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ex10_16.htm

EXHIBIT 10.16

AMENDMENT NUMBER TEN TO REVOLVING CREDIT AGREEMENT

This AMENDMENT NUMBER TEN TO REVOLVING CREDIT AGREEMENT (this “Amendment”), dated as of June 6, 2008, is entered into among NATIONAL TECHNICAL SYSTEMS, INC., a California corporation (“Parent”), NTS TECHNICAL SYSTEMS, a California corporation, dba National Technical Systems (“NTS”), XXCAL, INC., a California corporation (“XXCAL”), APPROVED ENGINEERING TEST LABORATORIES, INC., a California corporation (“AETL”), ETCR, INC., a California corporation (“ETCR”), ACTON ENVIRONMENTAL TESTING CORPORATION, a Massachusetts corporation (“Acton”), PHASE SEVEN LABORATORIES, INC., a California corporation (“Phase Seven”), UNITED STATES TEST LABORATORY, L.L.C., a Kansas limited liability company (“USTL”), ELLIOTT LABORATORIES, LLC, a California limited liability company (“ELA”) and one or more Subsidiaries of Parent, whether now existing or hereafter acquired or formed, which become party to the Agreement (as defined below) by executing an Addendum in the form of Exhibit 1 of the Agreement (NTS, XXCAL, AETL, ETCR, Acton, Phase Seven, USTL, ELA and such other Subsidiaries are sometimes individually referred to herein as a “Subsidiary Borrower” and collectively referred to herein as “Subsidiary Borrowers”, and Subsidiary Borrowers and Parent are sometimes individually referred to herein as a “Borrower” and collectively referred to herein as “Borrowers”), the financial institutions from time to time parties hereto as Lenders, whether by execution hereof or an Assignment and Acceptance in accordance with Section 11.5(c) of the Agreement, and Comerica Bank, in its capacity as contractual representative for itself and the other Lenders (“Agent”), with reference to the following facts:

A.             Borrowers (other than ELA), Agent and Lenders are parties to that certain Revolving Credit Agreement, dated as of November 21, 2001, as amended by that certain Amendment Number One to Revolving Credit Agreement, dated as of July 17, 2002, that certain Amendment Number Two to Revolving Credit Agreement, dated as of November 25, 2002, that certain Amendment Number Three to Revolving Credit Agreement, dated as of July 21, 2003, that certain Amendment Number Four to Revolving Credit Agreement, dated as of July 30, 2004, that certain Amendment Number Five to Revolving Credit Agreement, dated as of July 1, 2005, that certain Amendment Number Six to Revolving Credit Agreement, dated as of March 29, 2006, that certain Amendment Number Seven to Revolving Credit Agreement, dated as of September 21, 2006, that certain Amendment Number Eight to Revolving Credit Agreement, dated as of September 26, 2007, and that certain Amendment Number Nine to Revolving Credit Agreement, dated as of December 5, 2007  (as so amended, the “Agreement”);

B.             Borrowers (other than ELA) and Agent, in its capacity as Agent for the Lenders, entered into that certain Security Agreement, dated as of November 21, 2001 (the “Security Agreement”);

C.             Concurrent herewith, ELA is executing and delivering an Addendum to Revolving Credit Agreement and an Addendum to Security Agreement in order to become a Borrower under the Agreement and the Security Agreement; and

D.             Borrowers, Agent and Lenders desire to further amend the Agreement in accordance with the terms of this Amendment.

NOW, THEREFORE, in consideration of the foregoing, the parties hereto hereby agree as follows:

1.              Defined Terms.  All initially capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Agreement.

2.              Consent.  Borrowers have informed Agent and Lenders that Parent intends to acquire by merger Elliott Laboratories, Inc., a California corporation (the “Acquisition”).  After the merger transactions are consummated, Elliott Laboratories, Inc. will have been merged into ELA with ELA being the surviving company.  In connection with the Acquisition, Parent and, if applicable, its designee will owe certain holdback and earnout obligations to the former shareholders of Elliott Laboratories, Inc. (collectively, the “Earnout”).  Borrowers have therefore requested that the Lenders consent to the Acquisition and the Earnout.  Notwithstanding any term or provision of the Agreement to the contrary, the Lenders hereby consent to the Acquisition and the Earnout, and agree that the Acquisition and the Earnout shall not cause an Event of Default.  The consent set forth herein shall be limited precisely as written and shall not be deemed to be (i) an amendment, waiver, consent, or modification of any other term or condition of the Agreement, or (ii) prejudice any right or remedy which the Lenders may now or in the future have under or in connection with the Agreement.

3.              Amendments to the Agreement.

  

  

  

3.1            Borrowers.  All references to “Borrowers” in the Agreement shall include ELA.

3.2            Definitions.

(a)            The following definitions set forth in Section 1.1 of the Agreement are hereby amended in their entirety as follows:

“Amendment Date” means the date when all of the conditions set forth in Section 4 of Amendment No. 10 have been fulfilled to satisfaction of Agent and counsel.

“Commitment” means a Lender’s Revolving Credit Commitment, Term Loan A Commitment, Term Loan B Commitment and/or Term Loan C Commitment, as the context requires.

“Excess Cash Flow” means, for the applicable fiscal year of Borrowers, the result of (i) Consolidated Net Income, plus (ii) to the extent deducted from Consolidated Net Income, each Borrower’s consolidated depreciation, amortization and non-cash stock option expenses during such fiscal year, plus any decrease or minus any increase, as applicable, in (iii) Adjusted Working Capital for such fiscal year, minus (iv) the sum of (a) unfinanced Capital Expenditures made during such fiscal year up to the applicable amount set forth in Section 7.12, (b) all regularly scheduled payments of principal made on Funded Debt (excluding the Revolving Loans and any other revolving Funded Debt) during such fiscal year, and (c) the amount of any optional prepayments made on the Term Loans A, the Term Loans B and the Term Loans C during such fiscal year (excluding the proceeds of Permitted Real Estate Sales applied as permanent reductions to the Term Loans A, the Term Loans B and the Term Loans C); in each case calculated in accordance with GAAP.

“Interest Payment Date” means:

(i)             with respect to each Prime Lending Rate Portion, the last day of each and every quarter commencing the last such day after the making of such Loan, and the Revolving Loans Maturity Date (in the case of the Revolving Loans), the Term Loans A Maturity Date (in the case of the Term Loans A), the Term Loans B Maturity Date (in the case of the Term Loans B), and the Term Loans C Maturity Date (in the case of the Term Loans C).

(ii)            with respect to each LIBOR Lending Rate Portion, the earlier of:  (1) the last day of the Interest Period with respect thereto, or (2) if the Interest Period has a duration of more than three months, every LIBOR Business Day that occurs during such Interest Period every three months from the first day of such Interest Period; and

(iii)           with respect to the COF Lending Rate Loans, the last day of each and every quarter, and the Term Loans A Maturity Date.

“LIBOR Lending Rate Margin” means (a) with respect to all Revolving Loans, two percentage points (200 basis points), (b) with respect to the Term Loans A and the Term Loans B, two and one-quarter percentage points (225 basis points), and (c) with respect to the Term Loans C, two and one-half percentage points (250 basis points).

“Loans” means the Revolving Loans, the Term Loans A, the Term Loans B, and the Term Loans C (each, a “Loan”).

“Notes” means, collectively, the Revolving Notes, the Term A Notes, the Term B Notes, and the Term C Notes (each, a “Note”).

“Permitted Real Estate Sales” means, collectively, the Boxborough Real Estate Sale, the 118 Acre Parcel Sale, the Acton Real Estate Sale and the Fullerton Real Estate Sale.

“Prime Lending Rate” means the variable per annum rate equal to:  (a) with respect to Revolving Loans and Term Loans A and Term Loans B, the Prime Rate minus one quarter of one percentage point (25 basis points); and (b) with respect to Term Loans C, the Prime Rate.

  

  

  

“Total Commitment Percentage” means, with respect to any Lender, the percentage equal to sum of such Lender’s Revolving Loan Commitment, Term Loan A Commitment, Term Loan B Commitment and Term Loan C Commitment, divided by the Total Credit.

“Total Credit” means $43,829,000.

“Interest Period” means, with respect to each LIBOR Lending Rate Portion, the period commencing on the date of such LIBOR Lending Rate Portion and ending on the numerically corresponding day one (1), two (2), three (3), four (4), five (5), six (6) or twelve (12) months thereafter as Parent or any Borrower may elect pursuant to the applicable Notice of Borrowing or Notice of Conversion or Continuation; provided, however, that:

(i)             any Interest Period which would otherwise end on a day which is not a LIBOR Business Day shall be extended to the next succeeding LIBOR Business Day unless such LIBOR Business Day falls in another calendar month in which case such Interest Period shall end on the immediately preceding LIBOR Business Day;

(ii)            any Interest Period which begins on the last LIBOR Business Day of the calendar month (or on a day for which there is no numerically corres­ponding day in the calendar month at the end of such Interest Period) shall end on the last LIBOR Business Day of the calendar month in which it would have ended if there were a numerically corresponding day in such calendar month; and

(iii)           no Interest Period respecting a Revolving Loan may extend beyond the Revolving Loans Maturity Date, no Interest Period respecting the Term Loans A may extend beyond the Term Loans A Maturity Date, no Interest Period respecting the Term Loans B may extend beyond the Term Loans B Maturity Date, and no Interest Period respecting the Term Loans C may extend beyond the Term Loans C Maturity Date.

(b)            The following definitions are hereby added to Section 1.1 of the Agreement in alphabetical order:

“Acton Real Estate” means the commercial real estate owned by ETCR -and located at 533 Main Street, Acton, MA.

“Acton Real Estate Sale” means the sale of the Acton Real Estate.

“Acton Real Estate Sale Proceeds” means the proceeds received from the Acton Real Estate Sale in an amount equal to the greater of (i) $1,807,500, or (ii) the sale price of the Acton Real Estate, net of taxes and documented out-of-pocket costs and expenses incurred in connection with such sale.

“Amendment No. 10” means that certain Amendment Number Ten to Revolving Credit Agreement, dated as of June 6, 2008, among Borrowers, Agent and Lenders.

“ELA” means Elliot Laboratories, LLC, a California limited liability company.

“ELA Acquisition” means the acquisition by Parent (or its designee), through two successive merger transactions, of Elliott Laboratories, Inc., a California corporation.

“Fullerton Real Estate” means the commercial real estate owned by ETCR and located at 1536 E. Valencia Drive, Fullerton, CA.

“Fullerton Real Estate Sale” means the sale of the Fullerton Real Estate.

“Fullerton Real Estate Sale Proceeds” means the proceeds received from the Fullerton Real Estate Sale in an amount equal to the greater of (i) $3,825,000, or (ii) the sale price of the Fullerton Real Estate, net of taxes and documented out-of-pocket costs and expenses incurred in connection with such sale.

“Term Loan C Commitment” means, with respect to any Term Loan C Lender, the amount indicated opposite such Lender’s name on Schedule 1.1C under the heading Term Loan C Commitment or, in the case of any Lender that is an assignee Lender pursuant to Section 11.5(c), the amount of the assigning Lender’s Term Loan C Commitment assigned to such assignee Lender (collectively, the “Term Loan C Commitments”).

  

  

  

“Term Loan C Commitment Percentage” means, with respect to any Term Loan C Lender, the percentage indicated on Schedule 1.1C under the heading Term Loan C Commitment Percentage or, in the case of any Lender that is an assignee Lender pursuant to Section 11.5(c), the percentage the assigning Lender’s Term Loan C Commitment assigned to such assignee Lender.

“Term Loan C Lender” means each of the Lenders indicated on Schedule 1.1C under the heading Term Loan C Lenders, and also means any assignee of such Lender pursuant to Section 11.5(c).

“Term Loans C Maturity Date” means May 30, 2013.

“Term C Notes” means, collectively, the promissory notes executed by each Borrower to the order of each Lender pursuant to Section 2.11(a) to evidence such Lender’s Term Loan C.

3.3            Term Loans C.  The Agreement is hereby amended to add a new Section 2.3A as follows:

2.3A         Term Loans C.

(a)            Several Term Loans C.  Subject to the terms and conditions hereof, each Term Loan C Lender severally agrees to make a term loan (each a “Term Loan C” and collectively the “Term Loans C”) to Borrowers on the Amendment Date in an amount equal to each such Term Loan C Lender’s Term Loan C Commitment, the proceeds of which shall be used for the purposes allowed in Section 7.1(d).  Each Term Loan C Lender shall make the amount of such Lender’s Term Loan C available to Agent in same day funds, not later than 9:00 a.m. (Pacific time), on the Amendment Date, or as soon as practicable thereafter.  After Agent’s receipt of the proceeds of the Term Loans C, Agent shall disburse the Term Loans C as directed pursuant to written disbursement instructions provided by Borrowers.

(b)            Amortization.  Borrowers shall pay quarterly principal reduction payments on the Term Loans C each in the amount of $214,285.  Each such payment shall be due and payable on the last day of each quarter commencing July 31, 2008 and continuing on the last day of each succeeding quarter.  On the Term Loans C Maturity Date, the outstanding principal balance, and all accrued and unpaid interest under the Term Loans C shall be due and payable in full.

(c)            Prepayments.  Borrowers may prepay the Term Loans C at any time, in whole or in part, without penalty or premium except as otherwise required by Section 2.7(a) with respect to repayments of LIBOR Lending Rate Portions.  All principal amounts so repaid or prepaid may not be reborrowed. Borrowers shall give Agent at least two (2) LIBOR Business Days’ prior written notice of any prepayment of a LIBOR Lending Rate Portion, upon receipt of which, Agent shall promptly give notice to each Term Loan C Lender.  Upon receipt of any such notice of a prepayment, Agent shall promptly notify each Term Loan C Lender thereof.  Agent shall, promptly following its receipt of any payment or prepayment of the Term Loans C, distribute to each Term Loan C Lender its pro rata share (based upon the principal amounts outstanding) of all amounts received by Agent pursuant to this Section 2.3A for each such Term Loan C Lender’s respective account.  All prepayments shall be applied toward scheduled principal reductions payments owing under this Section 2.3A in inverse order of maturity.

3.4            Interest Rates.  Section 2.4(a) of the Agreement is hereby amended to add a new subsection (iv) as follows:

(iv)           Term Loans C.  Subject to the terms and conditions hereof, the Term Loans C, or portions thereof, may be outstanding as either Prime Lending Rate Portions or LIBOR Lending Rate Portions, by designating, in accordance with Sections 2.5(b) and 2.6(b), either the Prime Lending Rate, or the LIBOR Lending Rate to apply to all or any portion of the unpaid principal balance of the Term Loans C; provided, however, there shall be no more than three (3) LIBOR Lending Rate Portions of Term Loans C outstanding at any time.  LIBOR Lending Rate Portions of Term Loans C shall be in minimum amounts each of $1,000,000.

3.5            Notes.  Sections 2.11(a) and (b) of the Agreement are hereby amended in their entirety as follows:

(a)            Borrowers agree that, upon the request to Agent by any Lender if and to the extent that such Lender has a Commitment as of the date of such request, or in connection with any assignment pursuant to Section 11.5(c), to evidence such Lender’s Loans, Borrowers will execute and deliver to such Lender a Revolving Note, Term A Note, Term B Note and/or Term C Note, as applicable, substantially in the forms of Exhibit 2.11(a), with appropriate insertions as to payee, date and principal amount (each, as amended, supplemented, replaced or otherwise modified from time to time, a “Note” and, collectively, the “Notes”), payable to the order of such Lender and in a principal amount equal to

  

  

  

such Lender’s Revolving Credit Commitment, Term Loan A Commitment, Term Loan B Commitment and/or Term Loan C Commitment, as applicable.  Each Note shall (x) be dated the date the applicable Commitment became effective, (y) be payable as provided herein and (z) provide for the payment of  interest in accordance with Section 2.4.

(b)            The Revolving Loans and Borrowers’ obligation to repay the same shall be evidenced by the Revolving Notes, this Agreement and the books and records of Agent and the Revolving Loan Lenders.  The Term Loans A and Borrowers’ obligation to repay the same shall be evidenced by the Term A Notes, this Agreement and the books and records of Agent and the Term Loan A Lenders.  The Term Loans B and Borrowers’ obligation to repay the same shall be evidenced by the Term B Notes, this Agreement and the books and records of Agent and the Term Loan B Lenders.  The Term Loans C and Borrowers’ obligation to repay the same shall be evidenced by the Term C Notes, this Agreement and the books and records of Agent and the Term Loan C Lenders.  Agent shall maintain the Register pursuant to Section 10.13, and a sub-account therein for each Lender, in which shall be recorded (i) the amount of each Loan made hereunder, whether each such Loan is a LIBOR Lending Rate Portion, a Prime Lending Rate Portion or the COF Lending Rate Loans, and each Interest Period, if any, applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from Borrowers to each Lender hereunder and (iii) both the amount of any sum received by Agent hereunder from Borrowers and each Lender’s share thereof; provided, however, any failure by Agent to maintain the Register or any such sub-account with respect to any Loan or continuation, conversion or payment thereof shall not limit or otherwise affect Borrowers’ obligations hereunder or under the Notes.

3.6            Mandatory Principal Reductions.  Section 2.14 of the Agreement is hereby amended in its entirety as follows:

2.14          Mandatory Principal Reductions.

(a)            Asset Sales.  Each Borrower shall pay to Agent for the account of the Lenders, on the first Business Day following such Borrower’s receipt thereof, one hundred percent (100%) of the Net Cash Proceeds derived from each and all of its Asset Sales other than Permitted Real Estate Sales; provided that so long as no Event of Default has occurred and is continuing, Borrowers shall be permitted to retain the Net Cash Proceeds derived from (i) the Permitted Asset Sales, and (ii) any other Asset Sales, other than the Permitted Real Estate Sales, not to exceed $300,000 in any transaction or series of transactions or $500,000 in the aggregate in any fiscal year of Parent; provided, however, in accordance with Section 7.7, Borrowers shall not conduct or consummate any Asset Sales unless and until the prior written consent of Agent and the Majority Lenders has been obtained, or unless such Asset Sale is otherwise permitted by Section 7.7.  Agent shall apply such Net Cash Proceeds FIRST toward accrued and unpaid Expenses, SECOND toward accrued and unpaid interest on the Loans, THIRD toward the remaining scheduled principal reduction payments on the Term Loans A required by Section 2.2, the Term Loans B required by Section 2.3, and the Term Loans C required by Section 2.3A, on a pro rata basis, in inverse order of their maturity, and FOURTH, toward outstanding Revolving Loans.  In the event that any payments are applied toward outstanding Revolving Loans pursuant to this Section, the Revolving Credit Commitments shall be permanently reduced by the amount of such payments.

(b)            Issuance of Subordinate Debt and/or Capital Stock.  Borrowers shall also pay to Agent for the account of the Lenders one hundred percent (100%) of the net proceeds from the issuance of any subordinate Debt or fifty percent (50%) of the net proceeds from the issuance of Capital Stock of Parent (other than Capital Stock issued in connection a Permitted Acquisition) concurrent with any such issuance; provided that so long as no Event of Default has occurred and is continuing, Parent shall be entitled to retain the proceeds from the exercise of employee stock options not to exceed $1,000,000 in the aggregate in any fiscal year; provided further that Parent shall not issue any subordinate Debt without the prior written consent of Agent and the Majority Lenders and execution and delivery of a subordination agreement with respect thereto, in form and substance satisfactory to Agent and the Majority Lenders in their

  

  

  

sole and absolute discretion.  Agent shall apply such payment of proceeds FIRST toward accrued and unpaid Expenses, SECOND toward accrued and unpaid interest on the Loans, THIRD toward the remaining scheduled principal reduction payments on the Term Loans A required by Section 2.2 and the Term Loans B required by Section 2.3, and the Term Loans C required by Section 2.3A, on a pro rata basis, in inverse order of their maturity, and FOURTH, toward outstanding Revolving Loans.  In the event that any payments are applied toward outstanding Revolving Loans pursuant to this Section, the Revolving Credit Commitments shall be permanently reduced by the amount of such payments.

(c)            Excess Cash Flow.  Borrowers shall also pay to Agent for the account of the Lenders fifty percent (50%) of the Excess Cash Flow earned during each and every fiscal year of Parent.  Such payment of Excess Cash Flow shall (i) be in addition to any scheduled principal payments, or optional prepayments, and (ii) be paid within ten (10) Business Days after Parent’s delivery of its annual Financial Statements pursuant to Section 6.3(e) (commencing with the financial statements for the year ending January 31, 2009), and shall be based upon the Excess Cash Flow disclosed in such Financial Statements.  Agent shall apply such payment of Excess Cash Flow toward the remaining scheduled principal reduction payments on the Term Loans B required by Section 2.3, in inverse order of their maturity.

(d)            Boxborough Real Estate Sale.  Borrowers shall pay to Agent for the account of the Lenders, on the first Business Day following Borrowers’ receipt thereof, one hundred percent (100%) of the Boxborough Real Estate Sale Proceeds.  Agent shall apply such proceeds FIRST toward accrued and unpaid Expenses, SECOND toward accrued and unpaid interest on the Loans, and THIRD, toward the remaining scheduled principal reduction payments on the Term Loans A required by Section 2.2 in inverse order of their maturity.

(e)            118 Acre Parcel Sale.  Borrowers shall pay to Agent for the account of the Lenders, on the first Business Day following Borrowers’ receipt thereof, one hundred percent (100%) of the 118 Acre Parcel Sale Proceeds.  Agent shall apply such proceeds FIRST toward accrued and unpaid Expenses, SECOND toward accrued and unpaid interest on the Loans, and THIRD, toward the remaining scheduled principal reduction payments on the Term Loans B required by Section 2.3 in inverse order of their maturity.

(f)            Acton Real Estate Sale.  Borrowers shall pay to Agent for the account of the Lenders, on the first Business Day following Borrowers’ receipt thereof, one hundred percent (100%) of the Acton Real Estate Sale Proceeds.  Agent shall apply such proceeds FIRST toward accrued and unpaid Expenses, SECOND toward accrued and unpaid interest on the Loans, and THIRD, toward the remaining scheduled principal reduction payments on the Term Loans C required by Section 2.3A in inverse order of their maturity.

(g)            Fullerton Real Estate Sale.  Borrowers shall pay to Agent for the account of the Lenders, on the first Business Day following Borrowers’ receipt thereof, one hundred percent (100%) of the Fullerton Real Estate Sale Proceeds.  Agent shall apply such proceeds FIRST toward accrued and unpaid Expenses, SECOND toward accrued and unpaid interest on the Loans, and THIRD, toward the remaining scheduled principal reduction payments on the Term Loans C required by Section 2.3A in inverse order of their maturity.

3.7            Section 6.16 of the Agreement is hereby amended in its entirety to read as follows:

6.16  Saugus Real Estate.  As soon as possible, but in no event more than two hundred forty (240) days following December 5, 2007, Borrowers shall either (a) cause the Saugus Real Estate to be subdivided such that the 118 acres as more particularly described on Exhibit 6.16 attached hereto (the “118 Acre Parcel”) is separate and can be insured by a separate policy of title insurance from the 25 acres contiguous

  

  

  

to the 118 Acre Parcel and located at 20970 Center Pointe Parkway, Saugus, California 91350 (the “25 Acre Parcel”); or (b) deliver to Agent a Phase II Environmental Site Assessment report with respect to the 25 Acre Parcel in form and substance (including conclusions as to the lack of hazardous waste and other environmental problems) satisfactory to Agent, in its sole and unrestricted discretion. If and when the Saugus Real Estate is subdivided into the 118 Acre Parcel and the 25 Acre Parcel, Agent may, in its sole and unrestricted discretion, require that (i) the Deed of Trust (as defined below), as modified by the First Amendment (as defined below), be further modified such that the Deed of Trust shall be recorded against each of the 118 Acre Parcel and the 25 Acre Parcel, with the correct applicable legal description attached to each modification of the Deed of Trust, and (ii) the title policy for the Saugus Real Estate, issued pursuant to Section 4(p)(iv) of Amendment No. 9, be split into two (2) ALTA Extended Coverage Loan title policies (Form 2006), one of which covers the 118 Acre Parcel, and the other of which covers the 25 Acre Parcel, each in an amount and containing such endorsements as Agent may request, in its sole and unrestricted discretion.

3.8            Use of Funds.  Section 7.1 of the Agreement is hereby amended in its entirety as follows:

(a)            Use any proceeds of the Revolving Loans for any purpose other than for working capital;

(b)            Use any proceeds of the Term Loans A for any purpose other than to refinance the Pre-Existing Term Debt, payment of closing costs in connection with the USTL Acquisition, or for working capital purposes;

(c)            Use any proceeds of the Term Loans B for any purpose other than to fund the purchase price paid by Parent in connection with the USTL Acquisition;

(d)            Use any proceeds of the Term Loans C for any purpose other than to fund the purchase price, transaction costs and repayment of debt in connection with the ELA Acquisition; or

(e)            Use any portion of the proceeds of the Loans in any manner which might cause the Loans, the applica­tion of the proceeds thereof, or the transactions contemplated by this Agreement to violate Regulation T, U, or X of the Board of Governors of the Federal Reserve System, or any other regulation of such board, or to violate the Securities and Exchange Act of 1934, as amended or supplemented.

3.9            Replacement of Affected Lenders.  The first paragraph of Section 10.16 of the Agreement is amended as follows:

10.16        Replacement of Affected Lenders.  If any Lender (other than Agent) (x) is owed a material amount of increased costs under Section 2.7 or ceases to be obligated to make LIBOR Lending Rate Loans as a result of the operation of Sections 2.8 or 2.9, (y) refuses to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved pursuant to Section 11.4 by the Majority Lenders, the Revolving Loan Lenders the Revolving Credit Commitment Percentage of which aggregate more than 66.67%, the Term Loan A Lenders the Term Loan A Commitment Percentage of which aggregate more than 66.67%, or the Term Loan B Lenders the Term Loan B Commitment Percentage of which aggregate more than 66.67%, or the Term Loan C Lenders the Term Loan C Commitment Percentage of which aggregate more than 66.67%, as applicable; or (z) is in default of its obligations hereunder, then Agent shall have the right, but not the obligation, to replace such Lender (the “Replaced Lender”) with one or more Eligible Assignees (collectively, the “Replacement Lender”) provided, that:

3.10          Amendments and Waivers.  Sections 11.4 (iv) and (v) of the Agreement are hereby amended in their entirety as follows:

(iv)  amend, modify or waive any provision of this Agreement regarding the allocation of prepayment amounts to the Term Loans A or the application of such prepayment amounts to the

  

  

  

respective installments of principal under the respective Term Loans A without the written consent of the Term Loan A Lenders the Term Loan A Commitment Percentages of which aggregate more than 66.67%; or amend, modify or waive any provision of this Agreement regarding the allocation of prepayment amounts to the Revolving Loans or the application of such prepayment amounts to the respective installments of principal under the respective Revolving Loans without the written consent of the Revolving Loan Lenders the Revolving Loan Commitment Percentages of which aggregate more than 66.67%; or amend, modify or waive any provision of this Agreement regarding the allocation of prepayment amounts to the Term Loans B or the application of such prepayment amounts to the respective installments of principal under the respective Term Loans B without the written consent of the Term Loan B Lenders the Term Loan B Commitment Percentages of which aggregate more than 66.67%, or amend, modify or waive any provision of this Agreement regarding the allocation of prepayment amounts to the Term Loans C or the application of such prepayment amounts to the respective installments of principal under the respective Term Loans C without the written consent of the Term Loan C Lenders the Term Loan C Commitment Percentages of which aggregate more than 66.67%; or

(v)            subject to clause (i) of this Section 11.4 as it relates to reducing the amount or extending the scheduled date of maturity of any Loan or any installment thereof, amend, modify or waive any provision of (w) Section 2.1 or Section 2.11 (to the extent it relates to Revolving Loans) without the written consent of Revolving Loan Lenders the Revolving Loan Commitment Percentages of which aggregate more than 66.67%; or (x) Section 2.2 or Section 2.11 (to the extent it relates to the Term Loans A) without the written consent of Term Loan A Lenders the Term Loan A Commitment Percentages of which aggregate more than 66.67%; or (y) Section 2.3 or Section 2.11 (to the extent it relates to the Term Loans B) without the written consent of Term Loan B Lenders the Term Loan B Commitment Percentages of which aggregate more than 66.67%, or (z) Section 2.3A or Section 2.11 (to the extent it relates to the Term Loans C) without the written consent of Term Loan C Lenders the Term Loan C Commitment Percentages of which aggregate more than 66.67%; or

3.11          Amendment to Schedule 1.1C.  Schedule 1.1C of the Agreement is hereby replaced with the Schedule 1.1C attached hereto.

3.12          Amendment to Exhibit 2.11(a).  Exhibit 2.11(a) to the Agreement is hereby appended with the form of Term C Note set forth on the Exhibit 2.11(a) attached hereto.

3.13          Amendment to Schedule 5.9.  Schedule 5.9 (Subsidiaries) of the Agreement is hereby replaced with the Schedule 5.9 attached hereto.

4.              Conditions Precedent to Effectiveness of Amendment.  The effectiveness of this Amendment is subject to and contingent upon the fulfillment of each and every one of the following conditions:

(a)            Agent shall have received this Amendment, duly executed by Borrowers and all Lenders;

(b)            Agent shall have received payment of a fee, for the ratable benefit of the Lenders, equal to $30,000;

(c)            Agent shall have received the Term C Notes payable to each Lender in the amount of such Lender’s respective Term Loan C Commitment, duly executed by Borrowers;

(d)            Lenders shall have reviewed to their satisfaction the Agreement and Plan of Merger and related documents and agreements in connection with the ELA Acquisition, and shall have received an executed collateral assignment of Parent’s rights arising under such Agreement and Plan of Merger, in form and substance satisfactory to Agent;

(e)            Agent shall have received evidence that the closing, consummation and satisfaction of all conditions precedent in connection with the ELA Acquisition have been made in accordance with the terms of the Agreement and Plan of Merger and all applicable laws, rules and regulations, and confirmation that the assets of ELA are free and clear of all claims and rights of third Persons, other than Permitted Liens;

  

  

  

(f)             Agent shall have received executed settlement and release agreements, with disbursement instructions, relating to the payoff of (i) GE Capital with respect to its loan secured by the Fullerton Real Estate, (ii) Commerce Bank with respect to its loan secured by the Acton Real Estate, and (iii) the sellers (and any debt of ELA that is to be paid at closing in accordance with the Stock Purchase Agreement) in connection with the ELA Acquisition, together with such releases and UCC-3 termination statements with respect to such payoff, in form and substance satisfactory to Agent;

(g)            Agent shall have received an Addendum to Revolving Credit Agreement and an Addendum to Security Agreement, duly executed by ELA, together with all Schedules thereto, in form and substance satisfactory to Agent and Lenders;

(h)            Agent shall have received an updated draft of Schedule 1 to the Parent’s Stock Pledge Agreement listing 100% of the membership interest of ELA;

(i)             Agent shall have received, for the pro rata account of Lenders, all Expenses owing on the Amendment Date;

(j)             No Material Adverse Effect shall have occurred and be continuing, as determined by Lenders in their reasonable discretion;

(k)            No Event of Default or Unmatured Event of Default shall have occurred and be continuing; and

(l)             All of the representations and warranties set forth herein, in the Loan Documents and in the Agreement shall be true, complete and accurate in all respects as of the date hereof (except for representations and warranties which are expressly stated to be true and correct as of an earlier date).

(m)            With respect to ELA:

(i)             receipt by Agent of a Certificate of the Corporate Secretary of ELA, dated as of the Amendment Date, certifying (1) the incumbency and signatures of the Responsible Officers of ELA who are executing this Agreement and the Loan Documents on behalf of ELA; (2) the Articles of Organization and Operating Agreement of ELA, and all amendments thereto, as being true and correct and in full force and effect; and (3) the resolutions of the Board of Directors of ELA as being true and correct and in full force and effect, authorizing the execution and delivery of this Agreement and the Loan Documents, and authorizing the transactions contemplated hereunder and thereunder, and authorizing the Responsible Officers of ELA to execute the same on behalf of ELA;

(ii)            receipt by Agent of ELA’s Articles of Organization and all amendments thereto, certified by the Secretary of State of its state of organization and dated a recent date prior to the Amendment Date;

(iii)            receipt by Agent of a certificate of status and good standing for ELA, dated a recent date prior to the Amendment Date, showing that ELA is in good standing under the laws of the state of its organization;

(iv)            receipt by Agent of Uniform Commercial Code and other public record searches with respect to ELA, in each case reasonably satisfactory to Agent; and

(v)            receipt by Agent of copies of insurance binders or insurance certificates for ELA;

(p)            With respect to the Saugus Real Estate and Boxborough Real Estate, Agent shall have received duly executed and issued amendments and endorsements, in form and substance satisfactory to Agent, of the existing deed of trust and mortgage and policies of title insurance as may be required by Agent to reflect the Term Loans C.

  

  

  

(q)            With respect to the Fullerton Real Estate, Agent shall have received duly executed and issued deed of trust, assignment of rents and fixture filing, and a policy of title insurance, together with a Phase II Environmental Site Assessment report respecting such property (including conceptual cost estimates), all in form and substance satisfactory to Agent and as may otherwise be required by Agent.

(r)             With respect to the Acton Real Estate, Agent shall have received duly executed and issued mortgage, assignment of rents and fixture filing, and a policy of title insurance, together with a Phase II Environmental Site Assessment report respecting such property (including conceptual cost estimates), all in form and substance satisfactory to Agent and as may otherwise be required by Agent.

(s)            receipt by Agent of such other documents, instruments and agreements as Agent may reasonably request in connection with the transactions contemplated hereunder or to perfect or protect the liens and security interests granted to Agent for the ratable benefit of Lenders in connection herewith;

5.              Representations and Warranties.  In order to induce Agent and Lenders to enter into this Amendment, each Borrower hereby represents and warrants to Agent and Lenders that:

(a)            No Event of Default or Unmatured Event of Default is continuing;

(b)            All of the representations and warranties set forth in the Agreement and the Loan Documents are true, complete and accurate in all material respects (except for representations and warranties which are expressly stated to be true and correct as of an earlier date); and

(c)            This Amendment has been duly executed and delivered by Borrowers, and after giving effect to this Amendment, the Agreement and the Loan Documents continue to constitute the legal, valid and binding agreements and obligations of Borrowers, enforceable in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, and similar laws and equitable principles affecting the enforcement of creditors’ rights generally.

6.              Counterparts; Telefacsimile Execution.  This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Amendment.  Delivery of an executed counterpart of this Amendment by telefacsimile shall be equally as effective as delivery of a manually executed counterpart of this Amendment.  Any party delivering an executed counterpart of this Amendment by telefacsimile also shall deliver a manually executed counterpart of this Amendment but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment.

7.             Integration.  The Agreement as amended by this Amendment constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and thereof, and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof and thereof.

8.              Reaffirmation of the Agreement.  The Agreement as amended hereby and the other Loan Documents remain in full force and effect.

[remainder of page intentionally left blank]

  

  

  

 

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment as of the date first hereinabove written.

	  	
NATIONAL TECHNICAL SYSTEMS, INC.

	  	  	  
	 	 	 
	  	
By:

	
    /s/ Raffy Lorentzian

	  	  	
    Raffy Lorentzian, Chief Financial Officer

	  	  	  
	  	  	  
	  	
NTS TECHNICAL SYSTEMS dba NATIONAL TECHNICAL SYSTEMS

	  	  	  
	 	 	 
	  	
By:

	
    /s/ Raffy Lorentzian

	  	  	
    Raffy Lorentzian, Chief Financial Officer

	  	  	  
	  	  	  
	  	
XXCAL, INC.

	  	  	  
	 	 	 
	  	
By:

	
    /s/ Raffy Lorentzian

	  	  	
    Raffy Lorentzian, Chief Financial Officer

	 	 	 
	 	 	 
	  	
APPROVED ENGINEERING TEST LABORATORIES, INC.

	  	  	  
	 	 	 
	  	
By:

	
    /s/ Raffy Lorentzian

	  	  	
    Raffy Lorentzian, Chief Financial Officer

	  	  	  
	  	  	  
	  	
ETCR, INC.

	  	  	  
	 	 	 
	  	
By:

	
    /s/ Raffy Lorentzian

	  	  	
    Raffy Lorentzian, Chief Financial Officer

	  	  	  
	  	  	  
	  	
ACTON ENVIRONMENTAL TESTING CORPORATION

	  	  	  
	 	 	 
	  	
By:

	
    /s/ Raffy Lorentzian

	  	  	
    Raffy Lorentzian, Chief Financial Officer

	  	  	  
	  	  	  
	  	
PHASE SEVEN LABORATORIES, INC.

	  	  	  
	 	 	 
	  	
By:

	
    /s/ Raffy Lorentzian

	  	  	
    Raffy Lorentzian, Chief Financial Officer

  

  

  

 

	  	
UNITED STATES TEST LABORATORY, L.L.C.,

	  	
a Kansas limited liability company

	  	  	  
	 	 	 
	  	
By:

	
           NTS TECHNICAL SYSTEMS dba NATIONAL

	 	TECHNICAL SYSTEMS, a California corporation
	 	 	 
	  	
Its:

	
    Class A Member

	  	  	  
	  	
By:

	
    /s/ Raffy Lorentzian

	  	  	
    Raffy Lorentzian, Chief Financial Officer

	  	  	  
	  	  	  
	  	
ELLIOTT LABORATORIES, LLC, a California limited liability company

	  	  	  
	 	 	 
	  	
By:

	
    /s/ Raffy Lorentzian

	  	  	
    Raffy Lorentzian, Chief Financial Officer

  

  

  

 

	  	
COMERICA BANK, in its capacities as Agent, Issuing Lender and a Lender

	  	  	  
	  	  	  
	  	
By:

	
    /s/ Vahe Medzoyan

	  	  	
    Vahe S. Medzoyan, Vice President

	  	  	  
	  	  	  
	  	
FIRST BANK, in its capacity as a Lender

	  	  	  
	  	  	  
	  	
By:

	
    /s/ Blake Seaton

	  	
Name:  Blake Seaton

	  	
Title:  Vice President

  

  

  

Schedule 1.1C

Schedule of Commitments

	
Revolving Loan Lender

	
Revolving Credit

Commitment

	
Revolving Credit

Commitment Percentage

	
Comerica

First Bank

	
$9,900,000

$6,600,000

	
60%

40%

	
Term Loan A Lender

	
Term Loan A Commitment

	
Term Loan Commitment

Percentage

	
Comerica

First Bank

	
$5,400,000

$3,600,000

	
60%

40%

	
Term Loan B Lender

	
Term Loan B Commitment

	
Term Loan B Commitment

Percentage

	
Comerica

First Bank

	
$7,590,000

$5,060,000

	
60%

40%

	
Term Loan C Lender

	
Term Loan C Commitment

	
Term Loan C Commitment

Percentage

	
Comerica

First Bank

	
$3,600,000

$2,400,000

	
60%

40%

  

  

  

Exhibit 2.11(a)

Form of Term C Note

  

  

  

SECURED TERM LOAN C PROMISSORY NOTE

	
$___________

	
Los Angeles, California

	  	
 _______________, 20__

This Secured Term Loan C Promissory Note (this “Note”) is being delivered pursuant to that certain Revolving Credit Agreement, dated as of November 21, 2001, as amended, by and among Makers (as defined below), the financial institutions from time to time parties thereto as the Lenders, and Comerica Bank, as contractual representative for itself and the Lenders (as the same may be at any time heretofore or hereafter amended, supplemented, or otherwise modified or restated, the “Agreement”).  Initially capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Agreement.

FOR VALUE RECEIVED, NATIONAL TECHNICAL SYSTEMS, INC., a California corporation, NTS TECHNICAL SYSTEMS, a California corporation, dba National Technical Systems, XXCAL, INC., a California corporation, APPROVED ENGINEERING TEST LABORATORIES, INC., a California corporation, ETCR, INC., a California corporation, PHASE SEVEN LABORATORIES, INC., a California corporation, UNITED STATES TEST LABORATORY, L.L.C., a Kansas limited liability company, ACTON ENVIRONMENTAL TESTING CORPORATION, a Massachusetts corporation, and ELLIOTT LABORATORIES, LLC, a California limited liability company (collectively, “Makers”), jointly and severally promise to pay to the order of _______________ (“Payee”), on or before the Term Loans C Maturity Date, the principal sum of ________________ Dollars ($___________), or such lesser sum as shall equal the aggregate outstanding principal amount of the Term Loan C made by Payee to Makers jointly and severally pursuant to the Agreement (as defined below).

Makers promise to make principal reduction payments on the outstanding principal balance hereof in the amounts and on the dates specified in the Agreement.  Makers further promise to pay interest from the date of this Note in like money on the aggregate outstanding principal amount hereof at the rates and on the dates provided in the Agreement.  All computations of interest shall be in accordance with the provisions of the Agreement.

Makers hereby authorize Payee to record in its books and records the date, type and amount of the Term Loan C, and of each continuation, conversion and payment of principal made by Makers, and Makers agree that all such notations shall, in the absence of manifest error, be conclusive as to the matters so noted; provided, however, any failure by Payee to make such notation with respect to the Term Loan C or continuation, conversion, or payment thereof shall not limit or otherwise affect Makers’ obligations under the Agreement or this Note.

Upon the occurrence and during the continuance of an Event of Default, in addition to and not in substitution of any of Agent or Lenders’ other rights and remedies with respect to such Event of Default, the entire unpaid principal balance owing hereunder shall bear interest at the applicable Lending Rate plus three hundred (300) basis points.  In addition, interest, Expenses and Fees, and other amounts due hereunder or under the Agreement not paid when due shall bear interest at the Prime Lending Rate plus three hundred (300) basis points until such overdue payment is paid in full.

If any payment due hereunder, whether for principal, interest, or otherwise, is not paid on or before the tenth day after the date such payment is due, in addition to and not in substitution of any of Payee’s other rights and remedies with respect to such nonpayment, Makers shall pay to Payee, a late payment fee (“Late Payment Fee”) equal to five percent (5%) of the amount of such overdue payment.  The Late Payment Fee shall be due and payable on the eleventh day after the due date of the overdue payment with respect thereto.

Makers shall make all payments hereunder in lawful money of the United States of America and in immediately available funds to Comerica Bank (“Agent”), for the account of Payee, at Agent’s office located at 15303 Ventura Boulevard, Suite 100, Sherman Oaks, CA 91403, Attention: Vahe S. Medzoyan; or to such other address as Agent may from time to time specify by notice to Makers in accordance with the terms of the Agreement.

In no event shall the interest rate and other charges hereunder exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto.  In the event that such a court determines that Payee has received interest and other charges hereunder in excess of the highest rate applicable hereto, such excess shall be deemed received on account of, and shall automatically be applied to reduce, the principal balance hereof, and the provisions hereof shall be deemed amended to provide for the highest permissible rate.  If there is no principal balance outstanding, Payee shall refund to Makers such excess.

This Note is one of the “Term C Notes” issued pursuant to the Agreement and is governed by the terms thereof.   The Agreement, among other things, contains provisions for acceleration of the maturity of this Note upon the happening of certain stated

  

  

  

events and also for prepayments on account of principal of this Note prior to the maturity hereof upon the terms and conditions specified in the Agreement.  This Note and the Term Loan C evidenced hereby may be assigned or otherwise transferred in whole or in part only by registration of such assignment or transfer on the Register maintained by Agent pursuant to the terms of the Agreement.

This Note is secured by the Liens granted to Agent, for the ratable benefit of Lenders, under the Loan Documents.

Makers hereby waive presentment for payment, notice of dishonor, protest and notice of protest.

THE VALIDITY OF THIS NOTE AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD FOR PRINCIPLES OF CONFLICTS OF LAWS.

THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT PAYEE’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE PAYEE ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  MAKERS AND PAYEE WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 11.

MAKERS AND PAYEE HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE OR ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  MAKERS AND PAYEE REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

This Note hereby incorporates the Reference Provision set forth in Section 11.10 of the Loan Agreement.

  

  

  

IN WITNESS WHEREOF, Makers have duly executed this Note as of the date first above written.

	  	
NATIONAL TECHNICAL SYSTEMS, INC.

	  	  	  
	  	  	  
	  	
By:

	  
	  	  	
    Raffy Lorentzian, Chief Financial Officer

	  	  	  
	  	  	  
	  	
NTS TECHNICAL SYSTEMS dba NATIONAL TECHNICAL

	  	
SYSTEMS

	  	  	  
	  	  	  
	  	
By:

	  
	  	  	
    Raffy Lorentzian, Chief Financial Officer

	  	  	  
	  	  	  
	  	
XXCAL, INC.

	  	  	  
	  	  	  
	  	
By:

	  
	  	  	
    Raffy Lorentzian, Chief Financial Officer

	  	  	  
	  	  	  
	  	
APPROVED ENGINEERING TEST LABORATORIES, INC.

	  	  	  
	  	  	  
	  	
By:

	  
	  	  	
    Raffy Lorentzian, Chief Financial Officer

	  	  	  
	  	  	  
	  	
ETCR, INC.

	  	  	  
	  	  	  
	  	
By:

	  
	  	  	
    Raffy Lorentzian, Chief Financial Officer

	  	  	  
	  	  	  
	  	
ACTON ENVIRONMENTAL TESTING CORPORATION

	  	  	  
	  	  	  
	  	
By:

	  
	  	  	
    Raffy Lorentzian, Chief Financial Officer

	  	  	  
	  	  	  
	  	
PHASE SEVEN LABORATORIES, INC.

	  	  	  
	  	  	  
	  	
By:

	  
	  	  	
    Raffy Lorentzian, Chief Financial Officer

  

  

  

	  	
UNITED STATES TEST LABORATORY, L.L.C.,

	  	
a Kansas limited liability company

	  	  	  
	  	
By:      NATIONAL TECHNICAL SYSTEMS, INC., a California corporation

	  	  	  
	  	
Its:    Class A Member

	  	  	  
	  	
By:

	  
	  	  	
Raffy Lorentzian, Chief Financial Officer

	  	  	  
	  	  	  
	  	
ELLIOTT LABORATORIES, LLC, a California limited liability company

	  	  
	  	  	  
	  	
By:

	  
	  	  	
    Raffy Lorentzian, Chief Financial Officer

  

  

  

Schedule 5.9

Subsidiaries

Direct Subsidiaries of Parent (100% Owned unless otherwise noted below):

	
1.

	
NTS, Technical Systems, a California Corp. (dba National Technical Systems)

	
2.

	
XXCAL, Inc., a California Corp.

	
3.

	
National Quality Assurance, Inc., a Massachusetts Corp. (50% Owned)

	
4.

	
NTS Europe, Gmbh

	
5.

	
AETL Testing, Inc., a Canadian Corp. (dba NTS Calgary)

	
6.

	
Elliott Laboratories, LLC, a California limited liability company

Direct Subsidiaries of NTS (100% Owned unless otherwise noted below):

	
1.

	
Acton Environmental Testing Corporation, a Massachusetts Corp.

	
2.

	
Approved Engineering Testing Laboratories, Inc., a California Corp.

	
3.

	
ETCR Inc., A California Corp.

	
4.

	
Phase Seven Laboratories, a California Corp.

	
5.

	
United States Test Laboratory, L.L.C., a Kansas limited liability companyex10_17.htm

EXHIBIT 10.17

NATIONAL TECHNICAL SYSTEMS, INC.

2006 EQUITY INCENTIVE PLAN

8.             Purpose of the Plan.  The purpose of this Plan is to encourage ownership in the Company by key personnel whose long-term service is considered essential to the Company's continued progress and, thereby, encourage recipients to act in the stockholders' interest and share in the Company's success.

9.             Definitions.  As used herein, the following definitions shall apply:

"Act" shall mean the Securities Act of 1933, as amended.

"Administrator" shall mean the Board or any Committees or such delegates as shall be administering the Plan in accordance with Section 4 of the Plan.

"Affiliate" shall mean any entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant ownership interest as determined by the Administrator.

"Applicable Laws" shall mean the requirements relating to the administration of stock plans under federal and state laws; any stock exchange or quotation system on which the Company has listed or submitted for quotation the Common Stock to the extent provided under the terms of the Company's agreement with such exchange or quotation system; and, with respect to Awards subject to the laws of any foreign jurisdiction where Awards are, or will be, granted under the Plan, to the laws of such jurisdiction.

"Award" shall mean, individually or collectively, a grant under the Plan of an Option, Stock Award, SAR, or Cash Award.

"Awardee" shall mean a Service Provider who has been granted an Award under the Plan.

"Award Agreement" shall mean an Option Agreement, Stock Award Agreement, SAR Agreement, or Cash Award Agreement, which may be in written or electronic format, in such form and with such terms as may be specified by the Administrator, evidencing the terms and conditions of an individual Award.  Each Award Agreement is subject to the terms and conditions of the Plan.

"Board" shall mean the Board of Directors of the Company.

"Cash Award" shall mean a bonus opportunity awarded under Section 13 pursuant to which a Participant may become entitled to receive an amount based on the satisfaction of such performance criteria as are specified in the agreement or other documents evidencing the Award (the "Cash Award Agreement").

"Change in Control" shall mean any of the following, unless the Administrator provides otherwise:

  

1

  

any merger or consolidation in which the Company shall not be the surviving entity (or survives only as a subsidiary of another entity whose stockholders did not own all or substantially all of the Common Stock in substantially the same proportions as immediately before such transaction);

the sale of all or substantially all of the Company's assets to any other person or entity (other than a wholly-owned subsidiary of the Company);

the acquisition of beneficial ownership of a controlling interest (including power to vote) in the outstanding shares of Common Stock by any person or entity (including a "group" as defined by or under Section 13(d)(3) of the Exchange Act);

the dissolution or liquidation of the Company;

a contested election of Directors, as a result of which or in connection with which the persons who were Directors before such election or their nominees cease to constitute a majority of the Board; or

any other event specified by the Board or a Committee, regardless of whether at the time an Award is granted or thereafter.

Notwithstanding the foregoing, the term "Change in Control" shall not include any underwritten public offering of Shares registered under the Act.

"Code" shall mean the Internal Revenue Code of 1986, as amended.

"Committee" shall mean a committee of Directors appointed by the Board in accordance with Section 4 of the Plan.

"Common Stock" shall mean the common stock of the Company.

"Company" shall mean National Technical Systems, Inc., a California corporation, or its successor.

"Consultant" shall mean any natural person, other than an Employee or Director, who performs bona fide services for the Company or an Affiliate as a consultant or advisor.

"Conversion Award" has the meaning set forth in Section 4(b)(xii) of the Plan.

"Director" shall mean a member of the Board.

"Disability" shall mean permanent and total disability as defined in Section 22(e)(3) of the Code.

"Employee" shall mean an employee of the Company or any Affiliate, and may include an Officer or Director.  Within the limitations of Applicable Law, the Administrator shall have the discretion to determine the effect upon an Award and upon an individual's status as an Employee in the case of (i) any individual who is classified by the Company or its Affiliate as

  

2

  

leased from or otherwise employed by a third party or as intermittent or temporary, even if any such classification is changed retroactively as a result of an audit, litigation or otherwise; (ii) any leave of absence approved by the Company or an Affiliate; (iii) any transfer between locations of employment with the Company or an Affiliate or between the Company and any Affiliate or between any Affiliates; (iv) any change in the Awardee's status from an employee to a Consultant or Director; and (v) an employee who, at the request of the Company or an Affiliate, becomes employed by any partnership, joint venture or corporation not meeting the requirements of an Affiliate in which the Company or an Affiliate is a party.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

"Fair Market Value" shall mean, unless the Administrator determines otherwise, as of any date, the closing price for such Common Stock as of such date (or if no sales were reported on such date, the closing price on the last preceding day for which a sale was reported), as reported in such source as the Administrator shall determine.

"Grant Date" shall mean the date upon which an Award is granted to an Awardee pursuant to this Plan.

"Incentive Stock Option" shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

"Nonstatutory Stock Option" shall mean an Option not intended to qualify as an Incentive Stock Option.

"Officer" shall mean a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act.

"Option" shall mean a right granted under Section 8 of the Plan to purchase a certain number of Shares at such exercise price, at such times, and on such other terms and conditions as are specified in the agreement or other documents evidencing the Award (the "Option Agreement").  Both Options intended to qualify as Incentive Stock Options and Nonstatutory Stock Options may be granted under the Plan.

"Participant" shall mean the Awardee or any person (including any estate) to whom an Award has been assigned or transferred as permitted hereunder.

"Plan" shall mean this National Technical Systems, Inc. 2006 Equity Incentive Plan.

"Qualifying Performance Criteria" shall have the meaning set forth in Section 14(b) of the Plan.

"Related Corporation" shall mean any parent or subsidiary (as those terms are defined in Section 424(e) and (f) of the Code) of the Company.

"Service Provider" shall mean an Employee, Officer, Director, or Consultant.

  

3

  

"Share" shall mean a share of the Common Stock, as adjusted in accordance with Section 15 of the Plan.

"Stock Award" shall mean an award or issuance of Shares or Stock Units made under Section 11 of the Plan, the grant, issuance, retention, vesting, and transferability of which is subject during specified periods to such conditions (including continued service or performance conditions) and terms as are expressed in the agreement or other documents evidencing the Award (the "Stock Award Agreement").

"Stock Appreciation Right" or "SAR" shall mean an Award, granted alone or in connection with an Option, that pursuant to Section 12 of the Plan is designated as a SAR.  The terms of the SAR are expressed in the agreement or other documents evidencing the Award (the "SAR Agreement").

"Stock Unit" shall mean a bookkeeping entry representing an amount equivalent to the fair market value of one Share, payable in cash, property or Shares.  Stock Units represent an unfunded and unsecured obligation of the Company, except as otherwise provided for by the Administrator.

"Ten-Percent Stockholder" shall mean the owner of stock (as determined under Section 424(d) of the Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company (or any Related Corporation).

"Termination of Service" shall mean ceasing to be a Service Provider.  However, for Incentive Stock Option purposes, Termination of Service will occur when the Awardee ceases to be an employee (as determined in accordance with Section 3401(c) of the Code and the regulations promulgated thereunder) of the Company or one of its Related Corporations.  The Administrator shall determine whether any corporate transaction, such as a sale or spin-off of a division or business unit, or a joint venture, shall be deemed to result in a Termination of Service.

10.           Stock Subject to the Plan.

Aggregate Limits.

The maximum aggregate number of Shares that may be issued under the Plan through Awards is 300,000 Shares.  Notwithstanding the foregoing, the maximum aggregate number of Shares that may be issued under the Plan through Incentive Stock Options is 300,000 Shares.  The limitations of this Section 3(a)(i) shall be subject to the adjustments provided for in Section 15 of the Plan.

Upon payment in Shares pursuant to the exercise of an Award, the number of Shares available for issuance under the Plan shall be reduced only by the number of Shares actually issued in such payment.  If any outstanding Award expires or is terminated or canceled without having been exercised or settled in full, or if Shares acquired pursuant to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company, the Shares allocable to the terminated portion of such Award or such forfeited or repurchased Shares shall again be available to grant under the

  

4

  

Plan.  Notwithstanding the foregoing, the aggregate number of shares of Common Stock that may be issued under the Plan upon the exercise of Incentive Stock Options shall not be increased for restricted Shares that are forfeited or repurchased.  Notwithstanding anything in the Plan, or any Award Agreement to the contrary, Shares attributable to Awards transferred under any Award transfer program shall not be again available for grant under the Plan.  The Shares subject to the Plan may be either Shares reacquired by the Company, including Shares purchased in the open market, or authorized but unissued Shares.

Code Section 162(m) Limit.  Subject to the provisions of Section 15 of the Plan, the aggregate number of Shares subject to Awards granted under this Plan during any calendar year to any one Awardee shall not exceed 30,000, except that in connection with his or her initial service, an Awardee may be granted Awards covering up to an additional 30,000 Shares.  Notwithstanding anything to the contrary in the Plan, the limitations set forth in this Section 3(b) shall be subject to adjustment under Section 15 of the Plan only to the extent that such adjustment will not affect the status of any Award intended to qualify as "performance-based compensation" under Code Section 162(m).

11.           Administration of the Plan.

Procedure.

Multiple Administrative Bodies.  The Plan shall be administered by the Board or one or more Committees, including such delegates as may be appointed under paragraph (a)(iv) of this Section 4.

Section 162(m).  To the extent that the Administrator determines it to be desirable to qualify Awards granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, Awards to "covered employees" within the meaning of Section 162(m) of the Code or Employees that the Committee determines may be "covered employees" in the future shall be made by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code.

Rule 16b-3.  To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3"), Awards to Officers and Directors shall be made in such a manner to satisfy the requirement for exemption under Rule 16b-3.

Other Administration.  The Board or a Committee may delegate to an authorized Officer or Officers of the Company the power to approve Awards to persons eligible to receive Awards under the Plan who are not (A) subject to Section 16 of the Exchange Act; or (B) at the time of such approval, "covered employees" under Section 162(m) of the Code.

Delegation of Authority for the Day-to-Day Administration of the Plan.  Except to the extent prohibited by Applicable Law, the Administrator may delegate to one or more individuals the day-to-day administration of the Plan and any of the functions assigned to it in this Plan.  Such delegation may be revoked at any time.

  

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Powers of the Administrator.  Subject to the provisions of the Plan and, in the case of a Committee or delegates acting as the Administrator, subject to the specific duties delegated to such Committee or delegates, the Administrator shall have the authority, in its discretion:

to select the Service Providers of the Company or its Affiliates to whom Awards are to be granted hereunder;

to determine the number of shares of Common Stock to be covered by each Award granted hereunder;

to determine the type of Award to be granted to the selected Service Provider;

to approve the forms of Award Agreements for use under the Plan;

to determine the terms and conditions, consistent with the terms of the Plan, of any Award granted hereunder.  Such terms and conditions include the exercise or purchase price, the time or times when an Award may be exercised (which may or may not be based on performance criteria), the vesting schedule, any vesting or exercisability acceleration or waiver of forfeiture restrictions, the acceptable forms of consideration, the term, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine and may be established at the time an Award is granted or thereafter;

to correct administrative errors;

to construe and interpret the terms of the Plan (including sub-plans and Plan addenda) and Awards granted pursuant to the Plan;

to adopt rules and procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures.  Without limiting the generality of the foregoing, the Administrator is specifically authorized (A) to adopt the rules and procedures regarding the conversion of local currency, withholding procedures, and handling of stock certificates that vary with local requirements; and (B) to adopt sub-plans and Plan addenda as the Administrator deems desirable, to accommodate foreign laws, regulations and practice;

to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans and Plan addenda;

to modify or amend each Award, including the acceleration of vesting, exercisability, or both; provided, however, that any modification or amendment of an Award is subject to Section 16 of the Plan and may not materially impair any outstanding Award unless agreed to by the Participant;

to allow Participants to satisfy withholding tax amounts by electing to have the Company withhold from the Shares to be issued pursuant to an Award that number of Shares having a Fair Market Value equal to the amount required to be withheld.  The Fair Market Value of the Shares to be withheld shall be determined in such manner and on

  

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such date that the Administrator shall determine or, in the absence of provision otherwise, on the date that the amount of tax to be withheld is to be determined.  All elections by a Participant to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may provide;

to authorize conversion or substitution under the Plan of any or all stock options, stock appreciation rights, or other stock awards held by service providers of an entity acquired by the Company (the "Conversion Awards").  Any conversion or substitution shall be effective as of the close of the merger or acquisition.  The Conversion Awards may be Nonstatutory Stock Options or Incentive Stock Options, as determined by the Administrator, with respect to options granted by the acquired entity.  Unless otherwise determined by the Administrator at the time of conversion or substitution, all Conversion Awards shall have the same terms and conditions as Awards generally granted by the Company under the Plan;

to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;

to determine whether to provide for the right to receive dividends or dividend equivalents;

to establish a program whereby Service Providers designated by the Administrator can reduce compensation otherwise payable in cash in exchange for Awards under the Plan;

to impose such restrictions, conditions, or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or other subsequent transfers by the Participant of any Shares issued as a result of or under an Award, including (A) restrictions under an insider trading policy, and (B) restrictions as to the use of a specified brokerage firm for such resales or other transfers;

to provide, either at the time an Award is granted or by subsequent action, that an Award shall contain as a term thereof, a right, either in tandem with the other rights under the Award or as an alternative thereto, of the Participant to receive, without payment to the Company, a number of Shares, cash, or both, the amount of which is determined by reference to the value of the Award; and

to make all other determinations deemed necessary or advisable for administering the Plan and any Award granted hereunder.

Effect of Administrator's Decision.  All decisions, determinations and interpretations by the Administrator regarding the Plan, any rules and regulations under the Plan and the terms and conditions of any Award granted hereunder, shall be final and binding on all Participants.  The Administrator shall consider such factors as it deems relevant, in its sole and absolute discretion, to making such decisions, determinations and interpretations, including the recommendations or advice of any officer or other employee of the Company and such attorneys, consultants and accountants as it may select.

  

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12.           Eligibility.  Awards may be granted to Service Providers of the Company or any of its Affiliates.

13.           Effective Date and Term of the Plan.  Subject to stockholder approval, the Plan shall become effective upon its adoption by the Board.  Options, SARs, and Cash Awards may be granted immediately thereafter; provided, that no Option or SAR may be exercised and no Stock Award may be granted under the Plan until it is approved by the stockholders of the Company, in the manner and to the extent required by Applicable Law, within 12 months after the date of adoption by the Board.  The Plan shall continue in effect for a term of ten years from the date of the Plan's adoption by the Board unless terminated earlier under Section 16 herein.

14.           Term of Award.  The term of each Award shall be determined by the Administrator and stated in the Award Agreement.  In the case of an Option, the term shall be ten years from the Grant Date or such shorter term as may be provided in the Award Agreement.

15.           Options.  The Administrator may grant an Option or provide for the grant of an Option, from time to time in the discretion of the Administrator or automatically upon the occurrence of specified events, including the achievement of performance goals, and for the satisfaction of an event or condition within the control of the Awardee or within the control of others.

Option Agreement.  Each Option Agreement shall contain provisions regarding (i) the number of Shares that may be issued upon exercise of the Option; (ii) the type of Option; (iii) the exercise price of the Shares and the means of payment for the Shares; (iv) the term of the Option; (v) such terms and conditions on the vesting or exercisability of an Option, or both, as may be determined from time to time by the Administrator; (vi) restrictions on the transfer of the Option and forfeiture provisions; and (vii) such further terms and conditions, in each case not inconsistent with this Plan, as may be determined from time to time by the Administrator.

Exercise Price.  The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following:

In the case of an Incentive Stock Option, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the Grant Date.  Notwithstanding the foregoing, if any Incentive Stock Option is granted to a Ten-Percent Stockholder, then the exercise price shall not be less than 110% of the Fair Market Value of a share of Common Stock on the Grant Date.

In the case of a Nonstatutory Stock Option, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the Grant Date.  The per Share exercise price may also vary according to a predetermined formula; provided, that the exercise price never falls below 100% of the Fair Market Value per Share on the Grant Date.

Notwithstanding the foregoing, at the Administrator's discretion, Conversion Awards may be granted in substitution or conversion of options of an acquired entity, with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of such substitution or conversion.

Vesting Period and Exercise Dates.  Options granted under this Plan shall vest, be exercisable, or both, at such times and in such installments during the Option's term as determined by the Administrator.  The Administrator shall have the right to make the timing of

  

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the ability to exercise any Option granted under this Plan subject to continued service, the passage of time, or such performance requirements as deemed appropriate by the Administrator.  At any time after the grant of an Option, the Administrator may reduce or eliminate any restrictions surrounding any Participant's right to exercise all or part of the Option.

Form of Consideration.  The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment, either through the terms of the Option Agreement or at the time of exercise of an Option.  The consideration, determined by the Administrator (or pursuant to authority expressly delegated by the Board, a Committee, or other person), and in the form and amount required by applicable law, shall be actually received before issuing any Shares pursuant to the Plan; which consideration shall have a value, as determined by the Board, not less than the par value of such Shares.  Acceptable forms of consideration may include:

cash;

check or wire transfer;

subject to any conditions or limitations established by the Administrator, other Shares that have a Fair Market Value on the date of surrender or attestation that does not exceed the aggregate exercise price of the Shares as to which said Option shall be exercised;

consideration received by the Company under a broker-assisted sale and remittance program acceptable to the Administrator to the extent that this procedure would not violate Section 402 of the Sarbanes-Oxley Act of 2002, as amended;

cashless exercise, subject to any conditions or limitations established by the Administrator;

such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or

any combination of the foregoing methods of payment.

16.           Incentive Stock Option Limitations.

Eligibility.  Only employees (as determined in accordance with Section 3401(c) of the Code and the regulations promulgated thereunder) of the Company or any of its Related Corporations may be granted Incentive Stock Options.

$100,000 Limitation.  Notwithstanding the designation "Incentive Stock Option" in an Option Agreement, if the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Awardee during any calendar year (under all plans of the Company and any of its Related Corporations) exceeds $100,000, then the portion of such Options that exceeds $100,000 shall be treated as Nonstatutory Stock Options.  An Incentive Stock Option is considered to be first exercisable during a calendar year if the Incentive Stock Option will become exercisable at any time during the year, assuming that

  

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any condition on the Awardee's ability to exercise the Incentive Stock Option related to the performance of services is satisfied.  If the Awardee's ability to exercise the Incentive Stock Option in the year is subject to an acceleration provision, then the Incentive Stock Option is considered first exercisable in the calendar year in which the acceleration provision is triggered.  For purposes of this Section 9(b), Incentive Stock Options shall be taken into account in the order in which they were granted.  However, because an acceleration provision is not taken into account before its triggering, an Incentive Stock Option that becomes exercisable for the first time during a calendar year by operation of such provision does not affect the application of the $100,000 limitation with respect to any Incentive Stock Option (or portion thereof) exercised before such acceleration.  The Fair Market Value of the Shares shall be determined as of the Grant Date.

Leave of Absence.  For purposes of Incentive Stock Options, no leave of absence may exceed three months, unless the right to reemployment upon expiration of such leave is provided by statute or contract.  If the period of leave exceeds three months and the Awardee's right to reemployment is not provided by statute or contract, the Awardee's employment with the Company shall be deemed to terminate on the first day immediately following such three-month period, and any Incentive Stock Option granted to the Awardee shall cease to be treated as an Incentive Stock Option and shall terminate upon the expiration of the three-month period starting on the date the employment relationship is deemed terminated.

Transferability.  The Option Agreement must provide that an Incentive Stock Option cannot be transferable by the Awardee otherwise than by will or the laws of descent and distribution, and, during the lifetime of such Awardee, must not be exercisable by any other person.  Notwithstanding the foregoing, the Administrator, in its sole discretion, may allow the Awardee to transfer his or her Incentive Stock Option to a trust where under Section 671 of the Code and other Applicable Law, the Awardee is considered the sole beneficial owner of the Option while it is held in the trust. If the terms of an Incentive Stock Option are amended to permit transferability, the Option will be treated for tax purposes as a Nonstatutory Stock Option.

Exercise Price.  The per Share exercise price of an Incentive Stock Option shall be determined by the Administrator in accordance with Section 8(b)(i) of the Plan.

Ten-Percent Stockholder.  If any Incentive Stock Option is granted to a Ten-Percent Stockholder, then the Option term shall not exceed five years measured from the date of grant of such Option.

Other Terms.  Option Agreements evidencing Incentive Stock Options shall contain such other terms and conditions as may be necessary to qualify, to the extent determined desirable by the Administrator, as Incentive Stock Options under the applicable provisions of Section 422 of the Code.

17.           Exercise of Option.

Procedure for Exercise; Rights as a Stockholder.

  

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Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the respective Award Agreement.

An Option shall be deemed exercised when the Company receives (A) written or electronic notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option; (B) full payment for the Shares with respect to which the related Option is exercised; and (C) with respect to Nonstatutory Stock Options, payment of all applicable withholding taxes.

Shares issued upon exercise of an Option shall be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse.  Unless provided otherwise by the Administrator or pursuant to this Plan, until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option.

The Company shall issue (or cause to be issued) such Shares as soon as administratively practicable after the Option is exercised.  An Option may not be exercised for a fraction of a Share.

Effect of Termination of Service on Options.

Generally.  Unless otherwise provided for by the Administrator, if a Participant ceases to be a Service Provider, other than upon the Participant's death or Disability, the Participant may exercise his or her Option within such period as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement).  In the absence of a specified time in the Award Agreement, the vested portion of the Option will remain exercisable for three months following the Participant's termination.  Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan.  If after the Termination of Service the Participant does not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

Disability of Awardee.  Unless otherwise provided for by the Administrator, if a Participant ceases to be a Service Provider as a result of the Participant's Disability, the Participant may exercise his or her Option within such period as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement).  In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve months following the Participant's termination.  Unless otherwise provided by the Administrator, if at the time of Disability the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will

  

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revert to the Plan.  If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

Death of Awardee.  Unless otherwise provided for by the Administrator, if a Participant dies while a Service Provider, the Option may be exercised following the Participant's death within such period as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the Option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant's designated beneficiary, provided such beneficiary has been designated before the Participant's death in a form acceptable to the Administrator.  If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant's estate or by the person or persons to whom the Option is transferred pursuant to the Participant's will or in accordance with the laws of descent and distribution.  In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve months following Participant's death.  Unless otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan.  If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

18.          Stock Awards.

Stock Award Agreement.  Each Stock Award Agreement shall contain provisions regarding (i) the number of Shares subject to such Stock Award or a formula for determining such number; (ii) the purchase price of the Shares, if any, and the means of payment for the Shares; (iii) the performance criteria, if any, and level of achievement versus these criteria that shall determine the number of Shares granted, issued, retained, or vested, as applicable; (iv) such terms and conditions on the grant, issuance, vesting, or forfeiture of the Shares, as applicable, as may be determined from time to time by the Administrator; (v) restrictions on the transferability of the Stock Award; and (vi) such further terms and conditions in each case not inconsistent with this Plan as may be determined from time to time by the Administrator.

Restrictions and Performance Criteria.  The grant, issuance, retention, and vesting of each Stock Award may be subject to such performance criteria and level of achievement versus these criteria as the Administrator shall determine, which criteria may be based on financial performance, personal performance evaluations, or completion of service by the Awardee.

Notwithstanding anything to the contrary herein, the performance criteria for any Stock Award that is intended to satisfy the requirements for "performance-based compensation" under Section 162(m) of the Code shall be established by the Administrator based on one or more Qualifying Performance Criteria selected by the Administrator and specified in writing.

Forfeiture.  Unless otherwise provided for by the Administrator, upon the Awardee's Termination of Service, the unvested Stock Award and the Shares subject thereto shall be forfeited, provided that to the extent that the Participant purchased any Shares pursuant to such

  

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Stock Award, the Company shall have a right to repurchase the unvested portion of such Shares at the original price paid by the Participant.

Rights as a Stockholder.  Unless otherwise provided by the Administrator, the Participant shall have the rights equivalent to those of a stockholder and shall be a stockholder only after Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) to the Participant.  Unless otherwise provided by the Administrator, a Participant holding Stock Units shall be entitled to receive dividend payments as if he or she were an actual stockholder.

19.          Stock Appreciation Rights.  Subject to the terms and conditions of the Plan, a SAR may be granted to a Service Provider at any time and from time to time as determined by the Administrator in its sole discretion.

Number of SARs.  The Administrator shall have complete discretion to determine the number of SARs granted to any Service Provider.

Exercise Price and Other Terms.  The per SAR exercise price shall be no less than 100% of the Fair Market Value per Share on the Grant Date.  The Administrator, subject to the provisions of the Plan, shall have complete discretion to determine the other terms and conditions of SARs granted under the Plan.

Exercise of SARs.  SARs shall be exercisable on such terms and conditions as the Administrator, in its sole discretion, shall determine.

SAR Agreement.  Each SAR grant shall be evidenced by a SAR Agreement that will specify the exercise price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, shall determine.

Expiration of SARs.  A SAR granted under the Plan shall expire upon the date determined by the Administrator, in its sole discretion, and set forth in the SAR Agreement.  Notwithstanding the foregoing, the rules of Section 10(b) will also apply to SARs.

Payment of SAR Amount.  Upon exercise of a SAR, the Participant shall be entitled to receive a payment from the Company in an amount equal to the difference between the Fair Market Value of a Share on the date of exercise over the exercise price of the SAR.  This amount shall be paid in cash, Shares of equivalent value, or a combination of both, as the Administrator shall determine.

20.          Cash Awards.  Each Cash Award will confer upon the Participant the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a performance period.

Cash Award.  Each Cash Award shall contain provisions regarding (i) the performance goal or goals and maximum amount payable to the Participant as a Cash Award; (ii) the performance criteria and level of achievement versus these criteria that shall determine the amount of such payment; (iii) the period as to which performance shall be measured for establishing the amount of any payment; (iv) the timing of any payment earned by virtue of performance; (v) restrictions on the alienation or transfer of the Cash Award before actual

  

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payment; (vi) forfeiture provisions; and (vii) such further terms and conditions, in each case not inconsistent with the Plan, as may be determined from time to time by the Administrator.  The maximum amount payable as a Cash Award that is settled for cash may be a multiple of the target amount payable, but the maximum amount payable pursuant to that portion of a Cash Award granted under this Plan for any fiscal year to any Awardee that is intended to satisfy the requirements for "performance-based compensation" under Section 162(m) of the Code shall not exceed $1,000,000.

Performance Criteria.  The Administrator shall establish the performance criteria and level of achievement versus these criteria that shall determine the target and the minimum and maximum amount payable under a Cash Award, which criteria may be based on financial performance or personal performance evaluations or both.  The Administrator may specify the percentage of the target Cash Award that is intended to satisfy the requirements for "performance-based compensation" under Section 162(m) of the Code.  Notwithstanding anything to the contrary herein, the performance criteria for any portion of a Cash Award that is intended to satisfy the requirements for "performance-based compensation" under Section 162(m) of the Code shall be a measure established by the Administrator based on one or more Qualifying Performance Criteria selected by the Administrator and specified in writing.

Timing and Form of Payment.  The Administrator shall determine the timing of payment of any Cash Award.  The Administrator may specify the form of payment of Cash Awards, which may be cash or other property, or may provide for an Awardee to have the option for his or her Cash Award, or such portion thereof as the Administrator may specify, to be paid in whole or in part in cash or other property.

Termination of Service.  The Administrator shall have the discretion to determine the effect of a Termination of Service on any Cash Award due to (i) disability, (ii) retirement, (iii) death, (iv) participation in a voluntary severance program, or (v) participation in a work force restructuring.

21.          Other Provisions Applicable to Awards.

Non-Transferability of Awards.  An Award may be exercised, during the lifetime of the Participant, only by the Participant, and unless determined otherwise by the Administrator, may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent and distribution.  The Administrator may make an Award transferable to an Awardee's family member or any other person or entity.  If the Administrator makes an Award transferable, either at the time of grant or thereafter, such Award shall contain such additional terms and conditions as the Administrator deems appropriate, and any transferee shall be deemed bound by such terms upon acceptance of such transfer.

Qualifying Performance Criteria.  For purposes of this Plan, the term "Qualifying Performance Criteria" shall mean any one or more of the following performance criteria, applied to either the Company as a whole or to a business unit, Affiliate, or business segment, either individually, alternatively, or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years' results or to a designated comparison group, in each case as specified by the Committee in

  

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the Award:  (i) cash flow, (ii) earnings (including gross margin, earnings before interest and taxes, earnings before taxes, and net earnings), (iii) earnings per share, (iv) growth in earnings or earnings per share, (v) stock price, (vi) return on equity or average stockholders' equity, (vii) total stockholder return, (viii) return on capital, (ix) return on assets or net assets, (x) return on investment, (xi) revenue, (xii) income or net income, (xiii) operating income or net operating income, (xiv) operating profit or net operating profit, (xv) operating margin, (xvi) return on operating revenue, (xvii) market share, (xviii) contract awards or backlog, (xix) overhead or other expense reduction, (xx) growth in stockholder value relative to the moving average of the S&P 500 Index or a peer group index, (xxi) credit rating, (xxii) strategic plan development and implementation, (xxiii) improvement in workforce diversity, and (xxiv) EBITDA.

Certification.  Before payment of any compensation under an Award intended to qualify as "performance-based compensation" under Section 162(m) of the Code, the Committee shall certify the extent to which any Qualifying Performance Criteria and any other material terms under such Award have been satisfied (other than in cases where such relate solely to the increase in the value of the Common Stock).

Discretionary Adjustments Pursuant to Section 162(m).  Notwithstanding satisfaction or completion of any Qualifying Performance Criteria, to the extent specified at the time of grant of an Award to "covered employees" within the meaning of Section 162(m) of the Code, the number of Shares, Options or other benefits granted, issued, retained, or vested under an Award on account of satisfaction of such Qualifying Performance Criteria may be reduced by the Committee on the basis of such further considerations as the Committee in its sole discretion shall determine.

Section 409A.  Notwithstanding anything in the Plan to the contrary, it is the Company's intent that all Awards granted under this Plan comply with Section 409A of the Code, and each Award shall be interpreted in a manner consistent with that intention.

22.          Adjustments upon Changes in Capitalization, Dissolution, Merger or Asset Sale.

Changes in Capitalization.  Subject to any required action by the stockholders of the Company, (i) the number and kind of Shares covered by each outstanding Award, and the number and kind of shares of Common Stock that have been authorized for issuance under the Plan but as to which no Awards have yet been granted or that have been returned to the Plan upon cancellation or expiration of an Award; (ii) the price per Share subject to each such outstanding Award; and (iii) the Share limitations set forth in Section 3 of the Plan, may be appropriately adjusted if any change is made in the Common Stock subject to the Plan, or subject to any Award, without the receipt of consideration by the Company through a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, merger, consolidation, reorganization, recapitalization, reincorporation, spin-off, dividend in property other than cash, liquidating dividend, extraordinary dividends or distributions, combination of shares, exchange of shares, change in corporate structure or other transaction effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." The Administrator shall make such adjustment in its sole discretion, whose determination in that respect shall be final, binding and conclusive.  Except as expressly

  

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provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Award.

Dissolution or Liquidation.  In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Participant as soon as practicable before the effective date of such proposed transaction.  The Administrator in its discretion may provide for an Option to be fully vested and exercisable until ten days before such proposed transaction.  In addition, the Administrator may provide that any restrictions on any Award shall lapse before the proposed transaction, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated.  To the extent it has not been previously exercised, an Award will terminate immediately before the consummation of such proposed transaction.

Change in Control.  If there is a Change in Control of the Company, as determined by the Board or a Committee, the Board or Committee, or board of directors of any surviving entity or acquiring entity may, in its discretion, (i) provide for the assumption, continuation or substitution (including an award to acquire substantially the same type of consideration paid to the stockholders in the transaction in which the Change in Control occurs) of, or adjustment to, all or any part of the Awards; (ii) accelerate the vesting of all or any part of the Options and SARs and terminate any restrictions on all or any part of the Stock Awards or Cash Awards; (iii) provide for the cancellation of all or any part of the Awards for a cash payment to the Participants; and (iv) provide for the cancellation of all or any part of the Awards as of the closing of the Change in Control; provided, that the Participants are notified that they must exercise or redeem their Awards (including, at the discretion of the Board or Committee, any unvested portion of such Award) at or before the closing of the Change in Control.

23.          Amendment and Termination of the Plan.

Amendment and Termination.  The Administrator may amend, alter, or discontinue the Plan or any Award Agreement, but any such amendment shall be subject to approval of the stockholders of the Company in the manner and to the extent required by Applicable Law.

Effect of Amendment or Termination.  No amendment, suspension, or termination of the Plan shall materially impair the rights of any Award, unless agreed otherwise between the Participant and the Administrator.  Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan before the date of such termination.

Effect of the Plan on Other Arrangements.  Neither the adoption of the Plan by the Board or a Committee nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board or any Committee to adopt such other incentive arrangements as it or they may deem desirable, including the granting of restricted stock or stock options otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

  

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24.          Designation of Beneficiary.

An Awardee may file a written designation of a beneficiary who is to receive the Awardee's rights pursuant to Awardee's Award or the Awardee may include his or her Awards in an omnibus beneficiary designation for all benefits under the Plan.  To the extent that Awardee has completed a designation of beneficiary such beneficiary designation shall remain in effect with respect to any Award hereunder until changed by the Awardee to the extent enforceable under Applicable Law.

The Awardee may change such designation of beneficiary at any time by written notice.  If an Awardee dies and no beneficiary is validly designated under the Plan who is living at the time of such Awardee's death, the Company shall allow the executor or administrator of the estate of the Awardee to exercise the Award, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may allow the spouse or one or more dependents or relatives of the Awardee to exercise the Award to the extent permissible under Applicable Law.

25.          No Right to Awards or to Service.  No person shall have any claim or right to be granted an Award and the grant of any Award shall not be construed as giving an Awardee the right to continue in the service of the Company or its Affiliates.  Further, the Company and its Affiliates expressly reserve the right, at any time, to dismiss any Service Provider or Awardee at any time without liability or any claim under the Plan, except as provided herein or in any Award Agreement entered into hereunder.

26.           Preemptive Rights.  No Shares will be issued under the Plan in violation of any preemptive rights held by any stockholder of the Company.

27.           Legal Compliance.  No Share will be issued pursuant to an Award under the Plan unless the issuance and delivery of such Share, as well as the exercise of such Award, if applicable, will comply with Applicable Laws.  Issuance of Shares under the Plan shall be subject to the approval of counsel for the Company with respect to such compliance.  Notwithstanding anything in the Plan to the contrary, the Plan is intended to comply with the requirements of Section 409A of the Code and shall be interpreted in a manner consistent with that intention.

28.           Inability to Obtain Authority.  To the extent the Company is unable to or the Administrator deems that it is not feasible to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, the Company shall be relieved of any liability with respect to the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

29.           Reservation of Shares.  The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

30.           Notice.  Any written notice to the Company required by any provisions of this Plan shall be addressed to the Secretary of the Company and shall be effective when received.

31.           Governing Law; Interpretation of Plan and Awards.

This Plan and all determinations made and actions taken pursuant hereto shall be governed by the substantive laws, but not the choice of law rules, of the state of California.

If any provision of the Plan or any Award granted under the Plan is declared to be illegal, invalid, or otherwise unenforceable by a court of competent jurisdiction, such provision shall be

  

17

  

reformed, if possible, to the extent necessary to render it legal, valid, and enforceable, or otherwise deleted, and the remainder of the terms of the Plan and Award shall not be affected except to the extent necessary to reform or delete such illegal, invalid, or unenforceable provision.

The headings preceding the text of the sections hereof are inserted solely for convenience of reference, and shall not constitute a part of the Plan, nor shall they affect its meaning, construction or effect.

The terms of the Plan and any Award shall inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs, beneficiaries, successors, and assigns.

All questions arising under the Plan or under any Award shall be decided by the Administrator in its total and absolute discretion.  If the Participant believes that a decision by the Administrator with respect to such person was arbitrary or capricious, the Participant may request arbitration with respect to such decision.  The review by the arbitrator shall be limited to determining whether the Administrator's decision was arbitrary or capricious.  This arbitration shall be the sole and exclusive review permitted of the Administrator's decision, and the Awardee shall as a condition to the receipt of an Award be deemed to waive explicitly any right to judicial review.

32.          Limitation on Liability.  The Company and any Affiliate or Related Corporation that is in existence or hereafter comes into existence shall not be liable to a Participant, an Employee, an Awardee, or any other persons as to:

The Non-Issuance of Shares.  The non-issuance or sale of Shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any shares hereunder; and

Tax Consequences.  Any tax consequence expected, but not realized, by any Participant, Employee, Awardee or other person due to the receipt, exercise or settlement of any Option or other Award granted hereunder.

33.          Unfunded Plan.  Insofar as it provides for Awards, the Plan shall be unfunded.  Although bookkeeping accounts may be established with respect to Awardees who are granted Stock Awards under this Plan, any such accounts will be used merely as a bookkeeping convenience.  The Company shall not be required to segregate any assets that may at any time be represented by Awards, nor shall this Plan be construed as providing for such segregation, nor shall the Company or the Administrator be deemed a trustee of stock or cash to be awarded under the Plan.  Any liability of the Company to any Participant with respect to an Award shall be based solely upon any contractual obligations that may be created by the Plan; no such obligation of the Company shall be deemed secured by any pledge or other encumbrance on any property of the Company.  Neither the Company nor the Administrator shall be required to give any security or bond for the performance of any obligation that may be created by this Plan.

  

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IN WITNESS WHEREOF, the Company, by its duly authorized officer, has executed this Plan, effective as of  August 1, 2006.

	  	
NATIONAL TECHNICAL SYSTEMS, INC.

	  	  	  
	  	
By:

	
/s/ Lloyd Blonder

	  
	  	  	  	  
	  	
Its:

	
CFO

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