse Effect on NDS. No
claim, action or litigation has been made, commenced or,
to the best knowledge of NDS, threatened, by or against
NDS or any of its Subsidiaries with respect to any NDS
Benefit Plan (other than for benefits or PBGC premiums
payable in the ordinary course) that would have a
Material Adverse Effect on NDS.
(v) Retiree Welfare Plans. Except as disclosed in Section
3.1(l)(v) to the NDS Disclosure Letter, no NDS Benefit
Plan that is a "welfare plan" (within the meaning of
ERISA Section 3(1)) provides benefits for any retired or
former employees (other than as required pursuant to
ERISA Section 601).
(vi) Payments Resulting from Merger. Except as disclosed on
Section 3.1(l)(vi) to the NDS Disclosure Letter, the
consummation or announcement of any transaction
contemplated by this Merger Agreement will not (either
alone or upon the occurrence of any additional or
further acts or events) result in (A) any payment
(whether of severance pay or otherwise) becoming due
from NDS or any of its Subsidiaries to any NDS
Beneficiary or to the trustee under any "rabbi trust" or
similar arrangement, or (B) any benefit under any NDS
Benefit Plan being established or increased, or becoming
accelerated, vested or payable.
(vii) Funded Status of Plans. Each NDS Benefit Plan that is
subject to either the minimum funding requirements of
ERISA Section 302 or to Title IV of ERISA has assets
that, as of the date hereof, have a fair market value
not less than the present value of the accrued benefit
obligations thereunder on a termination basis, as of the
date hereof, based on the
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<PAGE> 26
actuarial methods, tables and assumptions utilized by
such plan's independent actuary in preparing such plan's
most recently prepared actuarial valuation report,
except to the extent that applicable law would require
the use of different actuarial assumptions if such plan
was to be terminated as of the date hereof, in which
case those different assumptions shall apply for
purposes of this representation. NDS and its
Subsidiaries have no unfunded liabilities, as determined
under local funding requirements, with respect to any
NDS Benefit Plans that cover such non-U.S. employees
which would, in the aggregate, have a Material Adverse
Effect on NDS.
(viii) Multiemployer Plans. Except as described on Section
3.1(l)(viii) to the NDS Disclosure Letter, no NDS
Benefit Plan is or was a "multiemployer plan" (within
the meaning of ERISA Section 4001(a)(3)), a multiple
employer plan described in Code Section 413(c), or a
"multiple employer welfare arrangement" (within the
meaning of ERISA Section 3(40)). Except as disclosed in
Section 3.1(l)(viii) to the NDS Disclosure Letter,
neither NDS nor any NDS ERISA Affiliate has been
obligated to contribute to, or otherwise has or has had
any liability with respect to, any multiemployer plan,
multiple employer plan, or multiple employer welfare
arrangement.
(m) Labor Matters. Except as set forth in Section 3.1(m) to the
NDS Disclosure Letter,
(i) neither NDS nor any of its Subsidiaries is a party to
any collective bargaining agreement or other current
labor agreement with any labor union or organization,
and to the knowledge of NDS and its Subsidiaries there
is no current union representation dispute involving
employees of NDS or any of its Subsidiaries nor does NDS
or any of its Subsidiaries know of any activity or
proceeding of any labor organization (or representative
thereof) or employee group (or representative thereof)
to organize any such employees;
(ii) there is no unfair labor practice charge or grievance
arising out of a collective bargaining agreement or
other grievance procedure against NDS or any of its
Subsidiaries pending, or, to the knowledge of NDS or any
of its Subsidiaries, threatened, that has, or would
have, a Material Adverse Effect on NDS;
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<PAGE> 27
(iii) there is no complaint, lawsuit or proceeding in any
forum by or on behalf of any present or former employee,
any applicant for employment or any classes of the
foregoing alleging breach of any express or implied
contract of employment, any law or regulation governing
employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in
connection with the employment relationship against NDS
or any of its Subsidiaries pending, or, to the knowledge
of NDS or any of its Subsidiaries, threatened, that has,
or would have, a Material Adverse Effect on NDS;
(iv) there is no strike, dispute, slowdown, work stoppage or
lockout pending, or, to the knowledge of NDS or any of
its Subsidiaries, threatened, against or involving NDS
or any of its Subsidiaries that has, or could have, a
Material Adverse Effect on NDS;
(v) NDS and each of its Subsidiaries are in compliance with
all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages,
hours of work and occupational safety and health, except
for non-compliance that does not have, and would not
have, a Material Adverse Effect on NDS; and
(vi) there is no proceeding, claim, suit, action or
governmental investigation pending or, to the knowledge
of NDS or any of its Subsidiaries, threatened, in
respect to which any current or former director,
officer, employee or agent of NDS or any of its
Subsidiaries is or may be entitled to claim
indemnification from NDS or any of its Subsidiaries (A)
pursuant to their respective charters or bylaws, (B) as
provided in any indemnification agreement to which NDS
or any Subsidiary of NDS is a party or (C) pursuant to
applicable law that has, or would have, a Material
Adverse Effect on NDS.
(n) Intangible Property. NDS and its Subsidiaries possess or
have adequate rights to use all trademarks, trade names,
patents, service marks, brand marks, brand names, computer
programs, database, industrial designs, know how, trade
secrets, copyrights and other intellectual property rights
that are material to the condition or conduct of the
business operations of NDS and its Subsidiaries
(collectively, the "NDS Intangible Property"). Except as set
forth on Section 3.1(n) to the NDS Disclosure Letter, all of
the NDS Intangible Property is owned by NDS or its
Subsidiaries free and
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<PAGE> 28
clear of any and all liens, claims or encumbrances, except
those the failure to so own would not have a Material
Adverse Effect on NDS. To the knowledge of NDS, the
operation of the businesses of each of NDS or its
Subsidiaries does not, in any material respect, conflict
with, infringe upon, violate or interfere with or constitute
an appropriation of any right, title, interest or goodwill,
including, without limitation, any intellectual property
right, trade secret, trademark, trade name, patent, service
mark, brand mark, brand name, computer program, database,
industrial design, copyright or any pending application
therefor of any other person and there have been no claims
made or notices received in connection therewith.
(o) Environmental Matters.
For purposes of this Merger Agreement:
(A) "Environmental Law" means any applicable law regulating, prohibiting
or requiring the notification of Releases into any part of the natural
environment, pertaining to the protection of natural resources, the
environment and public and employee health and safety, or governing or
regulating the use, storage, handling, transportation, treatment,
processing, disposal or generation of any Hazardous Materials,
including, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA") (42 U.S.C.
Section 9601 et seq.), the Hazardous Materials Transportation Act (49
U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery
Act (42 U.S.C. Section 6901 et seq.), the Clean Water Act (33 U.S.C.
Section 1251 et seq.), the Clean Air Act (33 U.S.C. Section 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. Section 7401 et
seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7
U.S.C. Section 136 et seq.), Emergency Planning and Community Right to
Know Act (42 U.S.C. Section 11001 et seq.), Safe Drinking Water Act
(Section 42 U.S.C. Section 300 et seq.) and the Occupational Safety
and Health Act (29 U.S.C. Section 651 et seq.) ("OSHA") and the
regulations promulgated pursuant thereto, and any other such
applicable county, province, state or local statutes, and the
regulations promulgated pursuant thereto, as such laws have been and
may be amended or supplemented through the Closing Date.
(B) "Hazardous Material" means any substance, material or waste which is
regulated pursuant to any Environmental Law by any public or
governmental authority in the jurisdictions in which the applicable
party or its Subsidiaries conducts business, or in the United States,
including, without limitation, any material or substance which is
defined as a "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste" or "restricted hazardous
waste," "contaminant," "pollutant," "toxic waste" or "toxic substance"
under any provision of Environmental Law;
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<PAGE> 29
(C) "Release" means any release, spill, effluent, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment, or into or out of
any property owned, operated or leased by the applicable party or its
Subsidiaries; and
(D) "Remedial Action" means all actions, including, without limitation,
any capital expenditures, required by a governmental entity or
required under any Environmental Law, or voluntarily undertaken to (I)
investigate, clean up, remove, treat, or in any other way ameliorate
or address any Hazardous Materials or other substance in the indoor or
outdoor environment; (II) prevent the Release or threat of Release, or
minimize the further Release of any Hazardous Material so it does not
endanger or threaten to endanger the public health or welfare of the
indoor or outdoor environment; (III) perform pre-remedial studies and
investigations or post-remedial monitoring and care pertaining or
relating to a Release; or (IV) bring the applicable party into
compliance with any Environmental Law.
(i) Except as disclosed on Section 3.1(o)(i) to the NDS
Disclosure Letter, the operations of NDS and its
Subsidiaries have been and, as of the Closing Date, will
be in compliance with all Environmental Laws, except
where the failure to so comply would not have a Material
Adverse Effect on NDS;
(ii) Except as disclosed on Section 3.1(o)(ii) to the NDS
Disclosure Letter, NDS and its Subsidiaries have
obtained and will, as of the Closing Date, maintain all
permits required under applicable Environmental Laws for
the continued operations of their respective businesses,
except such permits the lack of which would not have a
Material Adverse Effect on NDS;
(iii) Except as disclosed on Section 3.1(o)(iii) to the NDS
Disclosure Letter, NDS and its Subsidiaries are not
subject to any outstanding orders, investigations or
material contracts with any Governmental Entity or other
person respecting (A) Environmental Laws, (B) Remedial
Action or (C) any Release or threatened Release of a
Hazardous Material which would have a Material Adverse
Effect on NDS;
(iv) Except as disclosed on Section 3.1(o)(iv) to the NDS
Disclosure Letter, NDS and its Subsidiaries have not
received any written communication alleging, with
respect to any such party, the violation of or liability
under any Environmental Law or liability attributable to
the Release of any Hazardous
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<PAGE> 30
Material, which violations or liabilities, individually
or in the aggregate, would have a Material Adverse
Effect on NDS;
(v) Except as disclosed on Section 3.1(o)(v) to the NDS
Disclosure Letter, neither NDS nor any of its
Subsidiaries has any contingent liabilities in
connection with the Release of any Hazardous Material
into the indoor or outdoor environment (whether on-site
or off-site) that, individually or in the aggregate,
would have a Material Adverse Effect on NDS;
(vi) Except as disclosed on Section 3.1(o)(vi) to the NDS
Disclosure Letter, the operations of NDS or its
Subsidiaries involving the generation, transportation,
treatment, storage or disposal of Hazardous Material or
any state equivalent are in compliance with applicable
Environmental Laws, except where the failure to so
comply, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect
on NDS; and
(vii) Except as disclosed on Section 3.1(o)(vii) to the NDS
Disclosure Letter, to the best knowledge of NDS, there
is not now on or in any property (leased or owned) of
NDS or its Subsidiaries any of the following: (A) any
underground storage tanks or surface impoundments; (B)
any asbestos-containing materials; or (C) any
polychlorinated biphenyls, any of which ((A), (B), or
(C) preceding), individually or in the aggregate, would
have a Material Adverse Effect on NDS.
(p) Opinion of Financial Advisor. NDS has received the verbal
opinion of Houlihan Lokey Howard & Zukin (a written copy of
which will be delivered to UEC promptly upon receipt by NDS)
to the effect that, as of the date hereof, the Conversion
Number is fair from a financial point of view to the holders
of NDS Common Stock.
(q) State Takeover Statutes; Vote Required. NDS has taken all
action to assure that no state takeover statute or similar
statute or regulation, including, without limitation,
Section 203 of the DGCL, shall apply to the Merger or any of
the other transactions contemplated hereby. The affirmative
vote of the holders of a majority of the outstanding shares
of NDS Common Stock is the only vote of the holders of any
class or series of NDS capital stock necessary to approve
this Merger Agreement and the transactions contemplated
hereby. NDS has taken such other action with respect to any
other anti-takeover provisions
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<PAGE> 31
in its Bylaws or Certificate of Incorporation to the extent
necessary to consummate the Merger on the terms set forth in
this Merger Agreement.
(r) Intentionally Omitted
(s) Intentionally Omitted
(t) Insurance. NDS maintains insurance coverage reasonably
adequate for the operation of the business of NDS and each
of its Subsidiaries (taking into account the cost and
availability of such insurance), and the transactions
contemplated hereby will not materially adversely affect
such coverage. Section 3.1(t) sets forth a true and complete
list of such coverage.
(u) Brokers. Except as disclosed on Section 3.1(u) to the NDS
Disclosure Letter hereof, no broker, investment banker, or
other person is entitled to any broker's, finder's or other
similar fee or commission in connection with the
transactions contemplated by this Merger Agreement based
upon arrangements made by or on behalf of NDS.
(v) Material Contracts and Agreements. All material contracts of
NDS and its Subsidiaries have been included in the NDS SEC
Documents unless not required to be so included pursuant to
the rules and regulations of the SEC. Section 3.1(v) to the
NDS Disclosure Letter sets forth a list of all written or
oral contracts, agreements or arrangements to which NDS or
any of its Subsidiaries or any of their respective assets is
bound that would be required to be filed as exhibits to
NDS's Annual Report on Form 10-K for the year ended November
30, 1998, or, based on information currently available to
NDS, are expected to be required to be filed as an exhibit
to NDS's Annual Report on Form 10-K for the year ended
November 30, 1999. Section 3.1(v) to the NDS Disclosure
Letter also sets forth each drilling contract, employment or
severance contract, lease agreement (that require payments
that in the aggregate exceed $25,000 over the term of such
lease) and credit agreement, note or other instrument
relating to indebtedness of NDS or its Subsidiaries (except
that would not involve indebtedness individually or in the
aggregate amounts exceeding $25,000).
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(w) Title to Properties.
(i) Section 3.1(w)(i) to the NDS Disclosure Letter sets
forth a true and complete list of each drilling rig and
related drilling equipment owned or leased by NDS or its
Subsidiaries, including a summary of the technical
specifications thereof. Such drilling rigs constitute 16
marketable rigs. Each of NDS and its Subsidiaries has
good and indefeasible title to, or valid leasehold
interests in, all its properties and assets purported to
be owned by it in the NDS SEC Documents, except for such
as are no longer used or useful in the conduct of its
businesses or as have been disposed of in the ordinary
course of business, and except for defects in title,
easements, restrictive covenants and similar
encumbrances or impediments that, in the aggregate, do
not and will not materially interfere with its ability
to conduct its business as currently conducted. All such
assets and properties, other than assets and properties
in which NDS or any of the Subsidiaries has leasehold
interests, are free and clear of all liens, other than
those set forth in the NDS SEC Documents, and except for
liens, that, in the aggregate, do not and will not
materially interfere with the ability of NDS or any of
its Subsidiaries to conduct business as currently
conducted.
(ii) Except as specifically disclosed in the NDS SEC
Documents, Each of NDS and its Subsidiaries has complied
in all material respects with the terms of all leases to
which it is a party and under which it is in occupancy,
and all such leases are in full force and effect.
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(x) Representations Relating to Sunny Plants, Inc. and Lobell
Corporation.
(i) The fair market value of the real property secured by
the mortgage note from Farm Credit of South Florida to
Sunny Plants, Inc. (which NDS or its Subsidiaries have
guaranteed pursuant to that certain Guarantee dated
April 29, 1993) is equal to or greater than the
obligations (including costs and expenses, including
accounting and attorneys' fees that would be required to
be paid or reimbursed by NDS or its Subsidiaries in
connection with foreclosure and collection or otherwise)
that NDS and its Subsidiaries are responsible for
pursuant to such guarantee.
(ii) All costs and expense relating to the discontinuance of
operations of NDS's Subsidiary, Lobell Corporation and
its affiliates, and its former subsidiary, Sunny Plants,
Inc. and its affiliates that have not yet been paid in
full are fully accrued for as current liabilities on the
Current Balance Sheet (except for amounts specifically
disclosed in the Company's annual report or Form 10-K
for the year ended November 30, 1998).
3.2 Representations and Warranties of UEC and Sub. Subject to the
exceptions set forth in the disclosure letter to be delivered to NDS in
connection herewith (the "UEC Disclosure Letter"), UEC and Sub jointly and
severally represent and warrant to NDS as follows:
(a) Organization, Standing and Power. Each of UEC and Sub is a
corporation duly organized, validly existing and in good
standing under the laws of Delaware, has all requisite
corporate power and authority to own, lease and operate its
properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the business it is
conducting, or the operation, ownership or leasing of its
properties, makes such qualification necessary, other than
in such jurisdictions where the failure to be so organized
or so to qualify (individually or in the aggregate) would
not have a Material Adverse Effect on UEC.
(b) Capital Structure. As of the date hereof, the authorized
capital stock of UEC consists of 50,000,000 shares of UEC
Common Stock and 5,000,000 of preferred stock ("UEC
Preferred Stock"). At the close of business on March 31,
1999 (i) 16,489,281 shares of UEC Common Stock were issued
and outstanding, (ii) no shares of UEC Preferred Stock were
outstanding and (iii) an aggregate of 2,183,910 shares of
UEC Common Stock were reserved for issuance pursuant
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to outstanding options, warrants and agreements. As of the
date hereof, the authorized capital stock of Sub consists of
1,000 shares of common stock, par value $.01 per share,
1,000 shares of which are validly issued, fully paid and
nonassessable, and are owned by UEC. Sub was formed solely
for the purpose of participating in the Merger, has no
assets other than that amount of cash which is required for
it to be organized as a corporation under the DGCL and has
conducted no activities other than in connection with its
incorporation.
(c) Authority; No Violations, Consents and Approvals.
(i) Each of UEC and Sub has all requisite corporate power
and authority to enter into this Merger Agreement and to
consummate the transactions contemplated hereby. The
execution and delivery of this Merger Agreement and the
consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate
action on the part of UEC and Sub. This Merger Agreement
has been duly executed and delivered by UEC and Sub.
Assuming this Merger Agreement constitutes the valid and
binding obligation of NDS (and the Primary
Stockholders), it also constitutes a valid and binding
obligation of each of UEC and Sub and is enforceable
against each of them in accordance with its terms;
provided, however, that such enforceability is subject
to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting
creditors' rights and to general principles of equity
and limitations imposed on indemnity obligations by
applicable federal and state securities laws.
(ii) Except as set forth on Section 3.2(c)(ii) to the UEC
Disclosure Letter, the execution and delivery of this
Merger Agreement does not, and the consummation of the
transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, or result in
any violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right
of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under,
or result in the creation of any lien, security
interest, charge or encumbrance upon any of the
properties or assets of UEC or Sub under, any provision
of (A) the Certificate of Incorporation or Bylaws of UEC
or Sub, (B) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement,
instrument, permit,
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concession, franchise or license applicable to UEC or
Sub or (C) assuming the consents, approvals,
authorizations or permits and filings or notifications
referred to in Section 3.2(c)(iii) are duly and timely
obtained or made, any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to UEC or
Sub or any of properties or assets, other than, in the
case of clause (B) or (C), any such conflicts,
violations, defaults, rights, liens, security interests,
charges or encumbrances that, individually or in the
aggregate, would not have a Material Adverse Effect on
UEC, materially impair the ability of UEC or Sub to
perform its respective obligations hereunder or prevent
in any material respect the consummation of any of the
transactions contemplated hereby.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or permit from
any Governmental Entity is required by or with respect
to UEC in connection with the execution and delivery of
this Merger Agreement by UEC and Sub or the consummation
by UEC and Sub of the transactions contemplated hereby,
as to which the failure to obtain or make would have a
Material Adverse Effect on UEC, except for: (A) the
filing with the SEC of the S-4, such reports under
Section 13(a) of the Exchange Act and such other
compliance with the Securities Act and the Exchange Act
and the rules and regulations thereunder as may be
required in connection with this Merger Agreement and
the transactions contemplated hereby, and the obtaining
from the SEC of such orders as may be so required; (B)
the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware; (C) filings
with, and approval of, the American Stock Exchange, Inc.
(the "AMEX"); (D) such filings and approvals as may be
required by any applicable state securities, "blue sky"
or takeover laws or environmental laws or (E) the filing
of a premerger notification report by UEC under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the expiration or
termination of the applicable waiting period with
respect thereto.
(d) SEC Documents. A true and complete copy of each report,
schedule, registration statement and definitive proxy statement filed by UEC
with the SEC since January 1, 1996 (the "UEC SEC Documents") has been made
available to NDS (or such information was readily accessible through the SEC
Edgar Website). The UEC SEC
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<PAGE> 36
Documents are all the documents (other than preliminary material) that UEC was
required to file with the SEC since such date. As of their respective dates, the
UEC SEC Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such UEC SEC Documents, and none
of the UEC SEC Documents contained when filed any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of UEC included
in the UEC SEC Documents complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with GAAP applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Rule 10-01 of Regulation S-X of the SEC)
and fairly present in accordance with applicable requirements of GAAP (subject,
in the case of the unaudited statements, to normal year-end adjustments and
other adjustments discussed therein) the consolidated financial position of UEC
and its consolidated Subsidiaries as of their respective dates and the
consolidated results of operations and the consolidated cash flows of UEC and
its consolidated Subsidiaries for the periods presented therein.
(e) Information Supplied. None of the information supplied or to
be supplied by UEC or any of its Subsidiaries for inclusion or incorporation by
reference in the S-4 will, at the time the S-4 is filed with the SEC or when it
becomes effective under the Securities Act contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and none of the
information supplied or to be supplied by UEC or any of its Subsidiaries and
included or incorporated by reference in the Proxy Statement will, at the date
mailed to stockholders of NDS or at the time of the meeting of such stockholders
to be held in connection with the Merger, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event with respect to UEC or any of its Subsidiaries, or
with respect to other information supplied by UEC or any of its Subsidiaries for
inclusion in the Proxy Statement or S-4, shall occur that is required to be
described in an amendment of, or a supplement to, the Proxy Statement or the
S-4, such event shall be so described, and such amendment or supplement shall be
promptly filed with the SEC. The Proxy Statement, insofar as it relates to UEC
or Subsidiaries of UEC or other information supplied by UEC or any of its
Subsidiaries for inclusion therein, will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder, except that no representations or warranties are made by UEC with
respect to statements made or incorporated by reference therein based on
information supplied by NDS or any of NDS's Subsidiaries.
(f) Absence of Certain Changes or Events. Except as disclosed
in, or reflected in the financial statements included in, the UEC SEC Documents
or on Section 3.2(f) to the
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UEC Disclosure Letter, or except as contemplated by the Merger Agreement, since
December 31, 1998 there has not been: (i) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of UEC's capital stock; (ii) any amendment of any
material term of any outstanding equity security of UEC or any Subsidiary; (iii)
any material change in any method of accounting or accounting practice by UEC or
any Subsidiary; or (iv) any other transaction, commitment, dispute or other
event or condition (financial or otherwise) of any character (whether or not in
the ordinary course of business) that would have a Material Adverse Effect on
UEC.
(g) No Undisclosed Material Liabilities. Except as disclosed in
the UEC SEC Documents or on Section 3.2(g) to the UEC Disclosure Letter, there
are no liabilities of UEC or any of its Subsidiaries of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
that would have a Material Adverse Effect on UEC, other than: (i) liabilities
adequately provided for on the balance sheet of UEC dated as of December 31,
1998 (including the notes thereto) contained in UEC's Annual Report on Form 10-K
for the year ended December 31, 1998 or (ii) liabilities incurred in the
ordinary course of business since December 31, 1998.
(h) Litigation. Except as disclosed in the UEC SEC Documents or
on Section 3.2(h) to the UEC Disclosure Letter, there is no (i) suit, action or
proceeding pending or, to the best knowledge of UEC, threatened against or
affecting UEC or any Subsidiary of UEC ("UEC Litigation"), or (ii) judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against UEC or any Subsidiary of UEC that (in any case) would have a
Material Adverse Effect on UEC or prevent UEC from consummating the transactions
contemplated by this Merger Agreement.
(i) No Vote Required. No vote of the holders of any class or
series of UEC capital stock is necessary to approve the Merger Agreement or the
transactions contemplated hereby, including, without limitation, the issuance of
UEC Common Stock.
(j) Material Contracts and Agreements. All material contracts of
UEC or its Subsidiaries have been included in the UEC SEC Documents unless not
required to be included pursuant to the rules and regulations of the SEC.
Section 3.2(j) of the UEC Disclosure Letter sets forth a list of all written or
oral contracts, agreements or arrangements to which UEC or any of its
Subsidiaries or any of their respective assets are bound which meet the
definition of material contracts set forth in Section 6.01 of Regulation S-K
promulgated under the Securities Act and which have not been included in the UEC
SEC Documents.
(k) Broker Fees. No broker or finder has acted for UEC in
connection with this Merger Agreement and no broker or finder is entitled to any
brokerage or finders fee or to any commission in respect thereof based upon
arrangements or understandings made by or on behalf of UEC.
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ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS OF NDS
4.1 Conduct of Business by NDS Pending the Merger. During the period
from the date of this Merger Agreement and continuing until the Effective Time,
NDS agrees as to itself and its Subsidiaries that (except as expressly
contemplated or permitted by this Merger Agreement, or to the extent that UEC
shall otherwise consent in writing):
(a) Ordinary Course. Except as provided on Section 4.1(a) to the
NDS Disclosure Letter, each of NDS and its Subsidiaries
shall carry on its businesses in the usual, regular and
ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent
therewith, shall use all reasonable efforts to preserve
intact its present business organizations, keep available
the services of its current officers and employees and
endeavor to preserve its relationships with customers,
suppliers and others having business dealings with it, in
each case consistent with past practices, to the end that
its goodwill and ongoing business shall not be impaired in
any material respect to the fullest extent reasonably
possible at the Effective Time.
(b) Dividends; Changes in Stock. Except as provided on Section
4.1(b) to the NDS Disclosure Letter, NDS shall not and it
shall not permit any of its Subsidiaries to: (i) declare or
pay any dividends on or make other distributions in respect
of any of its capital stock, except for dividends from a
Subsidiary of NDS to NDS or another Subsidiary of NDS; (ii)
split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for
shares of NDS capital stock; or (iii) repurchase, redeem or
otherwise acquire, or permit any of its Subsidiaries to
purchase, redeem or otherwise acquire, any shares of NDS's
capital stock, except as required by the terms of its
securities outstanding on the date hereof or as contemplated
by any existing employee benefit plan.
(c) Issuance of Securities. Except as provided on Section 4.1(c)
to the NDS Disclosure Letter, NDS shall not, and it shall
not permit any of its Subsidiaries to, issue, deliver or
sell, or authorize or propose to issue, deliver or sell, any
shares of its capital stock of any class, any Voting Debt or
any securities convertible into, or any rights, warrants or
options to acquire, any such shares, Voting Debt (i.e. debt
securities or preferred stock having any rights to vote at
any meeting of stockholders) or convertible securities,
other than: (i) the issuance of NDS Common Stock upon the
exercise of the NDS Stock Options granted under the NDS
Stock Plans that are outstanding on the date
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hereof, or in satisfaction of stock grants or stock-based
awards made prior to the date hereof pursuant to the NDS
Stock Plans; (ii) issuances by a wholly owned Subsidiary of
its capital stock to its parent; and (iii) the NDS Stock
Options contemplated by Annex B.
(d) Governing Documents. Except as contemplated hereby or in
connection herewith, neither NDS nor any of its Subsidiaries
shall amend or propose to amend its Certificate of
Incorporation or Bylaws.
(e) No Acquisitions. NDS shall not and it shall not permit any
of its Subsidiaries to, acquire or agree to acquire by
merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any
corporation, partnership, association or other business
organization or division thereof without the prior written
consent of UEC.
(f) No Dispositions. Other than: (i) dispositions or proposed
dispositions listed on Section 4.1(f) to the NDS Disclosure
Letter; or (ii) sales or leases in the ordinary course of
business consistent with past practice, NDS shall not and it
shall not permit any of its Subsidiaries to sell, lease,
encumber or otherwise dispose of, or agree to sell, lease
(whether such lease is an operating or capital lease),
encumber or otherwise dispose of, any of its assets without
the prior written consent of UEC.
(g) No Dissolution, Etc. Except as otherwise permitted or
contemplated by this Merger Agreement, NDS shall not
authorize, recommend, propose or announce an intention to
adopt a plan of complete or partial liquidation or
dissolution of NDS or any of its Subsidiaries.
(h) Certain Employee Matters. Except as set forth on Section
4.1(h) to the NDS Disclosure Letter or as may be required by
applicable law or any agreement to which NDS or any NDS
ERISA Affiliate is a party on the date hereof or as
expressly contemplated by this Merger Agreement, NDS shall
not, nor shall it permit any NDS ERISA Affiliate to:
(i) amend, or increase the amount of (or accelerate the
payment or vesting of) any benefit or amount payable
under, any employee benefit plan or any other contract,
agreement, commitment, arrangement, plan or policy
providing for compensation or benefits to any current or
former director,
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officer, employee or independent contractor who would be
deemed to be an employee under applicable guidelines
published by the IRS, and maintained by, contributed to
or entered into by, NDS or any NDS ERISA Affiliate,
including, without limitation, the existing NDS Benefit
Plans except in the ordinary course of business
consistent with past practice and as approved in advance
by UEC in writing, such approval not to be unreasonably
withheld;
(ii) increase (or enter into any contract, agreement,
commitment or arrangement to increase in any manner) the
compensation or fringe benefits, or otherwise to extend,
expand or enhance the engagement, employment or any
related rights, of any current or former director,
officer, employee or independent contractor who would be
deemed to be an employee under applicable guidelines
published by the IRS, of NDS or any NDS ERISA Affiliate,
except increases in the ordinary course of business
consistent with past practice;
(iii) adopt, establish or implement any plan, policy or other
arrangement providing for any form of benefits or other
compensation to any current or former director, officer,
employee or independent contractor who would be deemed
to be an employee under applicable guidelines published
by the IRS, of NDS or any NDS ERISA Affiliate;
(iv) enter into or amend any employment agreement, severance
agreement, or other contract, agreement or arrangement
with any current or former director, officer, employee
or independent contractor who would be deemed to be an
employee under applicable guidelines published by the
IRS, of NDS or any NDS ERISA Affiliate; or
(v) pay or agree to pay any pension, retirement allowance or
other benefit not required or contemplated by any of the
existing NDS Benefit Plans as in effect on the date of
this Merger Agreement to any current or former director,
officer, employee or independent contractor who would be
deemed to be an employee under applicable guidelines
published by the IRS, of NDS or any NDS ERISA Affiliate.
(i) Indebtedness; Leases; Capital Expenditures. Except as set
forth on Section 4.1(i) to the NDS Disclosure Letter, NDS
shall not, nor shall NDS permit any of its Subsidiaries to,
(A) incur any indebtedness for
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borrowed money or guarantee any such indebtedness or issue
or sell any debt securities or warrants or rights to acquire
any debt securities of NDS or any of its Subsidiaries or
guarantee any debt securities of others, (B) except in the
ordinary course of business, enter into any lease (whether
such lease is an operating or capital lease) or create any
mortgages, liens, security interests or other encumbrances
on the property of NDS or any of its Subsidiaries in
connection with any indebtedness thereof, except for those
securing purchase money indebtedness or (C) commit to
aggregate capital expenditures in excess of $100,000 during
any calendar month, except as approved in advance in writing
by UEC, such approval not to be unreasonably withheld.
(j) Taxes. Neither NDS nor any of its Subsidiaries shall make
any material election relating to Taxes or compromise any
material Tax liability.
(k) Accounting. Neither NDS nor any of its Subsidiaries shall
change any material accounting principle used by it, except
as required by statement, rules or regulations promulgated
by the Financial Accounting Standards Board (the "FASB") or
the SEC.
4.2 No Solicitation.
(a) NDS will not, and will not authorize or permit any of its
officers, directors, agents and other representatives or
those of any of its Subsidiaries (collectively, "NDS
Representatives") to, and will not authorize any employee of
NDS or any of its Subsidiaries to and on becoming aware of
will take all reasonable actions to stop the employee from
continuing to, directly or indirectly, solicit or initiate
or encourage (including by way of furnishing information)
any prospective buyer or the making of any proposal that
constitutes, or may reasonably be expected to lead to, an
Acquisition Proposal (as defined herein) from any person, or
engage in any discussions or negotiations relating thereto
or accept any Acquisition Proposal; provided, however, that,
notwithstanding any other provision of this Merger
Agreement, NDS may, prior to the vote of the stockholders of
NDS for approval of the Merger, but not thereafter if the
Merger is approved thereby, in response and only in response
to a written request made without any solicitation,
initiation, encouragement, discussion or negotiation by NDS
or any NDS Representatives, furnish information concerning
NDS to any person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) pursuant to a confidentiality
agreement on substantially the same terms (provided
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that the NDS Board of Directors may, if required by its
fiduciary duties, permit an offer to be received from such
group in accordance with the terms of such confidentiality
agreement) as the Confidentiality Agreements between NDS and
UEC described in Section 5.1 hereof, provided that the Board
of Directors of NDS shall conclude in good faith on the
basis of, among other things, advice of outside counsel to
NDS that such action is necessary in order for the Board of
Directors of NDS to act in a manner that is required by its
fiduciary obligations under applicable law. NDS shall
immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity,
discussion or negotiation with any parties conducted
heretofore by NDS or any NDS Representatives with respect to
any Acquisition Proposal existing on the date hereof. NDS
will promptly notify UEC of the pendency of any negotiations
respecting, or the receipt of, any Acquisition Proposal. It
is understood that any violation of this Section 4.2 by NDS
or any NDS Representative shall be deemed a material breach
of this Merger Agreement by NDS. As used in this Merger
Agreement, "Acquisition Proposal" shall mean any proposal or
offer, other than a proposal or offer by UEC, for a tender
or exchange offer, a merger, consolidation or other business
combination involving NDS or any Subsidiary of NDS or any
proposal to acquire in any manner a substantial (15% or
more) equity interest in, or substantial portion of the
assets of, NDS or any of its Subsidiaries.
(b) Neither the Board of Directors of NDS nor any committee
thereof shall, except in connection with the termination of
this Merger Agreement pursuant to Section 7.1(a), (b) or
(d), (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to UEC or Sub, the approval or
recommendation by the Board of Directors of NDS or any such
committee of this Merger Agreement or the Merger, or take
any action having such effect, or (ii) approve or recommend,
or propose to approve or recommend, any Acquisition
Proposal. Notwithstanding the foregoing, in the event the
Board of Directors of NDS receives an Acquisition Proposal
that, in the exercise of its fiduciary obligations (as
determined in good faith by a majority of the disinterested
members thereof based on, among other things, the advice of
outside counsel), it determines to be a Superior Proposal,
the Board of Directors may withdraw or modify its approval
or recommendation of this Merger Agreement or the Merger and
may (subject to the following sentence) terminate this
Merger Agreement, in each case at any time after midnight on
the fifth business day following UEC's receipt of written
notice (a "Notice of Superior Proposal") advising UEC that
the Board of
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Directors has received an Acquisition Proposal that it has
determined to be a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal
(including the proposed financing for such proposal and a
copy of any documents conveying such proposal) and
identifying the party making such Superior Proposal. NDS may
terminate this Merger Agreement pursuant to the preceding
sentence only if the stockholders of NDS shall not yet have
voted upon the Merger and NDS shall have paid to UEC the
Termination Fee (as defined in Section 7.2(b)). Any of the
foregoing to the contrary notwithstanding, NDS may engage in
discussions with any party that has made an unsolicited
takeover proposal for the limited purpose of determining
whether such proposal (as opposed to any further negotiated
proposal) is a Superior Proposal. Nothing contained herein
shall prohibit NDS from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a)
following UEC's receipt of a Notice of Superior Proposal.
(c) For purposes of this Merger Agreement, a "Superior Proposal"
means any bona fide proposal to acquire, directly or
indirectly, all of the NDS Common Stock then outstanding or
all or substantially all of the assets of NDS and its
Subsidiaries, and otherwise on terms that a majority of the
disinterested members of the Board of Directors of NDS
determines in its good faith reasonable judgment to be more
favorable to NDS's stockholders than the Merger. In reaching
such good faith determination, the Board of Directors of NDS
will give significant consideration to whether an
Acquisition Proposal includes definite financing.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access to Information. Upon reasonable notice, NDS shall afford
to the officers, employees, accountants, counsel and other representatives of
UEC, access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments and records
and, during such period, NDS shall furnish promptly to UEC (a) a copy of each
report, schedule, registration statement and other document filed or received by
it during such period pursuant to SEC requirements and (b) all other information
concerning its business, properties and personnel as UEC may reasonably request.
UEC and NDS agree that they will not use any information obtained pursuant to
this Section 5.1 for any purpose unrelated to the consummation of the
transactions contemplated by this Merger Agreement. The Confidentiality
Agreements dated as of March 1, 1999 and April 25, 1999, respectively, between
UEC and NDS (the "Confidentiality Agreements") shall apply with respect to
information furnished thereunder or hereunder and any other activities
contemplated thereby.
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5.2 NDS Stockholders' Meeting. NDS shall call a meeting of its
stockholders to be held as promptly as practicable after the date hereof for the
purpose of voting upon this Merger Agreement and the Merger. Subject to Sections
4.2(a) and (b), NDS will, through its Board of Directors, recommend to its
stockholders approval of such matters and not rescind such recommendation and
shall use its best efforts to obtain approval and adoption of this Merger
Agreement and the Merger by its stockholders. NDS shall use all reasonable
efforts to hold such meeting as soon as practicable after the date upon which
the S-4 becomes effective.
5.3 Legal Conditions to Merger. Except as otherwise provided herein,
each of NDS, UEC and Sub will take all reasonable actions necessary to comply
promptly with all legal requirements that may be imposed on such party with
respect to the Merger (including, without limitation, furnishing all information
required under the HSR Act and in connection with approvals of or filings with
any other Governmental Entity) and will promptly cooperate with and furnish
information to each other in connection with any such requirements imposed upon
any of them or any of their Subsidiaries in connection with the Merger. Each of
NDS and UEC will, and will cause its respective Subsidiaries to, take all
actions reasonably necessary to obtain (and will cooperate with each other in
obtaining) any consent, acquiescence, authorization, order or approval of, or
any exemption or nonopposition by (including requests for waivers or no action
letters from the Securities and Exchange Commission), any Governmental Entity or
court required to be obtained or made by NDS, UEC or any of their Subsidiaries
in connection with the Merger or the taking of any action contemplated thereby
or by this Merger Agreement. UEC shall (and NDS shall if required) file a
premerger notification and report form under the HSR Act with respect to the
Merger as promptly as reasonably possible following execution and delivery of
this Agreement. UEC (and NDS if required) agrees to use reasonable efforts to
promptly respond to any request for additional information pursuant to Section
(e)(1) of the HSR Act.
5.4 Intentionally Omitted.
5.5 Stock Options. At the Effective Time, each outstanding option to
purchase NDS Common Stock and any stock appreciation rights related thereto that
has been granted pursuant to the NDS Stock Plans and any warrant to acquire NDS
Common Stock (an "NDS Stock Option"), whether vested or unvested, shall be
deemed to constitute an option to acquire, on the same terms and conditions as
were applicable under such NDS Stock Option, a number of shares of UEC Common
Stock equal to the number of shares of NDS Common Stock purchasable pursuant to
such NDS Stock Option multiplied by the Conversion Number, at a price per share
equal to the per-share exercise price for the shares of NDS Common Stock
purchasable pursuant to such NDS Stock Option divided by the Conversion Number;
provided, however, that in the case of any NDS Stock Option to which Code
Section 421 applies by reason of its qualification under any of the Code
Sections 422-424, the exercise price and number of shares subject to such
option shall be determined in a manner that meets the requirements for issuing
or assuming a stock option in a transaction to which Code Section 424(a) applies
and provided further, that the number of shares of UEC Common Stock that
may be purchased upon exercise of such NDS Stock Option shall not include any
fractional share and, upon exercise of such NDS Stock Option, a cash payment
shall be made for any
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fractional share based upon the closing price of a share of UEC Common Stock on
the AMEX on the last trading day of the calendar month immediately preceding the
date of exercise.
5.6 Indemnification; Directors' and Officers' Insurance.
(a) NDS shall, and from and after the Effective Time, the
Surviving Corporation shall, indemnify, defend and hold
harmless each person who is now, or has been at any time
prior to the date hereof or who becomes prior to the
Effective Time, an officer or director of NDS or any of its
Subsidiaries or an employee of NDS or any of its
Subsidiaries who acts as a fiduciary under any NDS Benefit
Plans (the "Indemnified Parties") against all losses,
claims, damages, costs, expenses (including attorneys'
fees), liabilities or judgments or amounts that are paid in
settlement with the approval of the indemnifying party
(which approval shall not be unreasonably withheld) of or in
connection with any threatened or actual claim, action,
suit, proceeding or investigation based in whole or in part
on or arising in whole or in part out of the fact that such
person is or was a director, officer or such employee of NDS
or any of its Subsidiaries, whether pertaining to any matter
existing or occurring at or prior to the Effective Time and
whether asserted or claimed prior to, or at or after, the
Effective Time (including arising out of or relating to the
Merger, the consummation of the transactions contemplated
herein, and any action taken in connection therewith)
("Indemnified Liabilities"). Any Indemnified Party wishing
to claim indemnification under this Section 5.6, upon
learning of any such claim, action, suit, proceeding or
investigation, shall notify NDS (or after the Effective
Time, UEC and the Surviving Corporation), but the failure so
to notify shall not relieve a party from any liability that
it may have under this Section 5.6, except to the extent
such failure materially prejudices such party. The
Indemnified Parties as a group may retain only one law firm
to represent them with respect to each such matter unless
there is, under applicable standards of professional
conduct, a conflict on any significant issue between the
positions of any two or more Indemnified Parties.
(b) All rights to indemnification for acts or omissions
occurring prior to the Effective Time now existing in favor
of the Indemnified Parties as provided in the Certificate of
Incorporation or by-laws of NDS or its Subsidiaries and in
any indemnification agreements to which they are parties
shall survive the Merger, including the right to advancement
of expenses as incurred to the fullest extent permitted by
Delaware law, and the Surviving Corporation shall continue
such indemnification rights for acts or omissions prior to
the Effective
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Time in full force and effect in accordance with their terms
and UEC shall be financially responsible therefor. The
provisions of this Section 5.6 are intended to be for the
benefit of, and shall be enforceable by, the parties hereto
and each Indemnified Party, and his or her heirs and
representatives. No party shall enter into any settlement
regarding the foregoing without prior approval of the
Indemnified Party, which approval shall not be unreasonably
withheld.
5.7 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental body or other person or
other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages in
connection therewith, the parties hereto agree to cooperate and use their
reasonable efforts to defend against and respond thereto.
5.8 Intentionally Omitted.
5.9 Public Announcements. UEC and NDS will agree with each other
with respect to the contents thereof before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated by this Merger Agreement, except as may be required by applicable
law or by obligations pursuant to any listing agreement with any national
securities exchange or transaction reporting system (but shall still provide a
copy of such release to the other party).
5.10 Other Actions. Except as contemplated by this Merger Agreement,
neither UEC nor NDS shall, and shall not permit any of its Subsidiaries to, take
or agree or commit to take any action that is reasonably likely to result in any
of its respective representations or warranties hereunder being untrue in any
material respect or in any of the conditions to the Merger set forth in Article
VI not being satisfied.
5.11 Advice of Changes; SEC Filings. UEC and NDS shall confer on a
regular basis with each other, report on operational matters and promptly advise
each other orally and in writing of any change or event having, or which,
insofar as can reasonably be foreseen, could have, a Material Adverse Effect on
UEC or NDS, as the case may be. NDS and UEC shall promptly provide each other
(or their respective counsel) copies of all filings (other than HSR filings)
made by such party with the SEC or any other state or federal Governmental
Entity in connection with this Merger Agreement and the transactions
contemplated hereby.
5.12 Reorganization It is the intention of UEC and NDS that the
Merger will qualify as a reorganization described in Section 368(a) of the Code
(and any comparable provisions of applicable state law). Neither NDS nor UEC (or
any of their respective Subsidiaries) will take or omit to take any action
(whether before, on or after the Closing Date) that would cause the Merger not
to be so treated. The parties will characterize the Merger as such a
reorganization for purposes of all Returns and other filings.
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5.13 Intentionally Omitted.
5.14 Letter of NDS's Accountants. NDS shall use its best efforts to
cause to be delivered to UEC a letter of Robinson Burdette Martin & Cowan,
L.L.P., NDS's independent public accountants, dated a date within two business
days before the date on which the S-4 shall become effective and addressed to
UEC, in form and substance reasonably satisfactory to UEC and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the S-4. In connection with
NDS's efforts to obtain such letter, if requested by Robinson Burdette Martin &
Cowan L.L.P., UEC shall provide a representation letter to Robinson Burdette
Martin & Cowan, L.L.P. complying with SAS 72, if then required.
5.15 Stock Options. On the first business day following announcement
of this Merger Agreement to the public, NDS shall grant the NDS Stock Options
described on Annex B pursuant to option agreements approved by UEC. UEC shall
take all corporate action necessary to reserve for issuance a sufficient number
of shares of UEC Common Stock for delivery upon exercise of the NDS Stock
Options assumed by UEC in accordance with Section 2.1(d) and Section 5.5 of the
Merger Agreement. As soon as possible after the Effective Time, UEC shall file
with the SEC a registration statement on Form S-8 (or any successor form) with
respect to the shares of UEC Common Stock subject to the NDS Stock Options (to
the extent such shares of UEC Common Stock are permitted to be registered on
Form S-8).
5.16 Other Benefits. At UEC's request, such request deemed made
hereby, NDS shall award to each of S. Howard Norton, III and John W. Norton a
$40,000 stay bonus to be paid by NDS to such individual contemporaneously with
the closing of the transactions contemplated by this Merger Agreement. In
addition, UEC requires, and Sherman H. Norton, Jr. and NDS agree, as a condition
to the Merger, (i) to amend Mr. Norton's existing employment agreement so that
it does not require Mr. Norton to provide any services to NDS or UEC or their
Subsidiaries following the Merger and (ii) to enter into a consulting/employment
agreement that requires UEC to pay Mr. Norton an aggregate fee/salary at
$25,000, provided such agreement shall not require Mr. Norton to provide any
services to UEC or Norton or any of their respective Subsidiaries.
5.17 Employment Agreements. S. Howard Norton, III and John W. Norton
and UEC agree to negotiate in good faith new 3-year employment agreements with
tailing 1 year non-compete arrangements and salaries at least equal to their
current annual salaries and benefits substantially similar to their current
benefits on the date of this Merger Agreement.
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ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) NDS Stockholder Approval. This Merger Agreement and the
Merger shall have been approved and adopted by the
affirmative vote of the holders of a majority of the
outstanding shares of NDS Common Stock entitled to vote
thereon.
(b) AMEX Listing. The shares of UEC Common Stock issuable to NDS
stockholders pursuant to this Merger Agreement shall have
been authorized for listing on the AMEX upon official notice
of issuance.
(c) Other Approvals. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have
expired or been terminated and all filings required to be
made prior to the Effective Time with, and all consents,
approvals, permits and authorizations required to be
obtained prior to the Effective Time from, any Governmental
Entity in connection with the execution and delivery of this
Merger Agreement and the consummation of the transactions
contemplated hereby shall have been made or obtained (as the
case may be), except where the failure to obtain such
consents, approvals, permits and authorizations would not be
reasonably likely to result in a Material Adverse Effect on
UEC (assuming the Merger has taken place) or to materially
adversely affect the consummation of the Merger.
(d) S-4. The S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.
(e) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the
consummation of the Merger shall be in effect; provided,
however, that prior to invoking this condition, each party
shall have complied fully with its obligations under Section
5.7 hereof and, in addition, shall use all reasonable
efforts to have any such decree, ruling, injunction or order
vacated, except as otherwise contemplated by this Merger
Agreement.
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6.2 Conditions of Obligations of UEC and Sub. The obligations of UEC
and Sub to effect the Merger are subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by UEC:
(a) Representations and Warranties. Each of the representations
and warranties of NDS set forth in this Merger Agreement
shall be true and correct in all material respects as of the
date of this Merger Agreement and (except to the extent such
representations and warranties speak as of an earlier date)
as of the Closing Date as though made on and as of the
Closing Date, except where the failure to be so true and
correct (without giving effect to the individual materiality
thresholds otherwise contained in Section 3.1 hereof) would
not have a Material Adverse Effect on NDS, and UEC shall
have received a certificate dated the Closing Date on behalf
of NDS from a duly authorized officer of NDS to that effect.
(b) Performance of Obligations of NDS. NDS shall have performed
in all material respects all obligations required to be
performed by it under this Merger Agreement at or prior to
the Closing Date.
(c) Intentionally Omitted.
(d) Certifications and Opinion. NDS shall have furnished UEC
with:
(i) a certified copy of a resolution or resolutions duly
adopted by the Board of Directors of NDS approving this
Merger Agreement and consummation of the Merger and the
transactions contemplated hereby and directing the
submission of the Merger to a vote of the stockholders
of NDS;
(ii) a certified copy of a resolution or resolutions duly
adopted by the holders of a majority of the outstanding
shares of NDS Common Stock approving the Merger and the
transactions contemplated hereby; and
(iii) a favorable opinion, dated the Closing Date, in
customary form and substance, of Solovay Edlin &
Eiseman, P.C., counsel to NDS, dated the Closing Date to
the effect that:
(A) NDS is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has corporate power to
own its properties and assets and to carry on its business as presently
conducted and as described in the Registration Statement;
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(B) NDS has the requisite corporate power to effect the Merger as
contemplated by this Merger Agreement; the execution and delivery of this
Merger Agreement did not, and the consummation of the Merger will not,
violate any provision of NDS's Certificate of Incorporation or Bylaws; and
upon the filing by the Surviving Corporation of the Certificate of Merger,
the Merger shall become effective;
(C) Each of NDS's Subsidiaries is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and has corporate power to own its properties and assets and
to carry on its business as presently conducted; and
(D) The Board of Directors of NDS has taken all action required by the
DGCL and its Certificate of Incorporation or its Bylaws to approve the
Merger and to authorize the execution and delivery of this Merger Agreement
and the transactions contemplated hereby; the Board of Directors and the
stockholders of NDS have taken all action required by the DGCL and NDS's
Certificate of Incorporation and By-Laws to authorize the Merger in
accordance with the terms of this Merger Agreement; and this Merger
Agreement is a valid and binding agreement of NDS enforceable in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws or judicial
decisions now or hereafter in effect relating to creditors' rights
generally or governing the availability of equitable relief; and
(e) Good Standing Certificates. NDS shall have furnished UEC
with good standing and existence certificates for NDS and
its Subsidiaries from their respective jurisdictions of
incorporation and other jurisdictions as UEC shall
reasonably request.
(f) Tax Opinion. UEC shall have received an opinion,
satisfactory to the receiving person, dated on or about the
date that is two days prior to the date the Proxy Statement
is first mailed to stockholders of NDS, of Fulbright &
Jaworski L.L.P., to the effect that, if the Merger is
consummated in accordance with the terms of this Merger
Agreement, the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section
368(a) of the Code, UEC, Sub and NDS will each be a party to
that reorganization within the meaning of Section 368(b) of
the Code and no gain or loss will be recognized by UEC or
Sub as a result of the Merger, which opinion shall not have
been withdrawn or modified in any material respect. A second
opinion, reconfirming the foregoing and dated as of the
Closing Date, satisfactory to the receiving person, shall
have been issued to UEC. In rendering such opinions, such
counsel may receive and rely upon representations of fact
contained in certificates of UEC, Sub and NDS.
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6.3 Conditions of Obligations of NDS. The obligation of NDS to
effect the Merger is subject to the satisfaction of the following conditions,
any or all of which may be waived in whole or in part by NDS:
(a) Representations and Warranties. Each of the representations
and warranties of UEC and Sub set forth in this Merger
Agreement shall be true and correct in all material respects
as of the date of this Merger Agreement and (except to the
extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on and
as of the Closing Date, except where the failure to be so
true and correct (without giving effect to the individual
materiality thresholds otherwise contained in Section 3.2
hereof) would not have a Material Adverse Effect on UEC, and
NDS shall have received a certificate dated the Closing Date
by a duly authorized officer of UEC to that effect.
(b) Performance of Obligations of UEC and Sub. UEC and Sub shall
have performed in all material respects all obligations
required to be performed by them under this Merger Agreement
at or prior to the Closing Date.
(c) Certifications and Opinion. UEC shall have furnished NDS
with:
(i) a certified copy of a resolution or resolutions duly
adopted by the Board of Directors or a duly authorized
committee thereof of UEC and Sub approving this Merger
Agreement and consummation of the Merger and the
transactions contemplated hereby;
(ii) a favorable opinion, dated the Closing Date, in
customary form and substance, of Fulbright & Jaworski
LLP, Counsel to UEC, to the effect that:
(A) Each of UEC and Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has corporate power to own its properties and assets and
to carry on its business as presently conducted and as described in its
Annual Report on Form 10-K for the year ended December 31, 1998; UEC and
Sub each has the requisite corporate power to effect the Merger as
contemplated by this Merger Agreement; the execution and delivery of this
Merger Agreement did not, and the consummation of the Merger will not,
violate any provision of UEC's or Sub's Certificate of Incorporation or
Bylaws; and upon the filing by the Surviving Corporation of the Certificate
of Merger, the Merger shall become effective;
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(B) The respective Board of Directors of UEC and Sub have taken all action
required under its jurisdiction of incorporation, its Certificate of
Incorporation or its Bylaws to authorize the execution and delivery of this
Merger Agreement and the transactions contemplated hereby, and to authorize
the Merger in accordance with the terms of this Merger Agreement; and this
Merger Agreement is a valid and binding agreement of UEC and Sub
enforceable in accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws or judicial decisions now or hereafter in effect relating to
creditors' rights generally or governing the availability of equitable
relief; and
(C) The shares of UEC Common Stock to be delivered to the holders of NDS
Common Stock pursuant to Article II are duly authorized and when issued and
delivered as contemplated by this Merger Agreement will be legally and
validly issued and fully paid and nonassessable and no stockholders of UEC
shall have any preemptive rights with respect thereto either pursuant to
the organizational documents of UEC or under applicable law of the
jurisdiction of UEC's organization.
(d) Tax Opinion. NDS shall have received an opinion,
satisfactory to NDS, dated on or about the date that is two
days prior to the date the Proxy Statement is first mailed
to stockholders of NDS, a copy of which will be furnished to
UEC, of outside counsel reasonably satisfactory to NDS, to
the effect that, if the Merger is consummated in accordance
with the terms of this Merger Agreement, the Merger will be
treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, UEC, Sub
and NDS will each be a party to that reorganization within
the meaning of Section 368(b) of the Code, no gain or loss
will be recognized by the stockholders of NDS as a result of
the Merger upon the conversion of shares of NDS Common Stock
into shares of UEC Common Stock and no gain or loss will be
recognized by NDS as a result of the Merger, which opinion
shall not have been withdrawn or modified in any material
respect. A second opinion, reconfirming the foregoing and
dated as of the Closing Date, shall have been issued to NDS
and a copy shall have been provided to UEC. In rendering
such opinions, such counsel may receive and rely upon
representations of fact contained in certificates of UEC,
Sub and NDS.
(e) Fairness Opinion. Houlihan Lokey Howard & Zukin has not
revoked, modified or changed its opinion referred to in
Section 3.1(p) in any manner adverse to the holders of the
NDS Common Stock.
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ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after approval of the matters presented in connection with the Merger by the
stockholders of NDS:
(a) by mutual written consent of NDS and UEC, or by mutual
action of their respective Boards of Directors;
(b) by either NDS or UEC if (i) the Merger shall not have been
consummated by December 31, 1999 (provided that the right to
terminate this Merger Agreement under this clause (i) shall
not be available to any party whose breach of any
representation or warranty or failure to fulfill any
covenant or agreement under this Merger Agreement has been
the cause of or resulted in the failure of the Merger to
occur on or before such date); (ii) any court of competent
jurisdiction, or some other governmental body or regulatory
authority shall have issued an order, decree or ruling or
taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and
nonappealable; or (iii) any required approval of the
stockholders of NDS shall not have been obtained by reason
of the failure to obtain the required vote upon a vote held
at a duly held meeting of stockholders or at any adjournment
thereof;
(c) by UEC if (i) for any reason NDS fails to use its reasonable
best efforts to call and hold a stockholders' meeting for
the purpose of voting upon this Merger Agreement and the
Merger by December 31, 1999; (ii) NDS shall have failed to
comply in any material respect with any of the covenants or
agreements contained in this Merger Agreement to be complied
with or performed by NDS at or prior to such date of
termination (provided such breach has not been cured within
30 days following receipt by NDS of notice of such breach
and is existing at the time of termination of this Merger
Agreement); (iii) any representations and warranties of NDS
contained in this Merger Agreement shall not have been true
when made (provided such breach has not been cured within 30
days following receipt by NDS of notice of such breach and
is existing at the time of termination of this Merger
Agreement) or on and as of the Effective Time as if made on
and as of the Effective Time (except to the extent it
relates to a particular date), except where the failure to
be so true and correct (without giving effect to the
individual materiality thresholds otherwise contained in
Section 3.1 hereof) would not have
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a Material Adverse Effect on NDS; or (iv) the Board of
Directors of NDS or any committee thereof (A) withdraws,
modifies or changes its recommendation of this Merger
Agreement or the Merger in a manner adverse to the UEC or
shall have resolved to do any of the foregoing, or (B)
approves or recommends, or proposes to approve or recommend,
any Acquisition Proposal. For purposes of determining
whether a representation or warranty is true or correct for
purposes of this Section 7.1(c), the qualifications and
information set forth in Annex C shall not be considered and
shall be deemed not made.
(d) by NDS if (i) UEC or Sub shall have failed to comply in any
material respect with any of the covenants or agreements
contained in this Merger Agreement to be complied with or
performed by it at or prior to such date of termination
(provided such breach has not been cured within 30 days
following receipt by UEC of notice of such breach and is
existing at the time of termination of this Merger
Agreement); (ii) any representations and warranties of UEC
or Sub contained in this Merger Agreement shall not have
been true when made (provided such breach has not been cured
within 30 days following receipt by UEC of notice of such
breach and is existing at the time of termination of this
Merger Agreement) or on and as of the Effective Time as if
made on and as of the Effective Time (except to the extent
it relates to a particular date), except where the failure
to be so true and correct (without giving effect to the
individual materiality thresholds otherwise contained in
Section 3.2 hereof) would not have a Material Adverse Effect
on UEC; or (iii) pursuant to Section 4.2(b).
(e) By NDS if by June 30, 1999, UEC has not given NDS reasonable
assurance that the S-4 will be declared effective by the SEC
in sufficient time to consummate the Merger by December 31,
1999.
7.2 Effect of Termination.
(a) In the event of termination of this Merger Agreement by
either NDS or UEC as provided in Section 7.1, this Merger
Agreement shall forthwith become void and there shall be no
liability or obligation on the part of NDS or UEC except (i)
with respect to this Section 7.2, the second and third
sentences of Section 5.1 and Section 8.1, and (ii) to the
extent that such termination results from the willful breach
by a party hereto of any of its representations or
warranties or of any of its covenants or agreements, in each
case, as set forth in this Merger Agreement except as
provided in Section 8.9.
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(b) If UEC or NDS, as applicable, terminates this Merger
Agreement pursuant to Section 4.2(b) or Sections
7.1(c)(iv)(B), NDS shall immediately pay UEC a fee of $1.0
million (the "Termination Fee") in cash or by wire transfer
of immediately available funds to an account designated by
UEC.
(c) If UEC terminates this Merger Agreement pursuant to
Section 7.1(c)(iv)(A) and NDS consummates a transaction
pursuant to an Acquisition Proposal on or prior to September
30, 2000, NDS shall pay to UEC the Termination Fee. The
Termination Fee payable under this Section 7.2(c) shall be
payable on the consummation of such transaction.
(d) NDS also agrees to pay to UEC the Termination Fee if (i)
after the date hereof and before the termination of this
Merger Agreement, an Acquisition Proposal shall have been
made and publicly announced by any party, (ii) the
stockholders of NDS shall not have approved the Merger and
(iii) on or prior to September 30, 2000, NDS consummated a
transaction pursuant to an Acquisition Proposal. The
Termination Fee payable under this Section 7.2(d) shall be
payable on the consummation of such transaction.
(e) If this Agreement shall be terminated pursuant to Sections
7.1(c)(i), 7.1(c)(ii) or 7.2(c)(iii), then NDS shall pay UEC
any and all expenses (not to exceed $400,000) incurred by
UEC directly attributable to the proposed acquisition of NDS
including negotiation and execution of this Agreement and
the attempted completion of the Merger. Each such expense
shall be paid within thirty days after UEC shall have
submitted the written request for payment of such expense
except that in the event NDS shall in good faith raise any
question as to whether any particular expense is payable by
NDS under this subsection (e), then NDS shall be entitled to
delay payment of such expense until UEC shall supply
documentation sufficient to establish that the particular
expense is payable under the standards specified in this
subsection (e). In no event shall any request for additional
documentation to which UEC shall be entitled under this
subsection (e) of itself entitle NDS to delay payment of any
other expense owed by NDS under this subsection (e). If NDS
shall for any reason fail to make payment specified herein
at the time required, then NDS shall pay UEC on demand
interest at a per annum rate equal to 300 basis points in
excess of the prime rate (as reported in the Wall Street
Journal) (or the maximum lawful rate if lesser than such
rate) on the amount remaining unpaid from that time until
such payment shall be received by UEC and shall also
reimburse UEC for all attorney's fees
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and other expenses which UEC shall reasonably incur to
enforce its rights to such payment.
(f) If this Agreement shall be terminated pursuant to Sections
7.1(d)(i) or 7.1(d)(ii), then UEC shall pay NDS any and all
expenses (not to exceed $250,000) (the "NDS Expense Amount")
incurred by NDS directly attributable to the proposed
acquisition of NDS including negotiation and execution of
this Merger Agreement and the attempted completion of the
Merger. Each such expense shall be paid within thirty days
after NDS shall have submitted the written request for
payment of such expense except that in the event NDS shall
in good faith raise any question as to whether any
particular expense is payable by UEC under this subsection
(f), then UEC shall be entitled to delay payment of such
expense until NDS shall supply documentation sufficient to
establish that the particular expense is payable under the
standards specified in this subsection (f). In no event
shall any request for additional documentation to which UEC
shall be entitled under this subsection (f) of itself
entitle UEC to delay payment of any other expense owed by
UEC under this subsection (f). If UEC shall for any reason
fail to make payment specified herein at the time required,
then UEC shall pay NDS on demand interest at a per annum
rate equal to 300 basis points in excess of the prime rate
(as reported in the Wall Street Journal) (or the maximum
lawful rate if lesser than such rate) on the amount
remaining unpaid from that time until such payment shall be
received by NDS and shall also reimburse NDS for all
attorney's fees and other expenses which NDS shall
reasonably incur to enforce its rights to such payment. In
addition, in the event NDS has terminated the Merger
Agreement pursuant to Section 7.1(d)(i) and UEC's failure to
materially comply with such agreements or covenants was due
to circumstances or events reasonably within its control or
primarily caused by it, UEC shall pay, in addition to the
NDS Expense Amount, the sum of $250,000 (the "NDS
Termination Fee"). In addition, in the event NDS has
terminated the Merger Agreement pursuant to Section 7.1(e)
of the Merger Agreement, UEC shall pay, in addition to the
NDS Expense Amount, the sum of $125,000; provided, however,
such amount shall be paid in lieu of (and not in addition
to) the NDS Termination Fee.
(g) The parties hereto agree that the agreements contained in
this Section 7.2 are an integral part of this transactions
contemplated by this Merger Agreement and constitute
liquidated damages, and each party's sole and exclusive
remedy in the event of termination of this Merger Agreement,
and not a penalty.
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<PAGE> 57
7.3 Amendment. This Merger Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of NDS, but, after any such approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Merger Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto;
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto; and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Payment of Expenses. Except as set forth in Section 7.2, each
party hereto shall pay its own expenses incident to preparing for entering into
and carrying out this Merger Agreement and the consummation of the transactions
contemplated hereby, whether or not the Merger shall be consummated.
8.2 Nonsurvival of Representations, Warranties and Agreements. None
of the representations, warranties and agreements in this Merger Agreement or in
any instrument delivered pursuant to this Merger Agreement shall survive the
Effective Time and any liability for breach or violation thereof shall terminate
absolutely and be of no further force and effect at and as of the Effective
Time, except (i) for the agreements contained in Sections 2.1, 2.2, 5.5, 5.6,
5.12 and 7.2 and this Article VIII and (ii) as otherwise provided in Section
8.4. The Confidentiality Agreements shall survive the execution and delivery of
this Merger Agreement, and the provisions of the Confidentiality Agreements
shall apply to all information and material delivered hereunder.
8.3 Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, telegraphed or
telecopied or sent by certified or registered mail, postage prepaid, and shall
be deemed to be given, dated and received when so delivered personally,
telegraphed or telecopied or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such person may subsequently designate by notice given hereunder:
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<PAGE> 58
(a) if to UEC or Sub, to:
16800 Greenspoint Park, Suite 225 N
Houston, Texas 77060
Attention: Chief Financial Officer
Fax: (281) 875-9145
with a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: Charles L. Strauss, Esquire
Fax: (713)651-5246
and (b) if to NDS, to:
Norton Drilling Services, Inc.
5211 Brownfield Highway, Suite 230
Lubbock, Texas 79407
Attention: Howard Norton, President
Fax: (806) 785-8420
with a copy to:
Solovay Edlin & Eiseman, P.C.
845 Third Avenue
New York, New York 10022
Attention: Michael B. Solovay, Esq.
Fax: (212) 355-4608
8.4 Limited Joinder by Primary Stockholders. In order to induce UEC
and Sub to enter into this Merger Agreement, each of the Primary Stockholders
agree as follows:
(a) General Indemnity by the Primary Stockholders. The Primary
Stockholders, jointly and severally covenant and agree that
such Primary Stockholders will indemnify, hold harmless and
defend UEC and Sub and their respective officers, directors,
employees, agents, representatives and affiliates (including
NDS and its Subsidiaries) and their respective heirs, legal
representatives, successors and assigns (collectively, the
"UEC Indemnified Parties"), at all times from and after the
Closing Date, from and against 20% of any claims,
liabilities, obligations, losses, damages, costs, expenses
(including
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<PAGE> 59
reasonable attorney's fees and costs and expenses of
investigation) ("Damages") of or to any of UEC Indemnified
Parties that may now or in the future be paid, incurred or
suffered by any UEC Indemnified Party or asserted against
any UEC Indemnified Party by any person resulting or arising
from or incurred in connection with any misrepresentation,
breach of warranty or nonfulfillment of any covenant or
agreement on the part of any party hereto other than UEC or
Sub under this Merger Agreement or from any
misrepresentation in or omission from any list, schedule,
certificate or other instrument furnished or to be furnished
to UEC or Sub pursuant to the terms of this Merger
Agreement.
(b) Indemnification Basket; Limitation; Effect of Materiality
Qualifiers; Pro Rata Obligation.
(i) For purposes of determining whether there has been a
misrepresentation or breach of a representation or
warranty for purposes of this Section 8.4 only, all
representations and warranties shall be deemed to have
been made with the following qualifier: "To the Primary
Stockholders' knowledge after thorough investigation".
There shall be no indemnification under Section 8.4(a)
for a misrepresentation or breach of a representation or
warranty recoverable against a party obligated to
provide indemnification under Section 8.4(a) until the
Damages (gross, without reduction to the Primary
Stockholders 20% proportionate share) for which
indemnification is sought from such party (for this
purpose, the Primary Stockholders shall be deemed a
single party) exceed $250,000 in the aggregate (the
"Basket Amount"), and once all such Damages (gross,
without reduction to the Primary Stockholders 20%
proportionate share) exceed the Basket Amount, such
party shall be obligated to the UEC Indemnified Parties
for any and all such Damages exceeding the Basket
Amount. In addition, the Primary Stockholders obligation
to provide indemnification under Section 8.4(a) shall be
limited in the aggregate to payments to all UEC
Indemnified Parties of $1,500,000.
(ii) For purposes of the indemnification under Section
8.4(a), all representations and warranties shall be
deemed to survive until December 31, 2000 (the "Survival
Period"). Any claim for indemnification with respect to
a misrepresentation or breach of a representation or
warranty breach or inaccuracy must be made within the
Survival Period. Any claim for
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<PAGE> 60
indemnification that is made during the Survival Period
for making such claim shall remain in effect for
purposes of such indemnification and all matters
relating to such claim, including counterclaims and
other claims arising out of or relating to the same
general matter, notwithstanding such claim may not be
resolved within the Survival Period.
(iii) For purposes of determining the right of a party to make
a claim for indemnification for a misrepresentation or
breach of representation or warranty under Section
8.4(a), all representations and warranties that have
been made subject to a materiality or dollar
qualification (including any Material Adverse Effect)
shall be deemed to have been made without that
qualification, it being understood and agreed that the
threshold provided for above under the "Basket Amount"
is intended to be the only materiality qualification for
such matters for purposes of indemnification.
(c) Waiver of Contribution. Any claim for indemnification made
by any UEC Indemnified Party pursuant to this Section 8.4
shall be asserted against the Primary Stockholders and their
heirs, legal representatives, successors and assigns. Such
Primary Stockholders hereby expressly acknowledges and
agrees that such Primary Stockholder shall be liable and
responsible therefor to the extent provided in this Section
8.4 and that it shall not seek or receive indemnification or
contribution from NDS or its Subsidiaries, with respect to
such claim for indemnification.
(d) Covenant Not to Compete With the Business. Each of the
Primary Stockholders agrees that, effective as of the
Closing Date, for a period of three years thereafter in all
jurisdictions other than Louisiana, which shall be
applicable for two years only, such Primary Stockholder will
not, and will cause each of his Affiliates to not, without
the consent of UEC, directly or indirectly, provide contract
land drilling services in the State of Texas, Oklahoma, New
Mexico and Louisiana (including all parishes therein) and
the country of Mexico except for the account of UEC and its
Affiliates. The Primary Stockholders acknowledge that a
remedy at law for any breach or attempted breach of this
Section 8.4(d) will be inadequate and further agree that any
breach of this Section 8.4(d) will result in irreparable
harm to NDS and UEC and NDS and UEC shall, in addition to
any other remedy that may be available to either of them, be
entitled to specific performance and injunctive and other
equitable relief in case of any such breach or attempted
breach. The Primary
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<PAGE> 61
Stockholders acknowledge that this covenant not to compete
is being provided as an inducement to UEC to consummate the
Merger and that this Section 8.4(d) contains reasonable
limitations as to time, geographical area and scope of
activity to be restrained that do not impose a greater
restraint than is necessary to protect the goodwill or other
business interest of UEC and NDS. Whenever possible, each
provision of this Section 8.4(d) shall be interpreted in
such a manner as to be effective and valid under applicable
law but if any provision of this Section 8.4(d) shall be
prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the
remaining provisions of this Section 8.4(d). If any
provision of this Section 8.4(d) shall, for any reason, be
judged by any court of competent jurisdiction to be invalid
or unenforceable, such judgment shall not affect, impair or
invalidate the remainder of this Section 8.4(d) but shall be
confined in its operation to the provision of this Section
8.4(d) directly involved in the controversy in which such
judgment shall have been rendered. In the event that the
provisions of this Section 8.4(d) should ever be deemed to
exceed the time or geographic limitations permitted by
applicable laws, then such provision shall be reformed to
the maximum time or geographic limitations permitted by
applicable law.
8.5 Interpretation: Certain Definitions. When a reference is made in
this Merger Agreement to Sections, such reference shall be to a Section of this
Merger Agreement unless otherwise indicated. The table of contents, glossary of
defined terms and headings contained in this Merger Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Merger Agreement. Whenever the word "include," "includes" or "including" is
used in this Merger Agreement, it shall be deemed to be followed by the words
"without limitation." The phrase "made available" in this Merger Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. As used in this
Merger Agreement, "affiliate" means, as to the person specified, any person
controlled, controlled by, or under common control with such person, and
"person" means any individual, corporation, general or limited partnership,
limited liability company, joint venture, estate, trust or other entity.
8.6 Counterparts. This Merger Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
8.7 Entire Agreement; No Third-Party Beneficiaries. This Merger
Agreement (together with the Confidentiality Agreement, and any other documents
and instruments referred to herein) (a) constitutes the entire agreement and
supersedes all prior agreements and understandings,
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<PAGE> 62
both written and oral, among the parties with respect to the subject matter
hereto and (b) except as provided in Section 5.6, is not intended to confer upon
any person other than the parties hereto any rights or remedies hereunder.
8.8 Governing Law. This Merger Agreement shall be governed and
construed in accordance with the laws of the State of Texas, without giving
effect to the principles of conflicts of law thereof.
8.9 No Remedy in Certain Circumstances. Each party agrees that,
should any court or other competent authority hold any provision of this Merger
Agreement or part hereof to be null, void or unenforceable, or order any party
to take any action inconsistent herewith or not to take an action consistent
herewith or required hereby, the validity, legality and enforceability of the
remaining provisions and obligations contained or set forth herein shall not in
any way be affected or impaired thereby, unless the foregoing inconsistent
action or the failure to take an action constitutes a material breach of this
Merger Agreement or makes the Merger Agreement impossible to perform in which
case this Merger Agreement shall terminate pursuant to Article VII hereof.
Except as otherwise contemplated by this Merger Agreement, to the extent that a
party hereto took an action inconsistent herewith or failed to take action
consistent herewith or required hereby pursuant to an order or judgment of a
court or other competent authority, such party shall not incur any liability or
obligation unless such party breached its obligations under Section 5.3 hereof
or did not in good faith seek to resist or object to the imposition or entering
of such order or judgment.
8.10 Assignment. Neither this Merger Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to any
newly formed direct or indirect wholly owned Subsidiary of UEC. Subject to the
preceding sentence, this Merger Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
8.11 Enforcement of the Agreement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Merger
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Merger Agreement and
to enforce specifically the terms and provisions hereof in any court of the
United States located in the State of Texas, this being in addition to any other
remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto (a) consents to submit itself to the personal jurisdiction of any
Federal or state court sitting in Texas in the event any dispute between the
parties hereto arises out of this merger Agreement solely in connection with
such a suit between the parties, (b) 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 (c) agrees that it will not bring any action relating to this
Merger Agreement in any court other than a Federal or state court sitting in
Texas.
<SIGNATURES BEGIN ON FOLLOWING PAGE>
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<PAGE> 63
IN WITNESS WHEREOF, each of the following individuals has caused this
Merger Agreement to be signed, and each party that is not an individual has
caused this Merger Agreement to be signed, by its respective officers thereunto
duly authorized, all as of the date first written above.
UTI ENERGY CORP.
By: /s/ John E. Vollmer III
----------------------------------
John E. Vollmer III
Chief Financial Officer
NDS ACQUISITION CORP.
By: /s/ John E. Vollmer, III
----------------------------------
John E. Vollmer III
Chief Financial Officer
NORTON DRILLING SERVICES, INC.
By: /s/ S. Howard Norton. III
----------------------------------
S. Howard Norton, III
President
PRIMARY STOCKHOLDERS
/s/ Sherman Norton
----------------------------------
Sherman Norton
/s/ S. Howard Norton, III
----------------------------------
S. Howard Norton, III
/s/ John W. Norton
----------------------------------
John W. Norton
<PAGE> 64
ANNEX A
SHERMAN NORTON
HAROLD NORTON
JOHN W. NORTON
NORTON FAMILY TRUST
<PAGE> 65
ANNEX B
<TABLE>
<CAPTION>
<S> <C> <C> <C>
JOHN NORTON 114,000 NORTON SHARES => converts into 30,000
UTI shares
HAROLD NORTON 114,000 NORTON SHARES => converts into 30,000
UTI shares
</TABLE>
3 Year vesting, 1/3, 1/3, 1/3
Exercise price equals greater of (A) $2.63 per share or (B) closing price for a
share of NDS Common Stock on date of grant.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 20,320
<SECURITIES> 0
<RECEIVABLES> 22,399
<ALLOWANCES> 2,219
<INVENTORY> 631
<CURRENT-ASSETS> 51,518
<PP&E> 206,457
<DEPRECIATION> 47,648
<TOTAL-ASSETS> 232,450
<CURRENT-LIABILITIES> 18,491
<BONDS> 31,840
0
0
<COMMON> 17
<OTHER-SE> 145,570
<TOTAL-LIABILITY-AND-EQUITY> 232,450
<SALES> 0
<TOTAL-REVENUES> 32,536
<CGS> 0
<TOTAL-COSTS> 25,907
<OTHER-EXPENSES> 5,834
<LOSS-PROVISION> 292
<INTEREST-EXPENSE> 1,028
<INCOME-PRETAX> (428)
<INCOME-TAX> (172)
<INCOME-CONTINUING> (256)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (256)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
