<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 29, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CAYENTA, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7379 33-0884182
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
225 BROADWAY, SUITE 1500
SAN DIEGO, CA 92101
(619) 228-2100
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
--------------------------
DAVID PORRECA
PRESIDENT/CEO
CAYENTA, INC.
225 BROADWAY, SUITE 1500
SAN DIEGO, CA 92101
(619) 228-2100
(619) 228-2182
(Name, address, including zip code, and telephone and facsimile numbers,
including area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C> <C>
NICHOLAS J. COSTANZA BARBARA L. BORDEN, ESQ. LAURIE A. SMILEY, ESQ.
GENERAL COUNSEL MATTHEW T. BROWNE, ESQ. CHRISTOPHER J. VOSS, ESQ.
CAYENTA, INC. COOLEY GODWARD LLP MARC S. MARCHIEL, ESQ.
225 BROADWAY, SUITE 1500 4365 EXECUTIVE DRIVE, SUITE STOEL RIVES LLP
SAN DIEGO, CA 92101 1100 600 UNIVERSITY STREET, 36TH
(619) 552-9500 SAN DIEGO, CA 92121 FLOOR
FAX: (858) 552-9759 (858) 550-6000 SEATTLE, WA 98101-3197
FAX: (858) 453-3555 (206) 624-0900
FAX: (206) 386-7500
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) of the Securities Act, please check the following box
and list the Securities Act registration serial number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED AGGREGATE OFFERING PRICE(1)(2) REGISTRATION FEE
<S> <C> <C>
Class A common stock ($.001 par value)................... $70,000,000 $18,480
</TABLE>
(1) Includes shares that the Underwriters will have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER , 1999
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
Shares
[LOGO]
Cayenta, Inc.
Class A Common Stock
-----------
Cayenta, Inc. is offering shares of its Class A common stock. We have two
classes of authorized common stock, Class A common stock and Class B common
stock. The rights of the holders of Class A common stock and Class B common
stock are identical, except with respect to voting and conversion. Each share of
Class A common stock is entitled to one vote per share. Each share of Class B
common stock is entitled to ten votes per share and is convertible at any time
into one share of Class A common stock.
We are a majority-owned subsidiary of The Titan Corporation. Upon completion
of this offering, Titan will own all of our Class B common stock, which will
represent more than % of our outstanding common stock and more than % of
its voting power, and will continue to control us.
Prior to this offering, there has been no public market for our shares. The
initial public offering price of our Class A common stock is expected to be
between $ and $ per share. We will make application to list our Class A
common stock on The Nasdaq Stock Market's National Market under the symbol
"CYTA."
The underwriters have an option to purchase a maximum of additional
shares of our Class A common stock to cover over-allotments.
Investing in our Class A common stock involves risks. See "Risk Factors" on
page 6.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Cayenta, Inc.
-------------- -------------- --------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of Class A common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Donaldson, Lufkin & Jenrette
A.G. Edwards & Sons, Inc.
The date of this prospectus is , 2000.
<PAGE>
[Screen snapshots of customer applications and software to manage these
applications for each of the case studies. Each snapshot will be accompanied by
a one line description of the case studies.]
[These pictures and descriptions will be superimposed above a southwestern
landscape including mesas.]
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUMMARY...................... 3
RISK FACTORS............................ 6
FORWARD-LOOKING STATEMENTS.............. 15
USE OF PROCEEDS......................... 16
DIVIDEND POLICY......................... 16
CAPITALIZATION.......................... 17
DILUTION................................ 18
SELECTED HISTORICAL ACTUAL AND PRO FORMA
FINANCIAL INFORMATION................. 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING
RESULTS............................... 21
BUSINESS................................ 29
</TABLE>
<TABLE>
MANAGEMENT.............................. 40
<CAPTION>
PAGE
--------
<S> <C>
RELATIONSHIP WITH TITAN AND CERTAIN
TRANSACTIONS.......................... 47
PRINCIPAL STOCKHOLDERS.................. 50
DESCRIPTION OF CAPITAL STOCK............ 52
SHARES ELIGIBLE FOR FUTURE SALE......... 56
UNDERWRITING............................ 58
NOTICE TO CANADIAN RESIDENTS............ 61
LEGAL MATTERS........................... 62
EXPERTS................................. 62
ADDITIONAL INFORMATION.................. 62
INDEX TO FINANCIAL STATEMENTS........... F-1
</TABLE>
------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY BE USED ONLY WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE
ACCURATE ON THE DATE OF THIS DOCUMENT.
------------
Except as otherwise indicated, all information in this prospectus assumes:
- the underwriters' over-allotment option will not be exercised; and
- a for split in our Class A common stock that will become effective
prior to the effectiveness of this registration statement.
------------
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER BEFORE
BUYING SHARES IN THIS OFFERING. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY.
THE COMPANY
We are a total services provider, or TSP, of comprehensive information
technology solutions for our customers' business functions. We operate, host,
manage and support standard and proprietary software applications tailored for
our customers' business processes, including e-business, finance, accounting,
customer billing and collection, contract management, supply chain integration
and enterprise asset management. By using our proprietary software applications
in addition to standard software application packages, we can rapidly build and
deploy solutions that best meet our customers' needs. Our customers will have
the option of leasing either total solutions or components of our TSP offering
under long-term contracts, providing them with lower and more predictable
capital and operating costs for their information technology requirements. Our
solutions are scalable and reliable and enable our customers to manage the
increasing frequency and complexity of e-business transactions. These solutions
operate with our customers' existing internal systems and with those of their
trading partners and provide our customers with a single source of contact for
their information technology requirements. We define e-business as transactions
effected through the Internet or other electronic communication systems.
We believe that the following features of our solutions differentiate us
from our competitors:
- WE ARE A TOTAL SERVICES PROVIDER--As a TSP, we deliver comprehensive
tailored solutions to our customers that combine our customers'
information technology strategy, application development and
configuration, systems integration, hosting and support.
- WE OFFER A COMPLETE E-BUSINESS SOLUTION--We integrate customers' web sites
and other e-business portals with business support systems and provide our
customers with a single point of contact for managing and monitoring their
e-business transactions.
- WE OFFER REVENUE CYCLE SERVICES--We offer solutions that enable our
customers to address their complex pricing, billing, settlement and
supply-chain requirements and improve their e-business capabilities.
- WE OFFER INTEROPERABLE AND ADAPTABLE SOLUTIONS--We offer solutions that
reduce our customers' manual and redundant business processes and permit
them to add or change software applications as their businesses evolve.
- WE TAILOR OUR SOLUTIONS FOR OUR CUSTOMERS' BUSINESS PROCESSES--We have
expertise in our target industries that helps us to define and deliver
timely solutions tailored to our customers' market dynamics and business
opportunities.
We develop solutions in collaboration with our customers in solution centers
located in Burnaby, British Columbia, Orlando, Florida, Reston, Virginia, Salt
Lake City, Utah, San Diego, California, Washington, D.C., and Woodland Hills,
California. Our customers include 800.com, Calculated Industries, Dean & DeLuca,
the District of Columbia, the Federal Aviation Administration, First Security
Information Technology, Hale Indian River Groves, Mid-American Designs, Nortel,
Oreck, Sempra Energy and Waste Management. We have expertise in multiple
industries, including utilities, telecommunications, basic services, such as
waste disposal, and retail. We intend to further penetrate these industries by
establishing strategic alliances and joint ventures with industry leaders. We
also participate in partnership programs with leading providers of software,
hardware and other elements of our TSP offering. For example, we have
application hosting agreements with Exodus Communications and Intel. We
currently have 266 professionals developing and implementing our solutions.
3
<PAGE>
We were formed as a wholly-owned subsidiary of The Titan Corporation in 1997
when Titan separated its commercial software integration business from its other
operations. Upon completion of this offering, Titan will own all of our Class B
common stock, which will represent more than % of our outstanding common stock
and more than % of its voting power, and will continue to control us.
During the period between 1995 and January 1999, we developed our systems
integration and software application expertise. In January 1999, we acquired
substantially all of the assets of Transnational Partners II, LLC, an enterprise
application integration consulting company, to broaden our systems integration
capabilities and access its customer base. During late 1999, we acquired
J.B. Systems, Inc., an enterprise asset management, or EAM, company doing
business under the name Mainsaver. Also during late 1999, we acquired Assist
Cornerstone Technologies, Inc., an e-commerce solutions and software company,
and SFG Technologies, Inc., a solutions and software provider focusing on
revenue cycle services for the utility industry. We intend to integrate the
software and solutions developed by these companies into our TSP offering.
In September 1999, together with Sempra Energy's information solutions
subsidiary and modis, an application integrator, we established Soliance, LLC, a
joint venture that markets and delivers systems and solutions, including TSP
offerings, to the utility industry. We own a 10% equity interest in Soliance and
have a management services agreement with Soliance under which we provide TSP
services to Soliance's customers.
Our principal executive offices are located at 225 Broadway, Suite 1500, San
Diego, CA 92101, and our telephone number is (619) 228-2100.
THE OFFERING
<TABLE>
<S> <C>
Class A common stock offered.............. shares
Common stock to be outstanding after the
offering
Class A common stock.................... shares
Class B common stock.................... 10,000,000 shares
Total................................. shares
Use of proceeds........................... For general corporate purposes, including continued
development of our TSP offering and facilities, expansion of
our sales and marketing activities, and payments of
additional amounts due in connection with our recent
acquisitions.
Proposed Nasdaq National Market Symbol.... CYTA
</TABLE>
SHARES OUTSTANDING AFTER THE OFFERING
The number of shares of common stock to be outstanding after the offering is
based upon the number of shares of Class A common stock and Class B common stock
outstanding as of December 27, 1999, giving effect to the conversion of all of
our outstanding shares of preferred stock into 2,345,000 shares of Class A
common stock upon the closing of this offering, and does not include the
following:
- 2,450,000 shares of Class A common stock reserved for issuance under our
1997 Stock Option Plan, of which 1,613,250 shares were covered by
outstanding options as of December 27, 1999 at a weighted average exercise
price of $2.39 per share; and
- 495,800 shares of Class A common stock subject to warrants outstanding as
of December 27, 1999, at a weighted average exercise price of $13.11 per
share.
4
<PAGE>
SUMMARY HISTORICAL ACTUAL AND PRO FORMA FINANCIAL INFORMATION
The following financial information should be read together with the
"Selected Historical Actual and Pro Forma Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Operating
Results" included elsewhere in this prospectus. The unaudited pro forma
statement of operations information for the year ended December 31, 1998 and the
nine months ended September 30, 1999 assumes that we completed our acquisitions
of Transnational Partners II, Mainsaver, Assist Cornerstone and SFG Technologies
as of the beginning of each such period (except that the operating results of
the former Transnational Partners II business are included in our historical
operating results for the nine months ended September 30, 1999). The unaudited
pro forma statement of operations information is based on our historical actual
operating results and those of Transnational Partners II, Mainsaver, Assist
Cornerstone and SFG Technologies for the periods presented and gives effect to
the amortization of goodwill related to the acquisitions, the interest expense
relating to the acquisitions, and the resulting provision for income taxes. Our
historical actual statement of operations information for the year ended
December 31, 1998 and balance sheet information as of December 31, 1998 are
derived from our audited financial statements, which are included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
---------------------- (UNAUDITED)
PRO FORMA --------------------
ACTUAL (UNAUDITED) ACTUAL PRO FORMA
-------- ----------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS INFORMATION:
Revenues.................................................... $12,095 $41,348 $25,148 $45,960
Gross profit................................................ 4,682 20,358 8,231 21,602
Income (loss) from operations............................... 2,423 (1,136) 5,006 1,350
Net income (loss)........................................... 1,311 (4,466) 2,589 (3,098)
Diluted earnings (loss) per share(1)........................ $ 0.13 $ (0.42) $ 0.21 $ (0.29)
Weighted average common shares and common share equivalents
used in computing diluted earnings per share(1)........... 10,148 10,516 12,638 10,516
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
(UNAUDITED)
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
-------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET INFORMATION:
Cash........................................................ $ -- $ 413
Working capital............................................. 5,117 818
Total assets................................................ 36,747 102,762
Total long-term obligations................................. 9,441 59,794
Total stockholders' equity.................................. 14,118 17,519
</TABLE>
- --------------------------
(1) For the number of shares used in the per share calculations, see the
historical pro forma Cayenta financial statements and Note 2 to the
historical actual Cayenta financial statements.
(2) The pro forma column gives effect to the acquisitions of Mainsaver, Assist
Cornerstone and SFG Technologies as if they had occurred at September 30,
1999.
(3) The pro forma as adjusted column gives effect to the conversion of all of
our outstanding shares of preferred stock into shares of Class A common
stock upon the closing of this offering and reflects our receipt and use of
the net proceeds from the offering (at an assumed initial public offering
price of $ per share), after deducting estimated underwriting discounts
and commissions and estimated offering expenses.
5
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS AND RELATED NOTES, BEFORE
DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK. THESE RISKS AND UNCERTAINTIES
ARE NOT THE ONLY ONES FACING CAYENTA OR THE ONLY ONES THAT MAY ADVERSELY AFFECT
OUR BUSINESS. IF ANY OF THE FOLLOWING RISKS OR UNCERTAINTIES ACTUALLY OCCURS,
OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS WOULD LIKELY SUFFER. IN
THAT EVENT, THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD
LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
RISKS RELATED TO OUR BUSINESS
OUR TSP OFFERING IS RELATIVELY NEW AND UNTESTED, AND WE WILL BE UNABLE TO GROW
OUR BUSINESS AS WE EXPECT IF OUR TSP OFFERING DOES NOT MEET WITH MARKET
ACCEPTANCE OR IF WE DO NOT EXECUTE OUR BUSINESS STRATEGY.
The market for TSP offerings has only recently begun to develop and we have
not previously generated revenue from our TSP offering. We cannot be certain
that the market for TSP offerings will develop. We provide our TSP offering
through our Soliance joint venture to two Soliance customers. Our ability to
generate TSP revenues will depend upon market acceptance of our TSP offering.
Our ability to achieve profitability as a TSP will depend upon the execution of
our business strategy which requires us to integrate the products we recently
acquired into our TSP offering, adopt a sales, pricing, and support strategy and
build our employee and facility resources. If we fail to complete any of these
tasks in a timely or cost effective manner or if our TSP offering does not meet
with market acceptance, we may incur substantial additional costs or delays in
its further development and launch or be prevented from capitalizing on the
market opportunity that we have identified. In addition, while we expect our
existing customer base to provide attractive opportunities for TSP sales, these
customers may be reluctant or unwilling to purchase our TSP offering.
OUR ACTUAL AND PRO FORMA HISTORICAL REVENUES WERE NOT DERIVED FROM OUR TSP
OFFERING, WHICH MAKES AN EVALUATION OF OUR BUSINESS DIFFICULT.
To date, none of our actual or pro forma historical revenues were derived
from direct sales by us of our TSP offering. Our only TSP-related revenues have
resulted from providing TSP services to Soliance's customers. We are
substantially increasing our efforts to generate revenues from our TSP offering.
Accordingly, we expect that our actual and pro forma historical financial
results will be of only limited value in projecting our future financial
results.
WE EXPECT TO INCUR LOSSES WHILE WE ARE INVESTING IN THE FURTHER DEVELOPMENT AND
LAUNCH OF OUR TSP OFFERING AND WE MAY NEVER RECOVER THE COSTS ASSOCIATED WITH
THOSE INVESTMENTS.
We intend to make significant investments in further developing and
launching our TSP offering by:
- constructing and staffing regional solution centers and centers where we
manage and monitor deployed customer solutions, or command centers, in
strategic geographic locations;
- entering into arrangements with third party suppliers of elements of our
TSP offering;
- developing shared process and software solutions and industry-specific
templates;
- expanding our system management resources; and
- expanding our sales and marketing activities.
Although we realized net income from operations for the nine months ended
September 30, 1999, we expect to incur operating losses for the forseeable
future. Our ability to regain profitability will depend on our ability to
generate and sustain substantial revenues from our TSP offering while
maintaining
6
<PAGE>
reasonable expense levels. Although we intend to increase our spending as
described above, these efforts may not result in increased revenues and the
revenues from these efforts may not be enough to compensate for their cost. If
we do regain profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis in the future.
WE MAY NOT BE ABLE TO DELIVER KEY ELEMENTS OF OUR TSP OFFERING IF OUR MANAGEMENT
FAILS TO INTEGRATE ANY OF OUR THREE RECENT ACQUISITIONS.
During late 1999, we acquired Mainsaver, Assist Cornerstone and SFG
Technologies to further develop our TSP offering. Our strategy requires that we
integrate the software and solutions developed by these companies into our TSP
offering. If we are unable to integrate any of these products, or any products
or services that we acquire in the future, our ability to provide our TSP
offering may be impaired, and our business and operations could suffer. Further,
we could incur unexpected liabilities or expenses in connection with these
acquisitions that exceed or are not covered by our indemnification arrangements
with the sellers of these businesses. These unexpected liabilities or expenses
could include higher than expected costs to integrate acquired software
applications or solutions with our own solutions or services or higher than
expected costs to enable those applications to be used over the Internet.
OUR GROWTH MAY SLOW OR STOP IF WE FAIL TO EFFECTIVELY MANAGE OUR RAPID
EXPANSION.
Since January 1999, we have rapidly expanded our operations. We expect that
significant expansion of our operations will continue as we further develop and
market our TSP offering and increase the number of our customers and the
geographic locations of our solution and command centers. Our growth has placed,
and will continue to place, a significant strain on our management, our
technical, operating and financial systems, and our sales, marketing and
administrative resources. If we cannot manage our expanding operations to
minimize these strains, our operations could be disrupted and we may be unable
to grow or grow at a slower pace than we anticipate.
WE MAY BE UNABLE TO DELIVER OUR TSP OFFERING IN A TIMELY MANNER IF THIRD PARTIES
DO NOT PROVIDE US WITH KEY COMPONENTS OF OUR INFRASTRUCTURE.
We depend on third parties to supply computer and telecommunications
equipment and services that we use to provide our TSP offering. Our failure to
maintain a continuous supply of any of these elements would temporarily prevent
us from delivering our TSP offering. A disruption in our ability to provide our
TSP offering could keep us from maintaining required standards of service and
cause us to incur contractual penalties.
OUR ABILITY TO SELL OUR TSP OFFERING WILL SUFFER IF GROWTH IN E-BUSINESS
DECLINES.
Market acceptance of our TSP offering, and our ability to increase our
related revenues, will depend on continuing acceptance of use of the Internet
and related technologies for e-business. The market for e-business solutions is
relatively new and is undergoing significant change. The acceptance and growth
of the market for e-business solutions will be limited without the further
development of the Internet's infrastructure and related technologies. This
continued development includes maintenance of reliable networks with the
necessary speed, data capacity and security to provide viable marketplaces for
e-business, as well as timely development of complementary products for
providing reliable, easy-to-use access and services. Other factors that may
affect the growth of the Internet and related technologies as media for
e-business include:
- increases in access costs;
- government regulation;
- uncertainty regarding intellectual property ownership;
7
<PAGE>
- reluctance to adopt new business methods; and
- costs associated with the obsolescence of existing infrastructure.
We cannot be certain that the Internet and related technologies will provide
viable marketplaces for e-business in the long term.
OUR OPERATING MARGINS MAY DECLINE IF WE FAIL TO ACCURATELY ESTIMATE THE
RESOURCES NECESSARY TO PROVIDE OUR SOLUTIONS.
We derive a significant portion of our revenues from fixed-time, fixed-price
contracts. Accordingly, if we fail to accurately estimate the resources required
for us to fulfill our obligations under a contract or fail to satisfy those
obligations, then our costs to provide the applicable solution could increase
substantially. We have occasionally had to commit unanticipated additional
resources to complete customer projects, and we may have to take similar action
in the future.
WE MAY BE UNABLE TO INCREASE REVENUES AS PLANNED IF OUR EFFORTS TO DEVELOP AND
MAINTAIN POSITIVE BRAND AWARENESS ARE NOT SUCCESSFUL.
We believe that developing and maintaining widespread positive awareness of
the Cayenta brand is critical to attracting customers for our TSP offering and
our related solutions and services. To promote awareness of our brand, we intend
to spend significant amounts on an aggressive brand-enhancement campaign, which
may cause our operating margins to decline if revenues derived from this
campaign are not sufficient to offset its associated costs. The value of our
brand may be damaged if solutions that we develop for customers become
associated with those customers' business difficulties.
WE HAVE RELIED ON A SMALL NUMBER OF CUSTOMERS FOR MOST OF OUR REVENUES, AND OUR
REVENUES WILL DECLINE SIGNIFICANTLY IF WE CANNOT KEEP OR REPLACE THESE
CUSTOMERS.
For the nine months ended September 30, 1999, revenues from three customers
accounted for approximately 97% of our actual revenues and approximately 53% of
our pro forma revenues. During 1998, revenues from one customer accounted for
approximately 92% of our actual revenues. If any of these customers do not
contract with us to develop additional solutions or perform additional services
for them and we are not able to sell our solutions or services to new customers
at comparable or greater levels, our revenues will decline significantly.
WE COULD LOSE A SUBSTANTIAL PORTION OF OUR REVENUES IF ANY OF OUR GOVERNMENT
CONTRACTS ARE MODIFIED OR TERMINATED FOR ANY REASON.
Since 1995, we have earned a substantial portion of our revenues from
government contracts for the FAA and the District of Columbia. During the nine
months ended September 30, 1999, our revenues from government business
represented approximately 65% of our actual revenues and approximately 35% of
our pro forma revenues. These contracts are typically funded on an annual basis.
The government agencies may cancel our contracts at any time without penalty or
may change their contract requirements or contract budgets. We currently provide
solutions and services to the FAA although our contract with it has expired. If
the FAA terminates its relationship with us or our FAA contract is renewed under
less favorable terms to us than our prior contract, we could lose a substantial
portion of our revenues. In addition, any cancellations or modifications of our
government contracts for any reason could cause us to lose a substantial portion
of our revenues.
8
<PAGE>
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO
FORECAST, WHICH MAY CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE.
Our quarterly revenues and operating results have fluctuated significantly
in the past, and we expect these fluctuations to continue. Factors that may
cause our quarterly revenues and operating results to fluctuate include:
- the amount and timing of demand for our TSP offering;
- our ability to sell additional solutions and services to existing
customers;
- our ability to enter into multiyear contracts with customers for our TSP
offering;
- the degree of utilization of our consultants;
- the length of our sales cycle for our solutions offerings;
- the introduction of new solutions by us or our competitors;
- changes in our pricing policies or those of our competitors;
- our ability to attract, train, manage and retain skilled personnel in all
areas of our business;
- our ability to manage costs, including sales and marketing, infrastructure
development, general and administrative and personnel costs;
- the timing and cost of anticipated openings of new regional solution and
command centers; and
- unanticipated costs associated with the integration of recently acquired
businesses.
It is likely that in some future quarter or quarters our operating results will
be below the expectations of public market analysts or investors. If so, the
market price of our common stock may decline significantly.
OUR GROWTH COULD BE LIMITED IF WE ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL.
We believe that our growth depends largely on our ability to attract and
retain highly skilled technical, consulting, managerial, sales and marketing
personnel. We may not be able to hire or retain the necessary personnel to
implement our business strategy. In addition, we may need to pay higher
compensation for personnel than we currently expect. Individuals with the
requisite technical skills to contribute to the further development of our TSP
offering, particularly those with the experience that we generally require, are
in very short supply. The competition to hire from this limited pool is intense.
Our failure to recruit and retain a personnel base (including personnel acquired
as part of acquisitions) with the multiple and varied skill sets necessary for
the successful implementation of our business strategy could prevent us from
achieving the growth that we expect.
OUR FAILURE TO MEET CUSTOMER EXPECTATIONS OR DELIVER ERROR-FREE SOLUTIONS COULD
RESULT IN LOSSES AND NEGATIVE PUBLICITY.
Many of our solutions relate to systems that are critical to our customers'
businesses. Any defects or errors in these solutions or failure to meet
customers' specifications or expectations could result in:
- delayed or lost revenues due to adverse customer reaction;
- requirements to develop additional solutions or provide additional
services to a customer at no charge;
- refunds for failure to meet service level obligations;
- negative publicity about us and our solutions and services, which could
adversely affect our ability to attract or retain customers; and
9
<PAGE>
- claims for substantial damages against us, regardless of our
responsibility for such failure, which may not be covered by our insurance
policies and which may not be limited by the contractual terms of our
engagement.
OUR SOLUTIONS WILL BE LESS COMPETITIVE IF WE CANNOT PROVIDE COMPATIBILITY WITH
THIRD-PARTY SOFTWARE PACKAGES.
We believe that our ability to compete successfully depends on the continued
compatibility of our solutions with software applications provided by
third-party vendors. Our failure to maintain compatibility with these
applications could limit the capacity of our solutions to integrate different
systems and make our solutions less attractive to potential users. We cannot be
sure that we will be able to conform to new or changed technology standards
quickly enough for our solutions to stay competitive, or that solutions
developed by others will not make our solutions noncompetitive or obsolete.
IF WE ARE UNABLE TO REUSE OUR PROCESS AND SOFTWARE SOLUTIONS, OUR
INDUSTRY-SPECIFIC TEMPLATES, AND OUR METHODOLOGIES, WE MAY BE UNABLE TO DELIVER
OUR SERVICES RAPIDLY AND COST-EFFECTIVELY.
We generally develop our solutions based on reusable processes, software,
industry-specific templates, and methodologies. If we generally are unable to
negotiate customer contracts that permit us to reuse our processes, software and
templates, we may be unable to provide solutions to our customers at a cost and
within time frames that they consider acceptable. We may work with customers who
prohibit us from such reuse or who may severely limit reuse.
OUR MARKETS ARE HIGHLY COMPETITIVE AND OUR COMPETITORS' STRENGTHS MAY PREVENT US
FROM EXECUTING OUR BUSINESS STRATEGY.
Our current and potential competitors include:
- application service providers;
- information technology service providers and system integrators;
- Internet professional service providers; and
- the internal information technology departments of current and potential
customers.
Many of our competitors are substantially larger than we are and have
substantially greater financial, infrastructure and personnel resources than we
have. Furthermore, many of our competitors have well established, large and
experienced marketing and sales capabilities and greater name recognition than
we have. As a result, our competitors may be in a stronger position to respond
quickly to new or emerging technologies and changes in customer requirements.
They also may develop and promote their services more effectively than we do.
Moreover barriers to entry, particularly in the application integration and
consulting components of our TSP offering, are low. We therefore expect
additional competitors to enter these markets.
OUR OPERATIONS WILL SUFFER IF WE ARE UNABLE TO INTEGRATE AND RETAIN OUR SENIOR
MANAGERS.
Our success depends on the continued contributions of the principal members
of our senior management team, including David P. Porreca and Gregory R. Smith,
all of whom joined us in 1999. Some of these individuals have not worked
together previously and are currently becoming integrated as a management team.
As a result, our senior managers may not work together effectively. In addition,
due to the competitive nature of our industry, we may be unable to retain all of
our senior managers. If our senior managers do not work together effectively, or
terminate their relationships with us, our business operations could be
significantly disrupted.
10
<PAGE>
GOVERNMENT AUDITS OF OUR GOVERNMENT CONTRACTS COULD CAUSE A MATERIAL NEGATIVE
ADJUSTMENT TO OUR REVENUES.
Our government contracts are subject to cost audits by the government
entities for whom we do work or by their controlling entities. These audits may
occur several years after completion of the audited work. Audits may result in
modifications to contract revenues. We have not had any material recalculation
of government contract revenues based on audits in the past. However, in the
future, we could have a negative material adjustment to revenues as a result of
a government audit.
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS AGAINST US, EVEN WITHOUT MERIT, COULD
BE EXPENSIVE TO DEFEND AND MAY DIVERT MANAGEMENT'S ATTENTION.
We cannot be certain that the solutions that we deliver or the software or
processes used in our solutions do not or will not infringe valid patents,
copyrights or other intellectual property rights held by third parties. If there
is infringement, we could be liable for substantial damages. Any infringement
claim, even one without merit, can be time consuming and expensive to defend.
Infringement claims may divert management's attention and resources and could
cause delays in implementing our solutions and services. If we are found to
infringe a third party's intellectual property rights, we may need to enter into
royalty or licensing agreements.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS,
OUR BUSINESS COULD BE ADVERSELY AFFECTED.
Our intellectual property includes our trade secrets, copyrights, trademarks
and other proprietary information. We believe that our intellectual property is
important to our success and our competitive position, and we try to protect it.
However, our efforts may be inadequate. In addition, we may be unable to detect
unauthorized use of our intellectual property and take appropriate steps to
enforce our rights. Also, protection of intellectual property in many foreign
countries is weaker and less reliable than in the United States. Accordingly, if
our business expands further into foreign countries, risks associated with
protecting our intellectual property will increase.
BECAUSE WE HAVE INTERNATIONAL OPERATIONS, WE FACE ADDITIONAL RISKS RELATED TO
FOREIGN POLITICAL AND ECONOMIC CONDITIONS.
We operate in international markets and may expand our international
operations, including establishing international solution and command centers.
We cannot be sure that we will be able to obtain the necessary technical
infrastructure in a cost-effective manner to do so or compete effectively in
international markets, In addition, there are risks inherent in conducting
business internationally. These risks involve:
- unexpected changes in regulatory requirements;
- export restrictions;
- tariffs and other trade barriers;
- challenges in staffing and managing foreign operations;
- differing technology standards;
- employment laws and practices in foreign countries;
- political instability;
- fluctuations in currency exchange rates;
- imposition of currency exchange controls; and
- potentially adverse tax consequences.
The effect of any of the risks referred to above could adversely affect our
international operations.
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<PAGE>
FAILURE OF COMPUTER SYSTEMS AND SOFTWARE TO BE YEAR 2000 COMPLIANT COULD
INCREASE OUR COSTS, DISRUPT OUR DELIVERY OF SOLUTIONS AND SERVICES, AND REDUCE
DEMAND FROM OUR CUSTOMERS.
We confront the Year 2000 problem in three contexts.
OUR CUSTOMERS. The failure of our customers to ensure that their operations
are Year 2000 compliant could result in adverse consequences to them, which in
turn could limit their ability to retain us to provide information technology
solutions and services. In addition, customers or potential customers may delay
purchasing our information technology solutions and services because they have
dedicated a significant portion of their information technology budget to
becoming Year 2000 compliant or due to Year 2000 compliance concerns.
OUR SUPPLIERS. Our ability to deliver our TSP offering and our related
solutions and services could be adversely affected if we cannot obtain Year 2000
compliant services, products or systems from our suppliers as we need them.
OUR SOLUTIONS AND SERVICES. The solutions and services that we provide to
our customers include integrating software and other technology from third
parties. If there is a Year 2000 problem with respect to a solution provided by
us, it may be difficult to determine whether the problem relates to services we
have performed or is due to the software, technology or services of third
parties. As a result, we may be subjected to Year 2000-related lawsuits, whether
or not the solutions and services that we have provided are Year 2000 compliant.
We cannot assure you that the outcomes of these types of lawsuits would be
favorable to us.
RISKS RELATED TO OUR RELATIONSHIP WITH TITAN
FOLLOWING THIS OFFERING, TITAN'S CONTROL OF OUR COMPANY COULD MAKE IT DIFFICULT
FOR ANOTHER COMPANY TO ACQUIRE US, WHICH COULD DEPRESS OUR STOCK PRICE.
Following this offering, Titan will own all of our outstanding shares of
Class B common stock (which have ten votes per share), representing more than
% of our voting power. As a result, Titan will have the ability to control
the outcome of all matters requiring stockholder approval, including the
election and removal of our board of directors, approval of any merger,
consolidation or sale of all or substantially all of our assets. Titan also will
have the ability to control our management and affairs. This control could
discourage others from initiating any potential merger, takeover or other change
of control transaction that may otherwise be beneficial to our business or our
stockholders. As a result, this control could reduce the price that investors
are willing to pay in the future for shares of our Class A common stock.
OUR BUSINESS MAY BE DISADVANTAGED OR HARMED IF TITAN'S INTERESTS RECEIVE
PRIORITY OVER OUR INTERESTS.
Conflicts of interest may arise between Titan and us in a number of areas
relating to our past and ongoing relationships. Factors that may create a
conflict of interest between Titan and us include the following:
- potential competitive business activities;
- potential shared administrative functions;
- sales or distributions by Titan of all or any portion of its ownership
interest in us;
- Titan's ability to control our management and affairs; and
- two of our directors are also directors of Titan.
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<PAGE>
Because our financial results will be included in Titan's consolidated
financial statements, our directors and executive officers who are affiliated
with Titan may consider not only the short-term and long-term impact of
financial and operating decisions on us, but also the impact of these decisions
on Titan's consolidated financial results and its stockholders. In some
instances, the impact of these decisions could be disadvantageous to us while
advantageous to Titan. We cannot guarantee that all conflicts will be resolved
in a manner that is favorable to us or that such conflicts will not result in
harmful consequences to our business or prospects.
WE ARE SUBJECT TO COVENANTS IN TITAN'S SENIOR CREDIT FACILITY AS A GUARANTOR AND
AS A RESTRICTED SUBSIDIARY THAT AFFECT OUR OPERATIONS AND OUR ABILITY TO
COMPLETE THIS OFFERING.
We currently are subject to Titan's senior credit facility, which includes
covenants that restrict our operations and a covenant that requires Titan to pay
down this facility by an amount equal to the net proceeds of this offering. In
addition, we have, along with other Titan subsidiaries, guaranteed Titan's
obligations under the facility. Titan has informed us that it intends to
negotiate changes to the facility or replace the facility to remove us from the
guaranty and the other restrictions concurrently with the completion of this
offering. So long as we remain as a guarantor, we risk substantial liability if
Titan defaults on this facility. If Titan does not obtain the bank group's
consent to this offering, the completion of the offering will constitute a
default under the facility.
WE MAY BE UNABLE TO RAISE CAPITAL OR ISSUE COMMON STOCK IN CONNECTION WITH
ACQUISITIONS IN THE FUTURE BECAUSE OF OUR RELATIONSHIP WITH TITAN.
Because Titan may seek to maintain its beneficial ownership percentage of
our common stock for tax planning purposes or otherwise and may not desire to
acquire additional shares of common stock in connection with future financing
transactions, we may be constrained in our ability to raise equity capital in
the future or to issue common stock or other equity securities in connection
with future acquisitions.
OUR BUSINESS MAY SUFFER BECAUSE WE ENTERED INTO AFFILIATE AGREEMENTS WITH TITAN
THAT ARE NOT BASED ON ARM'S LENGTH NEGOTIATIONS.
Prior to the completion of this offering, we expect to enter into various
intercompany agreements with Titan including a corporate services agreement,
facilities sharing agreement and tax allocation agreement. Because we are
currently a majority-owned subsidiary of Titan, none of these agreements will
result from arm's length negotiations. These agreements may include terms and
conditions that may be more or less favorable to us than terms contained in
similar agreements negotiated with third parties.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE COULD BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS PURCHASING SHARES IN THIS OFFERING.
The trading price of our Class A common stock could be volatile. The stock
market in general, and the market for technology and Internet-related companies
in particular, have experienced extreme volatility. This volatility has often
been unrelated to the operating performance of particular companies. We cannot
be sure that an active public market for our Class A common stock will develop
or continue after this offering. Investors may be unable to sell their Class A
common stock at or above our initial public offering price. Prices for the
Class A common stock will be determined in the marketplace and may be influenced
by many factors, including variations in our financial results, changes in
earnings estimates by industry research analysts, investors' perceptions of us,
general economic, industry and market conditions, and Titan's voting control of
us.
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<PAGE>
MANAGEMENT HAS BROAD DISCRETION AS TO THE USE OF THE PROCEEDS OF THIS OFFERING
AND MAY NOT USE THE PROCEEDS IN WAYS WHICH ENHANCE OUR MARKET VALUE OR RESULTS
OF OPERATIONS.
Our management will retain broad discretion to allocate the proceeds of this
offering. Management's failure to apply these funds effectively could have an
adverse effect on our ability to implement our strategy.
SHARES BECOMING AVAILABLE FOR SALE COULD ADVERSELY AFFECT OUR STOCK PRICE.
Sales of a substantial number of shares of our common stock in the public
market after this offering could depress the market price of our Class A common
stock and could impair our ability to raise capital through the sale of
additional equity securities. After this offering, we will have outstanding
shares of our Class A common stock. All the shares sold in this offering
will be freely tradable. Of the remaining shares of Class A common stock
outstanding after this offering, all such shares will be eligible for sale in
the public market beginning 181 days after the date of this prospectus. In
addition, after completion of this offering, the holders of 1,012,258 shares of
our Class A common stock (giving effect to the exercise of warrants outstanding
to purchase 495,800 shares of Class A common stock) will be entitled to cause us
to register their shares on Form S-3 under the Securities Act when we are
eligible to do so, so long as the value of the registered shares is
$4.0 million or more. These holders, along with the holders of 2,345,000 shares
of our Class A common stock (giving effect to the conversion of all of our
outstanding preferred stock into Class A common stock upon the closing of this
offering) also have "piggyback" registration rights if we register any of our
Class A common stock under the Securities Act following this offering. Except
for shares purchased by our affiliates, registration of these shares under the
Securities Act would result in these shares becoming eligible for sale in the
public market immediately upon the effectiveness of the registration. After this
offering, we also intend to register up to 2,450,000 additional shares of our
Class A common stock for sale upon the exercise of outstanding stock options
issued pursuant to, or reserved for future issuance under, our 1997 Stock Option
Plan.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION THAT COULD RESULT IN
SUBSTANTIAL COSTS AND DIVERT MANAGEMENT'S ATTENTION AND RESOURCES.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. Due to the potential volatility of our stock price, we may be the
target of securities litigation in the future. Securities litigation could
result in substantial costs and divert management's attention and resources.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
Purchasers of Class A common stock in this offering will pay a price per
share which is substantially higher than the per share value of our assets after
subtracting our liabilities. In addition, purchasers of Class A common stock in
this offering will have contributed approximately % of the aggregate price
paid by all purchasers of our stock but will own only approximately % of
our common stock outstanding after this offering.
WE MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE TO US, AND WHICH, IF
RAISED, MAY HURT OUR EXISTING STOCKHOLDERS.
We may need to raise additional funds through public or private equity or
debt financings in order to:
- support additional capital expenditures;
- take advantage of acquisition or expansion opportunities;
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<PAGE>
- develop new solutions or services; or
- address additional working capital needs.
If we raise additional funds through the issuance of equity or debt securities
that have rights senior to those of our existing stockholders, our stockholders
may experience additional dilution or may lose other rights. We cannot be
certain that additional financing will be available to us on favorable terms
when required, or at all. If we cannot raise funds on acceptable terms, if and
when needed, we may be forced to curtail some or all of the above activities and
may not be able to grow our business or respond to competitive pressures or
unanticipated developments.
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND
COULD ADVERSELY AFFECT THE PRICE OF OUR CLASS A COMMON STOCK.
Provisions of our amended certificate of incorporation and bylaws and
provisions of Delaware law could delay, defer or prevent an acquisition or
change of control involving us or otherwise adversely affect the price of our
Class A common stock. For example, our board of directors is staggered in three
classes, so that only one-third of the directors can be replaced at any annual
meeting. Additionally, our bylaws eliminate the ability of stockholders to call
a special meeting. Our amended certificate of incorporation also permits our
board of directors to issue shares of preferred stock without stockholder
approval. In addition to delaying or preventing an acquisition, the issuance of
a substantial number of preferred shares could adversely affect the price of the
Class A common stock.
THE RELIABILITY OF MARKET DATA INCLUDED IN THIS PROSPECTUS IS UNCERTAIN.
We have included market data from industry publications in this prospectus.
The reliability of these data cannot be assured. Market data used throughout
this prospectus was obtained from industry publications. Industry publications
generally state that the information contained in these publications have been
obtained from sources believed to be reliable, but that its accuracy and
completeness is not guaranteed. Although we believe market data used in this
prospectus to be reliable, it has not been independently verified.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology including "could," "may," "will," "should," "expect," "intend,"
"plan," "anticipate," "believe," "estimate," "predict," "potential," "continue"
or "opportunity," the negative of these terms or other comparable terminology.
These statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various factors, including the risks described above and in other parts of this
prospectus. These factors may cause our actual results to differ materially from
any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot and do not guarantee future results, levels
of activity, performance or achievements. We are under no duty to update any of
the forward-looking statements after the date of this prospectus to conform them
to actual results or to changes in our expectations.
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<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the offering will be approximately
$ million (based upon an assumed initial public offering price of $ per
share) after deducting the underwriting discounts and commissions and estimated
offering expenses ($ if the over-allotment option is exercised in
full).
We expect to use the net proceeds for general corporate purposes, including
continued development of our TSP offering and facilities, expansion of our sales
and marketing activities, and payment of approximately $2.3 million that may
become payable in connection with our recent acquisitions of Assist Cornerstone
and SFG Technologies after completion of audits.
Our management will retain broad discretion in the allocation of the net
proceeds of this offering. The amounts we actually spend will depend on a number
of factors, including the amount of our future revenues and other factors
described elsewhere in this prospectus. A portion of the net proceeds also may
be used to acquire or invest in complementary businesses, technologies, product
lines or products. Pending such uses, the net proceeds of this offering will be
invested in short term, interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will be
dependent upon our financial condition, results of operations, capital
requirements, general business conditions and other factors that the board of
directors may deem relevant.
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CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999,
giving effect to the amendment to our certificate of incorporation to authorize
the creation of two classes of common stock (Class A and Class B) as if such
amendment occurred on such date:
- on an actual basis;
- on a pro forma basis after giving effect to the acquisitions of Mainsaver,
Assist Cornerstone (including the related issuance of 516,458 shares of
Class A common stock to the former shareholders of Assist Cornerstone) and
SFG Technologies as if they had occurred at September 30, 1999; and
- on a pro forma as adjusted basis, giving effect to the conversion of all
of our outstanding shares of preferred stock into 2,345,000 shares of
Class A common stock upon the closing of this offering and to our issuance
of the Class A common stock offered hereby at an assumed price of $
per share and the application of the net proceeds therefrom.
This information should be read in conjunction with our financial statements
and related notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current portion........................ $ 9,441 $59,794 $
------- ------- --------
Stockholders' equity (1):
Preferred stock, $.001 par value; 17,345,000 authorized
Series A convertible preferred stock, $.001 par value;
2,345,000 shares authorized and 2,345,000 issued and
outstanding, actual and pro forma; 2,345,000 shares
authorized, none issued and outstanding, pro forma as
adjusted.............................................. 2 2 --
Class A common stock, $.001 par value;
100,000,000 shares authorized, none issued and
outstanding, actual; 100,000,000 shares authorized and
516,458 shares issued and outstanding, pro forma;
100,000,000 shares authorized and shares issued
and outstanding, pro forma as adjusted................ -- 1
Class B common stock, $.001 par value;
50,000,000 shares authorized and 10,000,000 shares
issued and outstanding, actual, pro forma and pro
forma as adjusted..................................... 10 10 10
Additional paid-in capital.................................. 2,981 6,381
Deferred compensation....................................... (928) (928)
Parent company investment................................... 6,359 6,359
Retained earnings........................................... 5,694 5,694
------- ------- --------
Total stockholders' equity........................ 14,118 17,519
------- ------- --------
Total capitalization.......................... $23,559 $77,313 $
======= ======= ========
</TABLE>
- ------------------------
(1) Share numbers in the table do not include issuances subsequent to
September 30, 1999 (other than the issuance to the former shareholders of
Assist Cornerstone described above) or the following shares:
- 2,450,000 shares of Class A common stock reserved for issuance under our
1997 Stock Option Plan, of which 1,106,250 shares were covered by
outstanding options at a weighted average exercise price of $0.47 per
share at September 30, 1999; and
- 495,800 shares of our Class A common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $13.11 per
share.
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DILUTION
As of September 30, 1999, our pro forma as adjusted net tangible book value
deficit, after giving effect to the conversion of our preferred stock then
outstanding and the acquisitions of Mainsaver, Assist Cornerstone and SFG
Technologies, was approximately $50.9 million, or $3.96 per share of common
stock. Our pro forma as adjusted net tangible book value deficit is equal to,
after giving effect to the adjustments described in the previous sentence, our
total tangible assets minus our total liabilities, divided by the number of
shares of common stock outstanding. After giving effect to the sale of our
Class A common stock offered by this prospectus at an assumed initial public
offering price of $ per share, and after deducting underwriting
discounts and commissions and our estimated offering expenses, our pro forma as
adjusted net tangible book value as of September 30, 1999 would have been
approximately $ million, or $ per share. This represents an
immediate increase in pro forma as adjusted net tangible book value of $
per share to existing stockholders and an immediate dilution of $ per share
to new investors. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
PER SHARE
---------------
<S> <C> <C>
Assumed initial public offering price....................... $
Pro forma as adjusted net tangible book value deficit
before the offering..................................... $ 3.96
Increase attributable to new investors....................
------
Pro forma as adjusted net tangible book value after this
offering..................................................
------
Dilution to new investors................................... $
======
</TABLE>
The following table summarizes, on a pro forma as adjusted basis as of
September 30, 1999, the differences between existing stockholders and the new
investors with respect to the number of shares of common stock purchased from
us, the total consideration paid to us and the average price per share paid
before deducting underwriting discounts and commissions and our estimated
offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1).......... 12,861,458 % $17,518,000 % $1.36
New investors......................
----------- ----- ----------- -----
Total............................ 100.0% $ 100.0%
=========== ===== =========== =====
</TABLE>
- ------------------------
(1) Gives effect to the acquisitions of Mainsaver, Assist Cornerstone and SFG
Technologies and the conversion of all of our outstanding preferred stock
into 2,345,000 shares of Class A common stock upon the closing of this
offering, and assumes no exercise of stock options outstanding as of
September 30, 1999. As of September 30, 1999, there were options outstanding
to purchase a total of 1,106,250 shares of our Class A common stock, with a
weighted average exercise price of $0.47 per share. We also currently have
warrants outstanding to purchase a total of 495,800 shares of our Class A
common stock at a weighted average exercise price of $13.11 per share. If
any of these options or warrants are exercised, there will be further
dilution to new investors.
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<PAGE>
SELECTED HISTORICAL ACTUAL AND PRO FORMA FINANCIAL INFORMATION
The following selected financial information should be read in conjunction
with the Cayenta, Transnational Partners II, Mainsaver, Assist Cornerstone and
SFG Technologies financial statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Operating
Results" included elsewhere in this prospectus. The pro forma statement of
operations information for the year ended December 31, 1998 and the nine months
ended September 30, 1999 should be read in conjunction with the unaudited pro
forma financial statements included elsewhere in this prospectus. That
information assumes that we completed the acquisitions of Transnational
Partners II, Mainsaver, Assist Cornerstone and SFG Technologies as of the
beginning of each such period (except that the operating results of the former
Transnational Partners II business are included in our historical operating
results for the nine months ended September 30, 1999). The unaudited pro forma
statement of operations information is based on our historical operating results
and those of Transnational Partners II, Mainsaver, Assist Cornerstone and SFG
Technologies for the periods presented and gives effect to the amortization of
goodwill related to the acquisitions, the interest expense relating to the
acquisitions, and the resulting provision for income taxes. Our statement of
income information for the years ended December 31, 1996, 1997 and 1998 and
balance sheet information as of December 31, 1997 and 1998 are derived from our
audited financial statements, which are included elsewhere in this prospectus.
Our statement of income information for the nine months ended September 30, 1999
and the balance sheet information as of September 30, 1999 are derived from our
unaudited financial statements included elsewhere in this prospectus. Our
statement of income information for the year ended December 31, 1995 and the
balance sheet information as of December 31, 1995 are derived from our unaudited
financial statements. The unaudited financial statements have been prepared on
substantially the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of the financial position and results of
operations for the periods. Historical results are not necessarily indicative of
the results that may be expected in the future and do not reflect what our
results would have been had we operated as a separate, stand-alone entity during
the periods presented. In addition, the results of interim periods are not
necessarily indicative of results that may be expected for the entire year.
As noted above, our pro forma historical financial information includes the
operating results of Mainsaver, Assist Cornerstone and SFG Technologies, all of
which have historically derived a substantial portion of their revenues from
licensing software and sales of hardware. While we will continue to license our
software and the software developed by Mainsaver, Assist Cornerstone and SFG
Technologies separately, we intend to integrate this software into, and focus
our sales and marketing efforts on, our TSP offering. Accordingly, we expect
that an increasing percentage of our future revenues will be generated by
periodic recurring fees from sales of our TSP offering under long-term
contracts, and a decreasing percentage of our future revenues will be generated
by licensing of software and hardware sales. Given these changes in our revenue
sources that we anticipate will occur as we further develop and launch our TSP
offering, our pro forma historical financial information may not be, and should
not be relied upon as, a meaningful indicator of our future financial
performance.
19
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- (UNAUDITED)
1995 1998 ------------------------------
(UNAUDITED) 1996 1997 1998 (UNAUDITED) 1998 1999 1999
----------- -------- -------- -------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRO PRO
ACTUAL FORMA ACTUAL ACTUAL FORMA
-------- ----------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF
OPERATIONS INFORMATION:
Revenues............................ $ 5,145 $ 8,633 $10,191 $12,095 $41,348 $7,073 $25,148 $45,960
Cost of revenues.................... 3,806 6,068 6,514 7,413 20,990 4,298 16,917 24,358
------- ------- ------- ------- ------- ------ ------- -------
Gross profit...................... 1,339 2,565 3,677 4,682 20,358 2,775 8,231 21,602
Operating expenses:
Selling, general and
administrative.................. 700 1,831 1,705 2,259 18,298 1,629 3,225 17,441
Research and development.......... -- -- -- -- 3,196 -- -- 2,811
------- ------- ------- ------- ------- ------ ------- -------
Income (loss) from operations....... 639 734 1,972 2,423 (1,136) 1,146 5,006 1,350
Interest expense.................... 72 116 139 204 3,692 123 691 3,630
Interest income..................... -- -- -- -- 38 -- -- --
------- ------- ------- ------- ------- ------ ------- -------
Income (loss) before tax............ 567 618 1,833 2,219 (4,790) 1,023 4,315 (2,280)
Income tax provision (benefit)...... 198 247 734 908 (324) 370 1,726 818
------- ------- ------- ------- ------- ------ ------- -------
Net income (loss)................... $ 369 $ 371 $ 1,099 $ 1,311 $(4,466) $ 653 $ 2,589 $(3,098)
======= ======= ======= ======= ======= ====== ======= =======
Diluted earnings (loss) per share... $ 0.04 $ 0.04 $ 0.11 $ 0.13 $ (0.42) $ 0.06 $ 0.21 $ (0.29)
======= ======= ======= ======= ======= ====== ======= =======
Weighted average common shares and
common share equivalents used in
computing diluted earnings
per share (1)..................... 10,000 10,000 10,030 10,148 10,516(2) 10,117 12,638 10,516(2)
======= ======= ======= ======= ======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------- SEPTEMBER 30,
1995 1999
(UNAUDITED) 1996 1997 1998 (UNAUDITED)
----------- -------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Cash........................................................ $ -- $ -- $ -- $ -- $ --
Working capital............................................. 1,196 3,164 3,086 8,036 5,117
Total assets................................................ 1,296 3,280 4,641 11,923 36,747
Total long-term obligations................................. 198 216 -- -- 9,441
Total stockholders' equity.................................. 1,098 3,064 3,980 8,906 14,118
</TABLE>
- ------------------------------
(1) For the number of shares used in the per share calculations, see the
historical pro forma Cayenta financial statements and Note 2 to the
historical actual Cayenta financial statements.
(2) Assumes the issuance of our shares of Class A common stock to complete the
acquisition of Assist Cornerstone as if such issuance had occurred at the
beginning of each of the periods presented. The shares of preferred stock
that we issued to complete the acquisition of Transnational Partners II are
not included because their effect would be antidilutive.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND OPERATING RESULTS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED
HISTORICAL ACTUAL AND PRO FORMA FINANCIAL INFORMATION" AND THE AUDITED AND
UNAUDITED ACTUAL AND PRO FORMA HISTORICAL FINANCIAL STATEMENTS INCLUDED
ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND ANALYSIS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. EXAMPLES OF
FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS REGARDING OUR FUTURE FINANCIAL
RESULTS AND OPERATING RESULTS, OUR BUSINESS STRATEGY, OUR PROJECTED COSTS, OUR
FUTURE SOLUTIONS AND SERVICES (INCLUDING OUR TSP OFFERING), OUR PLANS TO
INTEGRATE RECENTLY ACQUIRED BUSINESSES, OUR COMPETITIVE POSITION AND THE PLANS
AND OBJECTIVES OF OUR MANAGEMENT FOR FUTURE OPERATIONS. OUR ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS
A RESULT OF RISKS AND UNCERTAINTIES AND OTHER IMPORTANT FACTORS, INCLUDING THOSE
SET FORTH UNDER "RISK FACTORS" INCLUDED ELSEWHERE IN THIS PROSPECTUS.
INTRODUCTION
We are a total services provider, or TSP, of comprehensive information
technology solutions for our customers business functions. We operate, host,
manage and support standard and proprietary software applications tailored for
our customers' business processes, including e-business, finance, accounting,
customer billing and collection, contract management, supply chain integration
and enterprise asset management. By using our proprietary software applications
in addition to standard software application packages, we can rapidly build and
deploy solutions that best meet our customers' needs. Our customers will have
the option of leasing either total solutions or components of our TSP offering
under long-term contracts, providing them with lower and more predictable
capital and operating costs for their information technology requirements. Our
solutions are scalable and reliable and enable our customers to manage the
increasing frequency and complexity of e-business transactions. These solutions
operate with our customers' existing internal systems and with those of their
trading partners and provide our customers with a single source of contact for
their information technology requirements. We define e-business as transactions
effected through the Internet or other electronic communication systems.
We were formed as a wholly-owned subsidiary of The Titan Corporation in 1997
when Titan separated its commercial software integration business from its other
operations. Upon completion of this offering, Titan will own all of our Class B
common stock, which will represent more than % of our outstanding common
stock and more than % of its voting power, and will continue to control us.
During the period between 1995 and January 1999, we developed our systems
integration and software application expertise. In January 1999, we acquired
substantially all of the assets of Transnational Partners II, LLC, an enterprise
application integration consulting company, to broaden our systems integration
capabilities and access its customer base. During late 1999, we acquired J.B.
Systems, Inc., an enterprise asset management, or EAM, company doing business
under the name Mainsaver. Also during late 1999, we acquired Assist Cornerstone
Technologies, Inc., an e-commerce solutions and software provider, and SFG
Technologies, Inc., a solutions and software provider focusing on revenue cycle
services for the utility industry. We intend to integrate the software and
solutions developed by these companies into our TSP offering.
In September 1999, together with Sempra Energy's information solutions
subsidiary and modis, an application integrator, we established Soliance, LLC, a
joint venture that markets and delivers systems and solutions, including TSP
offerings, to the utility industry. We own a 10% equity interest in Soliance and
have a management services agreement with Soliance under which we provide TSP
services to Soliance's customers.
We have historically derived our revenues from our application integration
and consulting services and from sales of our proprietary software solutions. We
provide our services primarily on a fixed-time,
21
<PAGE>
fixed-price basis and, to a lesser extent, on a time and materials basis. Under
our fixed-time, fixed-price contracts, we recognize revenues on a percentage of
completion basis. Our fixed-time, fixed-price contracts usually require an
advance payment from our customer with additional payments due on achievement of
specific milestones or on a predetermined schedule. Revenues earned but not yet
billed are recorded as unbilled receivables. Under our time and materials
contracts, we are paid at an agreed upon hourly rate for the actual time spent
on a customer's projects, and revenues are recorded at the time services are
performed. For the nine months ended September 30, 1999, our revenues from
fixed-time, fixed-price contracts represented 66% of our actual revenues and our
revenues from time and materials contracts represented 34% of our actual
revenues. Each of Mainsaver, Assist Cornerstone and SFG Technologies recognizes
revenues from the sale of its proprietary software when the software is
delivered and accepted, in accordance with the American Institute of Certified
Public Accountants' Statement of Position 97-2, "Software Revenue Recognition".
The related software support and maintenance is billed at the beginning of the
maintenance period, recognized ratably over the term of the applicable contract,
and recorded as deferred revenues until recognized.
As we expand the portion of our business that is based on our TSP offering,
we intend to enter into contracts with terms of between three and five years. We
expect revenues from our TSP offering to consist of periodic recurring fees from
ongoing services that will be recognized ratably over the applicable contract's
term. In addition, we expect to receive application integration and consulting
fees that will be recognized in accordance with our revenue recognition policies
discussed above.
Our cost of revenues consists primarily of the salaries, benefits and
non-billable direct expenses of our consulting personnel and fees paid to
independent consultants. The number of consultants we assign to a project varies
according to the size, complexity, duration and demands of the project. Our cost
of revenues has included costs under one significant subcontract for our work
for the District of Columbia. We expect subcontract costs to decline in the
future.
Our selling, general and administrative expenses consist primarily of
non-project personnel costs, occupancy costs, staff recruiting costs, travel
expenses, depreciation expenses, and sales, marketing and promotional costs.
Administrative expenses also include an expense allocation from Titan for its
performance on our behalf of routine corporate services, including financial,
insurance, accounting, employee benefits, payroll, tax and legal services. Prior
to completion of this offering, we will enter into a corporate services
agreement with Titan under which Titan will provide these services for a term of
one year from the date of the agreement unless the agreement is renewed in
accordance with its terms. We expect our selling, general and administrative
expenses to increase significantly as we expand our recruiting efforts, further
develop and launch our TSP offering, initiate our branding campaign, increase
our direct sales staff and build our administrative infrastructure.
Historically, we have not incurred significant research and development
expenses because most of our software solutions were created as part of our
consulting business or were developed by Mainsaver, Assist Cornerstone or SFG
Technologies before we acquired them. We expect our research and development
expenses to increase as we integrate recently acquired software into, and
further develop, our TSP offering.
Historically, our interest expense has related to borrowings from Titan to
fund our acquisitions and working capital requirements. As of December 27, 1999,
we owed approximately $53.8 million to Titan on which we will make quarterly
interest payments at the greater of the rate of 10% per annum or Titan's
effective weighted average interest rate under its senior credit facility.
ACQUISITIONS AND STRATEGIC INVESTMENTS
We completed four acquisitions in 1999. Each of the acquired businesses
develops software and solutions that businesses use to streamline and control
various business processes. We intend to integrate the software and solutions
developed by these companies into our TSP offering.
22
<PAGE>
TRANSNATIONAL PARTNERS II. In January 1999, we acquired substantially all
of the assets of Transnational Partners II, an enterprise application
integration consulting company. We acquired these assets for an initial
installment of $7.0 million in cash and 2,345,000 shares of our convertible
preferred stock. We will pay off an additional $2.8 million note that we issued
as part of our acquisition of Transnational Partners II, plus 7% interest
thereon, in January 2000.
MAINSAVER. In November 1999, we acquired J.B. Systems, an EAM company doing
business under the name Mainsaver. We acquired Mainsaver for $11.7 million in
cash, of which $8.2 million was paid at the closing. Of the $3.5 million
withheld at the closing, $500,000 is due in February 2000 and $3.0 million is
due in May 2001, after satisfaction of possible working capital adjustments or
indemnification obligations. In addition, we paid approximately $3.4 million to
reduce outstanding indebtedness of Mainsaver.
ASSIST CORNERSTONE. In December 1999, we acquired Assist Cornerstone, an
e-commerce solutions and software company. We acquired Assist Cornerstone for
516,458 shares of our Class A common stock and approximately $12.9 million in
cash, of which $9.9 million was paid at the closing. Of the $3.0 million
withheld at the closing, $1.7 million is due in March 2000 and $1.3 million is
due in June 2001, after satisfaction of possible working capital adjustments or
indemnification obligations. In addition, we paid approximately $3.2 million to
retire outstanding indebtedness of Assist Cornerstone and redeem all of its
outstanding redeemable preferred stock.
SFG TECHNOLOGIES. In December 1999, we acquired SFG Technologies, a
solutions and software provider focusing on revenue cycle services for the
utility industry. We acquired SFG Technologies for $11.6 million in cash, of
which $9.5 million was paid at the closing. Of the $2.1 million placed into
escrow at the closing, $600,000 is due in March 2000 and $1.5 million is due in
June 2001, after satisfaction of possible working capital adjustments or
indemnification obligations. In addition, we paid approximately $3.1 million to
retire outstanding indebtedness of SFG Technologies and redeem all of its
outstanding redeemable preferred stock.
Each of these acquisitions was accounted for using the purchase method,
resulting in approximately $68.5 million of goodwill. The goodwill from the
Transnational Partners II acquisition is being amortized over a 30 year period
from the date of acquisition. Goodwill related to the Mainsaver, Assist
Cornerstone and SFG Technologies acquisitions is being amortized over a 20 year
period from the date of each of the respective acquisitions.
In addition, in September 1999, together with Sempra Energy's information
solutions subsidiary and modis, an application integrator, we established
Soliance, which markets and delivers systems and solutions, including TSP
offerings, to customers in the utility industry. We invested $5.0 million in
cash for a 10% equity interest in the joint venture. Under certain
circumstances, we may also be required to make up to $2.5 million in additional
capital contributions.
PRO FORMA RESULTS
Our pro forma historical financial information will not necessarily be
indicative of our future operating results or future financial condition. Our
pro forma historical financial information includes the operating results of
Mainsaver, Assist Cornerstone and SFG Technologies, all of which have
historically derived a substantial portion of their revenues from licensing
software and sales of hardware. While we will continue to license our software
and the software developed by Mainsaver, Assist Cornerstone and SFG Technologies
separately, we intend to integrate this software into, and focus our sales and
marketing efforts on, our TSP offering. Accordingly, we expect that an
increasing percentage of our future revenues will be generated by periodic
recurring fees from sales of our TSP offering under long-term contracts, and a
decreasing percentage of our future revenues will be generated by licensing of
software and hardware sales. Given these changes in our revenue sources that we
anticipate will occur as we further develop and launch our TSP offering, our pro
forma historical
23
<PAGE>
financial information may not be, and should not be relied upon as, a meaningful
indicator of our future financial performance.
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED)
----------------------------
1998 1999
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME INFORMATION:
Revenues.................................................... 100.0% 100.0%
Cost of revenues............................................ 60.8 67.3
------ -------
Gross profit.............................................. 39.2 32.7
Selling, general and administrative expenses................ 23.0 12.8
------ -------
Income from operations...................................... 16.2% 19.9%
</TABLE>
REVENUES. Revenues increased to $25.1 million for the nine months ended
September 30, 1999 from $7.1 million for the nine months ended September 30,
1998. This increase in revenues was primarily a result of a significant new
contract with the District of Columbia that accounted for $9.8 million in
revenues in the period and $8.3 million in revenues contributed by the
Transnational Partners II business that was acquired in January 1999.
COST OF REVENUES. Cost of revenues increased to $16.9 million for the nine
months ended September 30, 1999 from $4.3 million for the nine months ended
September 30, 1998, primarily as a result of an increase in our work under our
consulting contracts and growth in our number of billable personnel, including
independent consultants, as a result of our acquisition of Transnational
Partners II. Our subcontract costs in our consulting business increased from
$3.2 million for the nine months ended September 30, 1998 to $12.5 million for
the nine months ended September 30, 1999 primarily because of our use of a
subcontractor for a majority of the work under our contract with the District of
Columbia.
GROSS PROFIT MARGIN. Our gross profit margin decreased to 32.7% for the
nine months ended September 30, 1999 from 39.2% for the nine months ended
September 30, 1998. This decrease was primarily due to the increase in
subcontract costs described above. We anticipate that our gross profit margin
will increase because we expect to reduce our subcontract costs, increase our
billable rates, and generate higher margin sales from our TSP offering.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $3.2 million for the nine months ended
September 30, 1999 from $1.6 million for the nine months ended September 30,
1998. This increase primarily related to $900,000 in administrative expenses
attributable to increased personnel costs and lease expense as a result of our
acquisition of the Transnational Partners II business. Selling, general and
administrative expenses as a percentage of revenues decreased to 12.8% for the
nine months ended September 30, 1999 from 23.0% for the nine months ended
September 30, 1998. This percentage decrease resulted from a higher proportion
of our administrative costs being billable to customers under some of our
contracts. We expect selling, general and administrative expenses to increase
significantly as we expand our recruiting efforts, further develop and launch
our TSP offering, initiate our branding campaign, increase our direct sales
staff, and build our administrative infrastructure.
INTEREST EXPENSE. Interest expense increased to $691,000 for the nine
months ended September 30, 1999 from $123,000 for the nine months ended
September 30, 1998. This increase in interest expense
24
<PAGE>
primarily related to borrowings from Titan to fund our purchase of the
Transnational Partners II business and our working capital requirements.
INCOME TAX PROVISION. For 1999, we will be included in Titan's consolidated
federal income tax return. The provision for income taxes for the nine months
ended September 30, 1999 was $1.7 million, compared to $370,000 for the nine
months ended September 30, 1998. Following completion of this offering, we
expect to file separate federal income tax returns beginning with our return for
the year 2000.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF INCOME INFORMATION:
Revenues.................................................... 100.0% 100.0%
Cost of revenues............................................ 63.9 61.3
------- -------
Gross profit.............................................. 36.1 38.7
Selling, general and administrative expenses................ 16.7 18.7
------- -------
Income from operations...................................... 19.4% 20.0%
</TABLE>
REVENUES. Revenues increased 18.7% to $12.1 million for the year ended
December 31, 1998 from $10.2 million for the year ended December 31, 1997. The
increase in revenues was primarily a result of an increase in work for our
principal customer. In 1998 and 1997, substantially all of our revenues were
derived from a single customer.
COST OF REVENUES. Cost of revenues increased 13.8% to $7.4 million for the
year ended December 31, 1998 from $6.5 million for the year ended December 31,
1997. The increase in cost of revenues was primarily as a result of an increase
in our work under our consulting contract and related growth in our number of
billable personnel, including independent consultants.
GROSS PROFIT MARGIN. Our gross profit margin increased to 38.7% for the
year ended December 31, 1998 from 36.1% for the year ended December 31, 1997.
This improvement primarily related to increased productivity under our
fixed-time, fixed-price contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 32.5% to $2.3 million for the year ended
December 31, 1998 from $1.7 million for the year ended December 31, 1997. As a
percentage of revenues, selling, general and administrative expenses increased
to 18.7% for the year ended December 31, 1998 from 16.7% for the year ended
December 31, 1997. This increase was due to an increase in our marketing efforts
which did not generate revenues in the same period.
INTEREST EXPENSE. Interest expense increased to $204,000 for the year ended
December 31, 1998 from $139,000 for the year ended December 31, 1997. The
increase in interest expense related to borrowings from Titan to fund our
working capital requirements.
INCOME TAX PROVISION. In each of 1998 and 1997, we were included in Titan's
consolidated federal income tax return. The provision for income taxes for the
year ended December 31, 1998 was $908,000, compared to $734,000 for the year
ended December 31, 1997.
25
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF INCOME INFORMATION:
Revenues.................................................... 100.0% 100.0%
Cost of revenues............................................ 70.3 63.9
------ -------
Gross profit.............................................. 29.7 36.1
Selling, general and administrative expenses................ 21.2 16.7
------ -------
Income from operations...................................... 8.5% 19.4%
</TABLE>
REVENUES. Revenues increased 18.0% to $10.2 million for the year ended
December 31, 1997 from $8.6 million for the year ended December 31, 1996. The
increase in revenues primarily resulted from an increase in our work for our
principal customer.
COST OF REVENUES. Cost of revenues increased 7.4% to $6.5 million for the
year ended December 31, 1997 from $6.1 million for the year ended December 31,
1996. The increase in cost of revenues was primarily a result of an increase in
our work under our consulting contracts.
GROSS PROFIT MARGIN. Our gross profit margin increased to 36.1% for the
year ended December 31, 1997 from 29.7% for the year ended December 31, 1996.
This improvement primarily related to increased productivity under our
fixed-time, fixed-price contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 6.9% to $1.7 million for the year ended
December 31, 1997 from $1.8 million for the year ended December 31, 1996. As a
percentage of revenues, selling, general and administrative expenses decreased
to 16.7% for the year ended December 31, 1997 from 21.2% for the year ended
December 31, 1996. This percentage decrease was primarily due to the
consolidation of accounting functions and resulting cost savings.
INCOME TAX PROVISION. In each of 1997 and 1996, we were included in Titan's
consolidated federal income tax return. The provision for income taxes for the
year ended December 31, 1997 was $734,000, compared to $247,000 for the year
ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
We have used cash principally to acquire businesses and to fund working
capital. Our cash requirements have been met primarily through loans from Titan
and cash flows from operations. As of December 27, 1999, we owed approximately
$53.8 million to Titan under a subordinated, unsecured promissory note. We can
have a maximum of $70.0 million of indebtedness outstanding under this
promissory note at any one time. The promissory note is due in December 2004 and
bears interest, payable quarterly, at the greater of the rate of 10% per annum
or Titan's effective weighted average interest rate under its senior credit
facility. We can prepay amounts outstanding under the promissory note at any
time without penalty. We may, with Titan's approval, prepay amounts outstanding
under the promissory note with the net proceeds of any asset sales we make that
are not in the ordinary course of business or if we obtain a credit facility
from a third party lender and the facility permits the use of proceeds to repay
existing indebtedness. We cannot use any of the proceeds of this offering to pay
amounts outstanding under the promissory note or under any indebtedness we incur
to refinance the promissory note.
In December 1999, Titan contributed its software integration division to us.
As part of this transaction, Titan contributed $7.0 million in cash and
eliminated $10.0 million of the division's debt to Titan for $17.0 million of
the division's accounts receivable.
26
<PAGE>
Our operating activities used cash of $1.6 million for the nine months ended
September 30, 1999 primarily for working capital (principally accounts
receivable) related to our growth during this period.
Our investing activities used cash of $8.4 million for the nine months ended
September 30, 1999. Of this amount, we used $8.0 million in connection with our
acquisition of the Transnational Partners II business.
Our financing activities provided cash of $10.0 million for the nine months
ended September 30, 1999. This amount is comprised of amounts borrowed by us
from Titan to fund our operating and investing activities discussed above.
Over the next twelve months, we have the following capital commitments:
- approximately $3.0 million that we expect to pay in January 2000 to pay
off a note (including accrued interest) that we issued as part of the
Transnational Partners II acquisition;
- approximately $6.0 million in capital expenditures to build our command
and solution centers to support our TSP offering; and
- up to approximately $2.8 million that we may pay to the former owners of
Mainsaver, Assist Cornerstone and SFG Technologies after completion of
audits.
We expect to incur additional costs and expenditures as we further develop
and launch our TSP offering. We also have additional commitments of up to
approximately $5.8 million ($1.5 million of which is currently being held in
escrow) that we may pay to the former owners of Mainsaver, Assist Cornerstone
and SFG Technologies after satisfaction of indemnification obligations owed to
us under our agreements to acquire those companies.
We believe that the cash proceeds from this offering will be sufficient to
meet our working capital and capital expenditure requirements for at least the
next twelve months. However, we could elect, or we could be required, to raise
additional funds during that period and we may need to raise additional capital
in the future. Additional capital may not be available at all, or may not be
available on terms favorable to us. Further, Titan may be opposed to us raising
additional capital when we believe it is desired or required. We also may issue
equity or equity-related securities for acquisitions from time to time in the
future. Any additional issuance of equity or equity-related securities will be
dilutive to our stockholders.
YEAR 2000
We have implemented a Year 2000 compliance program to address our
information technology systems. We have identified and assigned responsibility
to individuals to develop and implement a compliance plan.
Part of the plan was designed to assess whether our products and services
are Year 2000 compliant. Our products and services generally do not have
provisions for extended warranties. Accordingly, we do not expect that we will
have to spend any material amounts to make any of our prior products Year 2000
compliant. We continue to assess our products, however, particularly those of
our recently acquired businesses, and cannot be certain whether any Year 2000
issues will arise. We rely upon Titan for internal systems and Titan has
assessed its internal systems and informed us that they are Year 2000 compliant.
Each of Mainsaver, Assist Cornerstone and SFG Technologies has represented to us
that it has taken commercially reasonable actions to ensure its material
internal systems are Year 2000 compliant.
If our systems fail as a result of the Year 2000 issue, disruptions could
occur in certain key business processes such as labor and other cost
accumulation, project management and billing. If we cannot timely correct all
Year 2000 problems, these problems may cause material adverse effects on our
financial position, results of operations or cash flows.
27
<PAGE>
Most of our customers, in particular the U.S. government, utilize complex
billing and accounting systems to determine the timing and the amounts that will
be paid to us under our various contracts. In addition, our strategic partners
rely on complex software systems to coordinate and control their day-to-day
operations. These complex systems may not be Year 2000 compliant. Although these
customers and strategic partners have advised us that they expect to resolve any
Year 2000 issues prior to December 31, 1999, we cannot guarantee that our
billing procedures and cycles, or our joint sales and marketing efforts with
these partners, will not be interrupted. If these customers' or business
partners' Year 2000 issues are not resolved, our financial position, results of
operations or cash flows could be materially and adversely affected.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We currently are exposed to market risks related to changes in interest
rates. Some of the proceeds of this offering may be invested in short-term,
interest-bearing, investment grade securities. The value of these securities
will be subject to interest rate risk and could fall in value if interest rates
rise. Additionally, our future borrowings will have a variable component that
will fluctuate as interest rates change. If market interest rates were to
increase immediately and uniformly by 10%, there would not be a material impact
on our results of operations or on our balance sheet.
We began receiving a portion of our revenues, and paying a portion of our
expenses, in Canadian dollars after our aquisition of SFG Technologies. Revenues
from our other international operations are denominated in U.S. dollars. At this
time, we do not believe that our international operations subject us to material
risks from fluctuations in currency exchange rates.
28
<PAGE>
BUSINESS
OVERVIEW
We are a total services provider, or TSP, of comprehensive information
technology solutions for our customers' business functions. We operate, host,
manage and support standard and proprietary software applications tailored for
our customers' business processes, including e-business, finance, accounting,
customer billing and collection, contract management, supply chain integration
and enterprise asset management. By using our proprietary software applications
in addition to standard software application packages, we can rapidly build and
deploy solutions that best meet our customers' needs. Our customers will have
the option of leasing either total solutions or components of our TSP offering
under long-term contracts, providing them with lower and more predictable
capital and operating costs for their information technology requirements. Our
solutions are scalable and reliable and enable our customers to manage the
increasing frequency and complexity of e-business transactions. These solutions
operate with our customers' existing internal systems and with those of their
trading partners and provide our customers with a single source of contact for
their information technology requirements. We define e-business as transactions
effected through the Internet or other electronic communication systems.
We develop solutions in collaboration with our customers in solution centers
located in Burnaby, British Columbia, Orlando, Florida, Reston, Virginia, Salt
Lake City, Utah, San Diego, California, Washington, D.C., and Woodland Hills,
California. Our customers include 800.com, Calculated Industries, Dean & DeLuca,
the District of Columbia, the FAA, First Security Service Company, Hale Indian
River Groves, Mid-American Designs, Nortel, Oreck, Sempra Energy and Waste
Management. We have expertise in multiple industries, including utilities,
telecommunications, basic services, such as waste disposal, and retail. We
intend to further penetrate these industries by establishing strategic alliances
and joint ventures with industry leaders. We also participate in partnership
programs with leading providers of software, hardware and other elements of our
TSP offering. For example, we have application hosting agreements with Exodus
Communications and Intel. We currently have 266 professionals developing and
implementing our solutions.
INDUSTRY BACKGROUND
The rapid growth of the Internet and increased frequency of e-business
transactions is creating significant new opportunities and challenges for
businesses. Businesses are using the Internet to improve communications
internally and with their trading partners, to enhance operational efficiencies
and to strengthen customer relationships. The impact of the Internet encompasses
both business-to-business and business-to-consumer transactions. Forrester
Research, an independent research firm, projects that the market for
business-to-business e-business will grow from $43 billion in 1998 to $1.3
trillion in 2003 while business-to-consumer e-business will grow from
$8 billion to $108 billion over the same period.
The complexity of e-business transactions has accelerated with the
widespread adoption of the Internet. For example, these transactions frequently
contain complex billing mechanics and settlement terms that involve multiple
parties who participate in the supply and fulfillment chain. Tracking these
payments and settlements requires scalable and reliable information technology
systems that facilitate the flow of information both within organizations and
externally. Businesses face significant challenges in their efforts to
capitalize on the opportunities presented by the Internet, including:
- developing comprehensive end-to-end e-business solutions that link web
sites with accounting and fulfillment systems and accommodate and account
for complex billing, settlement and supply-chain transactions;
- tailoring standard software applications to their business processes while
ensuring that these applications are compatible with those of their
trading partners;
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- solving integration and compatibility issues caused by the patchwork of
legacy systems that businesses often implemented without a focused
information technology strategy;
- integrating data from disparate systems to increase its value; and
- adopting and integrating new and rapidly changing technologies while
preserving investments in existing systems.
Companies must meet these challenges while overcoming a number of obstacles,
including:
- capital constraints and total cost of ownership;
- technological obsolescence of many current systems;
- ensuring that e-business applications are available at all times;
- meeting increased online customer service demands; and
- attracting and retaining qualified information technology professionals.
International Data Corporation, an independent research firm, expects the
worldwide market for Internet services to grow at a five year compounded annual
growth rate of 59% from $7.8 billion in 1998 to $78.5 billion in 2003.
International Data Corporation defines Internet services as the consulting,
design, systems integration, support, management and outsourcing services
associated with the development, deployment and management of Internet sites.
Many businesses currently have to juggle multiple applications, integrators
and vendors to address their e-business challenges. Most information technology
companies specialize in only a single aspect of total services delivery, such as
web design, application development, systems integration or hosting of
commercially available applications. For example, application service providers,
or ASPs, generally only host and manage standard third party software
applications at a centrally managed facility. The complexity of combining all of
these elements from different providers makes it difficult for businesses to
implement e-business solutions in a cost-effective and timely manner.
Accordingly, businesses are increasingly demanding that information
technology services companies have a comprehensive understanding of their
business processes and deliver a tailored solution that combines strategy,
systems integration, hosting and support. We believe that this demand is largely
unmet in the information technology service provider and ASP marketplaces.
THE CAYENTA SOLUTION
We offer tailored solutions for customers seeking timely delivery of
cost-effective and comprehensive solutions for their business requirements. We
believe that the following features of our solutions differentiate us from our
competitors:
WE ARE A TOTAL SERVICES PROVIDER. We operate, host, manage and support
standard and proprietary software applications tailored for our customers'
business processes, including e-business, finance, accounting, customer billing
and collection, contract management, supply chain integration and enterprise
asset management. We extend the ASP offering by tailoring these software
applications to customer requirements, providing software enhancements, and
enabling interoperability among the customer's internal and hosted applications
and those of its trading partners. We also provide our customers with
comprehensive system management, including monitoring and control of
applications, interfaces, servers, networks and customer work stations. Our TSP
offering is based on our software engineering methodology, system configuration
and integration expertise, and industry knowledge. We believe our TSP offering
provides our customers with a number of benefits over internally developed and
hosted systems, including lower and more predictable capital and operating
costs, timely deployment, adaptable solutions, and scalable and reliable hosted
applications. In addition, our relationships with third party vendors enable our
customers to establish new relationships with key
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service providers. We also offer most aspects of our TSP offering on a
stand-alone basis for customers requiring a less comprehensive solution.
WE OFFER A COMPLETE E-BUSINESS SOLUTION. We provide comprehensive and
integrated solutions for our e-business customers. We integrate a customer's web
site and other business support systems with our proprietary solutions for order
processing, catalog management, customer service, inventory management, order
fulfillment, billing, collections, and account settlement. These solutions
provide our customers with a single point of contact for managing and monitoring
all of their e-business transactions. We also maintain relationships with third
party vendors to provide many of the supporting services used in e-business,
including banking, shipping, credit verification and telecommunications. In
addition, we are creating advanced system hosting environments, including a web,
application and data center and redundant network access and power, to enable
our offering of more effective, reliable and scalable e-business solutions.
WE OFFER REVENUE CYCLE SERVICES. We offer revenue cycle services, or RCS,
which allow our customers to price their products and services and track,
collect, and settle billing and payment transactions with customers and trading
partners. Our RCS offering addresses problems related to customer enrollment,
credit worthiness, purchasing, contract management, bill generation, bill
presentment, collections and settlement. Our RCS offering is tailored for
utilities and basic service providers, such as waste disposal companies, as well
as customers doing business over the Internet. Our software also provides audit
and compliance functions that accommodate the complex contract terms prevalent
in e-business and permit our customers to more effectively monitor their
receivables and manage the fulfillment process. By using our RCS offering, our
customers are better able to understand their cost structure and improve their
vendor relationships.
WE CREATE INTEROPERABLE AND ADAPTABLE SOLUTIONS. Our solutions are
interoperable, permitting our customers to integrate different systems within
their organizations and between their organizations and those of their trading
partners. Our solutions also are adaptable, accommodating customer technology
preferences while facilitating easy access across the Internet. The
interoperability and adaptability of our solutions is based in part on our
software, which supports multiple open computing standards. By being
interoperable, our solutions reduce our customers' manual and redundant business
processes and related costs, and enable the timely creation of new trading
channels. By being adaptable, our solutions permit our customers to add or
change software applications rapidly as their businesses evolve.
WE TAILOR OUR SOLUTIONS FOR OUR CUSTOMERS' BUSINESS PROCESSES. All of our
solutions allow customers to supplement standard software applications with
additional functionality tailored to their business needs. To achieve this
additional functionality, we use separate software components that extend the
capabilities of standard software applications. For example, we package our
expertise in specific industries, such as utilities and retailing, into
standardized business solutions that we then modify for our customers. Our
industry expertise helps us accurately define and deliver customer tailored
solutions that effectively address their market dynamics and business
opportunities. In addition, our customers benefit from reusable software
components and processes that enable us to deliver our solutions in a timely and
reliable manner.
CAYENTA STRATEGY
Our objective is to become the leading TSP. In order to achieve this
objective, we intend to pursue the following strategies:
BUILD OUR TSP CUSTOMER BASE. We intend to capitalize on our existing
customer relationships to generate TSP sales as our customers replace or upgrade
systems and increase their e-business activities. We will also market our TSP
offering to new customers by developing an industry-focused direct sales force
specializing in TSP sales. We will provide special incentives to our sales force
to convert existing
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customers to our new TSP offering. We also intend to create new sales channels
for our TSP offering by developing relationships with hosting companies and
third party software providers. We believe our TSP offering will allow us to
establish stronger relationships with customers, provide a recurring revenue
stream, and enable us to sell additional services.
CONTINUE TO ENHANCE OUR TSP OFFERING. We intend to expand our TSP
capabilities by establishing command centers where we will monitor, manage and
support our customer solutions, including elements of those solutions provided
by third parties. We also intend to establish additional solution centers in
strategic locations to develop our TSP offering and other solutions in
collaboration with customers. We further intend to enhance our TSP offering by
developing solutions for other business processes such as customer relationship
management. We plan to add these new solutions by establishing strategic
alliances and partnerships with industry and technology leaders as well as by
enhancing our current solutions.
TARGET SPECIFIC INDUSTRIES. We target industries whose complex information
technology and time to market requirements make them natural customers for our
TSP offering. We currently have expertise in multiple industries, including
utilities, telecommunications, basic services, such as waste disposal, and
retail. We intend to further penetrate these industries by establishing
strategic alliances and joint ventures with industry sector leaders and hiring
senior executives from within these industries. As part of these efforts, we
intend to engage in joint systems development, whereby both we and our partner
retain rights to developed solutions, and enter into joint arrangements with
customers to resell solutions. For example, through Soliance we provide TSP
services to Soliance's customers in the utility industry. We expect that these
ventures will provide us with opportunities to broaden our technical offerings
and to create new sales and marketing channels. We believe that focusing on
specific industries provides us with a competitive advantage in developing
solutions for those industries, and expands our market coverage while decreasing
our dependence on individual industries.
PROMOTE THE CAYENTA BRAND. Our goal is to create brand recognition of
Cayenta as the leading TSP. To promote our brand, we intend to expand our
corporate marketing and advertising efforts, with the specific objective of
targeting selected industries. We believe establishing the Cayenta brand will
enable us to market our TSP offering more effectively and to differentiate us
from our competitors.
PURSUE RESCUE MISSIONS. We plan to provide rescue services for customers
faced with failing information technology projects and to use these rescue
projects to establish long-term customer relationships. We believe that
providing these solutions and services will result in sustained revenues and
future opportunities to sell our TSP offering.
ATTRACT AND TRAIN QUALIFIED PERSONNEL. To expand our business and satisfy
anticipated increases in customer demand for our TSP offering, we intend to
aggressively recruit new staff. We also may add new staff through strategic
acquisitions. We believe opening new solution centers that allow us to support
our customers locally will relieve our staff's travel burdens and be attractive
to potential technical and consulting employees.
CONTINUE TO DEVELOP CORE COMPETENCIES. We will expand our systems
integration and software application development expertise. We intend to
continue incorporating advanced systems technologies into both standard and
tailored software applications that we design and implement for customers. We
seek out and test new technologies as part of our internal research activities
and in conjunction with customer projects. We invest in advanced systems
technology such as Internet and portal applications, data warehouses and custom
client server and distributed systems. We augment our software offerings by
utilizing software from open source and other Internet-based software
development initiatives. Our ability to successfully implement solutions based
on leading technology enables us to gain insight into the relative strengths and
weaknesses of competing technologies and to sell value-added consulting and
integration services.
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THE CAYENTA APPROACH
We have a specific delivery approach that enables us to predictably and
efficiently deliver our solutions. Our approach facilitates early identification
of customers' needs, the scope of required solutions, and the time and resources
necessary to complete the project. We structure our projects into distinct
phases and iteratively develop solutions in collaboration with our customers.
Our approach results in the delivery of quality solutions that evolve to
accommodate the continually changing nature of business and technical
environments. Our approach is comprised of five separate, related stages--
assessment, design, construction, production staging and operations.
ASSESSMENT. We begin all of our projects by performing our strategic needs
assessment process, or SNAP. SNAP consists of detailed requirements analysis to
ensure that the solutions we create meet our customers' business needs. Based on
our SNAP analysis, we create a blueprint for a comprehensive solution that meets
the identified needs of our customers. The blueprint combines software
application packages, system configuration information, specialized software,
hardware specifications, and enabling technologies. These blueprints serve as
the guide for our future design and development work.
DESIGN. We base our designs on well-defined system architectural principles
that provide a critical foundation for the successful design, development,
implementation, operation and evolution of our solutions. These architectural
principles include strict separation of software components, utilization of open
systems standards and avoidance of proprietary vendor system features. These
architectural principles permit implementation of our solutions across multiple
computers and networks. Our system designs address both functional aspects that
facilitate a quality end-user experience and management aspects required by
system administrators to deliver a reliable and scalable solution.
CONSTRUCTION. During construction, we translate our designs into executable
solutions by writing software and configuring applications. As part of the
construction process, we test our solutions against the requirements defined
during our SNAP analysis. We construct our solutions in part from existing,
proven software both to minimize time-consuming software development and to
increase system reliability.
PRODUCTION STAGING. The production staging phase of our approach is
designed to ensure the successful deployment of our solutions into operations.
This phase includes the configuration of system servers and networks, including
Internet, intranet and extranet connections. We also conduct parallel testing
with existing systems when necessary, and conduct final performance testing and
refinement of our solution. We institute procedures needed to support the
solution during operations and provide training for end-users and system
administrators.
OPERATIONS. We provide ongoing operational support of our solutions. We
provide both systems administration and other value-added services for our
customers. System administration functions include back-up and maintenance of
implemented solutions and networks. Value-added functions include management of
third party suppliers, such as telecommunications, credit checking, printing and
transportation providers. We also apply our industry expertise to perform
business functions that are integral to solutions we have developed and
implemented when customers request those services. For example, our RCS
customers may ask us to help them implement a rate change or launch a new
product.
Key competitive advantages of our approach include:
DECISION STATE ARCHITECTURE. We use formal analytical decision-making
techniques to help design solutions to business problems. These techniques
enable us to develop blueprints for our customers' problems and select the
systems and services that best fit the customers' requirements.
REUSABLE PROCESS AND SOFTWARE SOLUTIONS. Our process and software
solutions enable our engineers to reuse rather than reinvent solutions that
have proven to be effective for our
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customers. This allows us to provide timely and cost-effective solutions to
customers and to readily share staff across projects while simultaneously
serving an important quality control function.
INDUSTRY EXPERTISE. We continue to increase our technical staff with
industry expertise in our target markets. These experts provide us with
industry experience and assist in the development of process and software
solutions to create industry-specific templates. These templates contain
model solutions, project plans, software configuration settings, interfaces,
and system integration components that we can reuse for customers in those
industries. We use these templates to rapidly deploy a proven solution that
we believe reflects best practices in a particular industry for our
customers in that industry.
UTILIZATION OF SOLUTION CENTERS. We use solution centers to develop
solutions in collaboration with our customers. These solution centers
provide complete access to our shared process and software solutions and
industry-specific templates. We believe our solutions centers enable us to
provide high quality customer service and develop long-term customer
relationships.
CUSTOMER SOLUTIONS
The following case studies are representative of the solutions we provide our
customers.
SEMPRA ENERGY CHALLENGE:
To facilitate the integration of the information technology operations of
two large utilities whose parent companies merged and create an information
technology solution for operations in the deregulated industry.
OUR SOLUTION:
We developed a set of shared software development and integration components
that reduced Sempra Energy's development and operational support costs, linked
SAP with Sempra Energy's legacy systems in less than 200 days, developed a new
billing and contract management system for the deregulated environment,
implemented enterprise directory and security systems, and deployed Internet
business applications for our customer. We also created training and mentoring
programs to assist Sempra Energy's information technology staff.
ENERGY AMERICA CHALLENGE:
To build a complete RCS solution in under eight weeks for a rapidly growing
retailer of gas and electricity and provide ongoing operational support as a TSP
through Soliance.
OUR SOLUTION:
We provided customer enrollment, contract management, and customer billing
and care applications to Energy America that are reusable and facilitate its
entrance into new markets. We also integrated Energy America's accounting and
wholesale commodity purchase systems with the systems of its banking, utility,
and printing service providers. As part of our TSP offering through Soliance, we
assist Energy America in developing new rates, resolving customer disputes, and
performing both operational and regulator-driven analysis.
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FEDERAL AVIATION ADMINISTRATION CHALLENGE:
To create a unified information system to monitor and analyze the status of
the U.S. air traffic control system for the FAA.
OUR SOLUTION:
We developed a web portal application that utilizes our systems integration,
data warehousing, and web technology to link major information systems of the
FAA, and integrated and organized data from these operational and reporting
systems to enable the FAA to consolidate data and gain insight on the operating
performance of the U.S. air traffic control systems. These solutions are
accessible on the FAA's intranet using standard browser technology.
WASTE MANAGEMENT CHALLENGE:
To provide Waste Management with scalable systems that integrate operations
resulting from its merger and acquisition activity.
OUR SOLUTION:
In one week, we created web-based tracking and status tools that enable
Waste Management to monitor financial and key operational measures. We also
provided a complete information technology blueprint to enhance Waste
Management's information technology environment, including recommendations for
application packages, system integration architecture, system management tools,
data architecture, and Internet strategy and recommended improvements in Waste
Management's revenue cycle management process. We continue to build and deploy
Internet solutions to help Waste Management better manage its core operations.
800.COM CHALLENGE:
To create a scalable end-to-end e-business solution for a leading Internet
retailer of consumer electronics and home entertainment products.
OUR SOLUTION:
We installed and integrated our e-business order and revenue cycle services
with 800.com's web site and accounting and fulfillment systems, enabling 800.com
to handle over 10,000 orders per day, reduce its manual business processes and
provide customer care over the Internet and through its call centers. With our
system, 800.com can recognize and process an order as soon as it is placed.
PRODUCTS
We completed three acquisitions in late 1999 to further develop our TSP
offering. Each of the acquired companies develops software and solutions that
businesses use to streamline and control various business processes. These
software and solutions are an essential part of our TSP offering.
MAINSAVER--ENTERPRISE ASSET MANAGEMENT SOFTWARE. Mainsaver's software
enables customers to efficiently manage their equipment maintenance processes.
This software addresses maintenance scheduling, materials and parts management,
and work order processing. We believe that the addition of Mainsaver to our TSP
offering will increase the attractiveness of our TSP offering to industries
whose substantial asset bases require maintenance and repair, such as utilities,
transportation, and facilities management operations.
ASSIST CORNERSTONE--E-COMMERCE SOFTWARE. Assist Cornerstone's software
provides general ledger, accounts receivable, accounts payable, financial report
preparation, order entry, purchasing, customer
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care, inventory management, and sales and order analysis functions, allowing
customers engaged in e-commerce to immediately monitor transactions from order
receipt to fulfillment. Assist Cornerstone's software integrates these
functionalities with a customer's e-commerce web site.
SFG TECHNOLOGIES--RCS. SFG Technologies' software provides revenue cycle
services to utilities, including a customer information management and billing
system, and supports delivery of multiple utility services, such as electric,
gas and water. This software enables utilities to improve productivity, expand
business capacity, and enhance customer service.
CUSTOMERS
The following is a representative list of our current customers:
<TABLE>
<S> <C>
800.com Hale Indian River Groves
Calculated Industries Mid America Designs
Dean & DeLuca Nortel
District of Columbia Oreck Corporation
Federal Aviation Administration Sempra Energy
First Security Information Technology Waste Management
</TABLE>
For the nine months ended September 30, 1999, revenues from three customers
(District of Columbia, Sempra Energy and the FAA) accounted for approximately
97% of our revenues on an actual basis and approximately 53% of our revenues on
a pro forma basis, with revenues from government business accounting for
approximately 65% of our actual revenues and approximately 35% of our pro forma
revenues. During 1998, revenues from one customer (the FAA) accounted for
approximately 92% of our actual revenues. Our contracts with government agencies
are typically only funded on an annual basis, and those agencies may cancel our
contracts at any time without penalty or change their contract requirements or
contract budgets. We currently provide solutions and services to the FAA
although our contract with it has expired.
We believe that we will continue to derive a significant portion of our
revenues from a limited number of customers. If any of these customers do not
need or want to engage us to develop additional solutions or perform additional
services for them or cancel or modify their contracts with us and we are not
able to sell our solutions or services to new customers at comparable or greater
levels, our revenue will decline significantly.
PROFESSIONAL ENVIRONMENT
Our success depends in substantial part on our ability to recruit, train and
retain qualified information technology services professionals. In order to
realize these objectives, we strive to create a professional environment in
which our employees can be creative and enhance their skills. These efforts
consist of:
- offering opportunities for rotation between technical assignments to
ensure that our employees do not feel their opportunities for growth are
limited;
- developing "Cayenta University" which will include formalized product
training for the technologies and products that we use and support; and
- allowing our professionals opportunities to use leading technologies which
provides them with continuing intellectual challenge and maintains and
enhances their skills.
In addition, we have a results-oriented culture that rewards employees for
successfully fulfilling customer expectations. These incentives include
merit-based compensation, on-the-spot bonuses for delivering solutions under
pressure, and additional stock options.
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We believe that the availability of these opportunities and incentives helps
maintain the entrepreneurial nature of our organization and provides our
employees with tangible evidence that we value their work and commitment. We
also believe that these opportunities and incentives have played a significant
role in our ability to attract and retain talent. This new talent will
supplement our core group of professionals who have worked together in a variety
of organizations for several years.
To attract qualified personnel we maintain an internal recruiting
organization as well as using professional search firms. We also make extensive
use of Internet job search sites and grant special bonuses to our employees for
successful recruiting efforts.
MARKETING, SALES AND RELATED ALLIANCES
MARKETING. Our marketing goal is to generate significant brand awareness of
Cayenta and our TSP offering. We target industries that have complex information
technology and time to market requirements. Our internal marketing and
advertising staff is working with a professional communications firm that we
have retained to establish our brand identity.
Our direct marketing activities include direct mail, e-mail and seminars
targeted at senior executives of Global 1000 companies that are seeking to
establish an e-business presence or that require redesigned e-business
solutions. We also target emerging Internet companies that seek a comprehensive
e-business solution. We participate in cooperative marketing and trade show
programs with our software and solution partners. In addition, we seek
opportunities for our executives and technical staff to publish articles and
speak in industry forums.
SALES. We have organized our sales teams to execute our strategy of
migrating existing customers to our TSP offering. We have recently created a
staff of business development professionals who are teamed with our field sales
representatives to sell our TSP offering to existing and prospective customers.
Our products and services are offered broadly in North America through a
direct sales organization based in the United States, and on a limited basis in
Europe through a dedicated distributor based in the United Kingdom. Currently,
we have 30 sales and business development representatives located in cities
throughout North America, including Atlanta, Georgia, Boston, Massachusetts,
Chicago, Illinois, Dallas, Texas, Los Angeles, California, Salt Lake City, Utah,
Seattle, Washington and Vancouver, British Columbia. We intend to expand our
sales organization both domestically and internationally. To date, our revenues
from sales of our products and services to customers located outside the United
States have not been significant.
We have developed programs to attract and retain high quality, motivated
business development, sales, pre-sales, and post-sales support personnel. The
complexity of our customers' problems neccessitates that we hire personnel with
a high degree of technical knowledge. We seek people who have selling skills in
addition to technical expertise. We also intend to recruit executives in
selected industries whose reputation and relationships within those industries
will create opportunities for sales of our TSP offering.
RELATED ALLIANCES. We have service partnerships with web hosting and
service suppliers such as Exodus Communications and Intel, and intend to market
our solutions and services to their customers. We plan to pursue strategic
alliances with software, telecommunications and hardware providers, as well as
leading companies in selected industries. As part of these efforts, we intend to
develop joint sales and marketing arrangements that will enable us to offer our
solutions to their customers and develop additional marketing and sales
channels.
We market our TSP offering and other solutions to the utility industry
through our Soliance joint venture.
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We participate in partnership programs with leading technology companies,
including:
- hardware: Hewlett-Packard, IBM, and Sun Microsystems;
- software: Microsoft, Oracle, SAP, Cognos, Harbinger, and QAD; and
- business providers: Doculink, Group 1 Software, Tava Technologies, Metamor
Worldwide, and modis.
These partnership programs allow us to resell or incorporate our partner's
technology into our solutions and provide insight into industry trends.
COMPETITION
The information technology services business is intensely competitive and
subject to rapid technological change. We expect the competition to continue and
intensify. Our competitors include:
- application service providers, such as Breakaway Solutions and
USinternetworking;
- information technology service providers and system integrators, such as
Andersen Consulting, Answerthink, Cambridge Technology, EDS, KPMG, Sapient
and Tanning Technology;
- Internet professional service providers, such as Proxicom, Scient, and US
Interactive;
- internal information technology departments of current and potential
clients.
In comparison with us, many of our competitors are larger, and have more
brand recognition and substantially greater financial, infrastructure, personnel
and marketing resources. In addition, there are low barriers to entry into our
business. We do not own any technologies that preclude or inhibit competitors
from entering our industry. Existing or future competitors may independently
develop and patent or copyright technologies that are superior or substantially
similar to our technologies. The costs to develop and to provide information
technology services are relatively low. Moreover, barriers to entry,
particularly in the application integration and consulting components of our TSP
offering, are low. Therefore, we expect to continue to face additional
competition from new entrants into our industry. For example, we expect software
product companies to become a competitor in the future.
We believe that the principal competitive factors in our business are:
- client value and service;
- the reputation and experience of personnel delivering solutions and
services;
- the success and reliability of the delivered solution and service;
- technical knowledge and creative skills; and
- the ability to attract and retain professionals.
We believe that we presently compete favorably with respect to each of these
factors. The market for our solutions and services is evolving, however, and we
cannot be certain that we will compete successfully in the future.
INTELLECTUAL PROPERTY
We have developed proprietary process and software solutions,
industry-specific templates, methodologies, practices, tools, processes and
software in connection with delivering our services. We rely on a combination of
trade secret, copyright and trademark laws to protect our proprietary rights. In
particular, we require each of our key employees to sign an invention and
non-disclosure agreement which provides that they must maintain the
confidentiality of our intellectual property, and that any intellectual property
which they develop while employed by us is our property.
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EMPLOYEES
As of December 27, 1999, we had a total of 359 employees (including
employees of Mainsaver, Assist Cornerstone and SFG Technologies), including 88
in the engineering and development group, 144 in the consulting and integration
services group, 34 in the customer support group, 48 in the sales and marketing
group and 45 in the executive, administrative and back-office groups. No
employees are represented by a labor union, and we consider our employee
relations to be good.
FACILITIES
Our principal executive offices are located in San Diego, California, and
cover approximately 7,150 square feet under a lease expiring in March 2004. We
currently have solution centers in Burnaby, British Columbia, Orlando, Florida,
Reston, Virginia, Salt Lake City, Utah, San Diego, California, Washington, D.C.,
and Woodland Hills, California with square footage which ranges between 3,600
and 52,496 square feet under leases expiring over the next eight years. We have
signed a letter of intent to lease a 45,000 square foot facility in San Diego
that will be used as a command center. We expect to occupy this facility in
February 2000. We intend to replicate solution centers and, to a lesser extent,
command centers in other strategic geographic locations, and will need to obtain
access to appropriate facilities in order to do so. In addition, while we
consider our current and planned facilities in San Diego and elsewhere adequate
for current operations, we expect that we will need to lease additional
facilities in those locations as our operations expand.
LEGAL PROCEEDINGS
We are not presently involved in any material legal proceedings. However, we
are subject to litigation from time to time in the ordinary course of our
business, and we may in the future become subject to litigation that may have a
material adverse affect on our business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about our directors,
executive officers and key employees as of December 27, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
David P. Porreca.......................... 57 President, Chief Executive Officer and Director
Gene W. Ray............................... 61 Chairman of the Board of Directors
William G. Atkinson....................... 45 Senior Vice President, Sales and Marketing
Nicholas J. Costanza...................... Senior Vice President, General Counsel and
44 Secretary
Eric M. DeMarco........................... 36 Executive Vice President
Edward M. Lake............................ 45 Senior Vice President and Chief Financial Officer
Curtis R. Smith........................... Senior Vice President, Operations and
43 Administration
Gregory R. Smith.......................... 42 Chief Technical Officer
Robert E. La Blanc........................ 65 Director
</TABLE>
DAVID P. PORRECA has served as our Chief Executive Officer and as one of our
directors since January 12, 1999. From June 1995 to December 1998 he served as
Chief Executive Officer and Senior Member of an enterprise software consulting
company, Transnational Partners II. From August 1989 to June 1995 he served as
Chief Executive Officer of Expersoft Corporation, a software development and
services company. Mr. Porreca received a Bachelor of Science from Niagara
University and a Master of Science from Alfred University.
GENE W. RAY has served as one of our Directors and our Chairman since
September 1997. He was a co-founder of Titan Systems, Inc., the parent of which
merged into The Titan Corporation in 1985. He served as a Director, Chief
Executive Officer and President of Titan Systems from its inception in 1981
until the merger. He has been President and Chief Executive Officer of The Titan
Corporation since the merger and became Chairman of the Board in 1999. He
currently serves on the board of directors of The Titan Corporation, a provider
of state-of-the-art communications and information solutions to U.S. military
and allied government agencies and commercial customers. Dr. Ray received a
Bachelor of Science from Murray State and a Master of Science and Ph.D. from the
University of Tennessee.
WILLIAM G. ATKINSON has served as our Senior Vice President, Sales and
Marketing since October 1999. From March 1999 to October 1999 he served as
Senior Vice President of Worldwide Sales of Vertel Corporation, a
telecommunications software company. From October 1996 to March 1999 he served
in various positions, including Vice President Worldwide Sales, Chief Financial
Officer, Chief Executive Officer and Chairman of the Board of Directors of
Expersoft Corporation, a software development and services company. Prior to
October 1996, he held a variety of sales and management positions with Arbor
Software, a financial applications software company, and Dun & Bradstreet
Software, an enterprise resource planning application software company.
Mr. Atkinson received his Bachelor of Science from Northern Illinois University.
NICHOLAS J. COSTANZA has served as our Senior Vice President, General
Counsel and Secretary, since August 1999. Mr. Costanza has also served as Senior
Vice President, General Counsel and Secretary of The Titan Corporation since
August 1999. From 1998 to August 1999 he was Executive Vice President, General
Counsel and Secretary of Efinity Corporation, a manufacturing company. From
November 1995 to 1998 he served as Vice President, Chief Administrative Officer,
General Counsel
40
<PAGE>
and Secretary of Exide Electronics Group, Inc., a manufacturing company.
Mr. Costanza received a Bachelor of Arts from Rutgers University and a Juris
Doctor from Villanova University.
ERIC M. DEMARCO has served as our Executive Vice President since September
1997. He served as our Chief Financial Officer from September 1997 to December
1999. He served as Senior Vice President and Chief Financial Officer of The
Titan Corporation from January 1997 to August 1998 and has been Executive Vice
President and Chief Financial Officer of The Titan Corporation since August
1998. From June 1986 to January 1997 he was a Senior Manager with Arthur
Andersen LLP. Mr. DeMarco received a Bachelor of Science from the University of
New Hampshire.
EDWARD M. LAKE has served as our Senior Vice President and Chief Financial
Officer since December 1999. From October 1998 to September 1999, he served as
Executive Vice President and Chief Financial Officer for Woodfin Suite Hotels, a
hotel property and management company. From December 1996 to April 1998, he
served as Vice President, Chief Financial Officer and Secretary for Optimay
Corporation, a mobile telecommunications software company. From February 1992 to
April 1996, he served as Executive Vice President, Chief Financial Officer and
Secretary for Intelligent Surgical Lasers, Inc., a medical device company. Mr.
Lake received a Bachelor of Science from San Diego State University and is a
Certified Public Accountant in the State of California.
CURTIS R. SMITH has served as our Senior Vice President, Operations and
Administration since January 1999. From July 1996 to December 1998, he served as
the Director of Shared Services and Controller for the non-defense divisions of
The Titan Corporation. From June 1995 to May 1996 he served as Chief Financial
Officer and Chief Operating Officer of Chelsea Companies, a wholesale
distribution company. Prior to June 1995, he was Vice President of Finance and
Operations for Heating and Cooling Supply, Inc., a supplier of climate control
products. Mr. Smith received a Bachelor of Science from San Diego State
University and is a Certified Public Accountant in the State of California.
GREGORY R. SMITH has served as our Chief Technical Officer since
January 12, 1999. From September 1996 to December 1998 he served as Senior
Member of Transnational Partners II, LLC, an enterprise software consulting
company. From July 1995 to August 1996, Mr. Smith provided independent
information technology consulting services as the founder of Select Systems
Analysis. From September 1991 to June 1995 he served as Vice President of
Product Development at Expersoft Corporation, a software development and
services company. Mr. Smith received a Bachelor of Arts from the University of
California at San Diego.
ROBERT E. LA BLANC has served as one of our Directors since September 1997.
He was a General Partner with Salomon Brothers, an investment banking firm, from
1969 to 1979. From 1979 to 1981 he was Vice Chairman of Continental
Telecom, Inc., after which he founded and has been the President of Robert E. La
Blanc Associates, Inc., a financial and technologies consulting firm. He
currently serves on the board of directors of The Titan Corporation, a provider
of state-of-the-art communications and information solutions to U.S. military
and allied government agencies and commercial customers, Salient 3
Communications, Inc., a telecommunications equipment and services company,
Storage Technology Corp., a provider of network computing storage, Tribune
Company, a media company, Chartered Semiconductor Manufacturing Ltd., a
semiconductor manufacturer, and a family of Prudential mutual funds. Mr. La
Blanc received a Bachelor of Science from Manhattan College and a Master in
Business Administration from New York University.
BOARD COMMITTEES
Our board of directors currently has no committees. Prior to completion of
the offering, the board of directors will seek to appoint to the board at least
two individuals who are independent from Cayenta or Titan. Concurrent with these
appointments, the board expects to create audit and compensation committees, the
members of which will be independent directors.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, we did not have a compensation committee. The board of
directors made all decisions concerning executive compensation during 1998.
COMPENSATION OF DIRECTORS
Our directors do not currently receive any cash compensation for services on
the board of directors or any committee thereof, but directors may be reimbursed
for expenses incurred in connection with attendance at board and committee
meetings. All directors are eligible to participate in our 1997 Stock Option
Plan.
EXECUTIVE COMPENSATION IN FISCAL 1998
Almost all of our executive officers began to work for us after
December 31, 1998. Accordingly, information given below is only for Dr. Gene W.
Ray and Mr. Eric DeMarco who served as our Chief Executive Officer and Chief
Financial Officer, respectively, prior to December 31, 1998. The compensation
described in this table was paid by Titan for services rendered in all
capacities to Cayenta and Titan. In addition, the table does not include
medical, group life insurance or other benefits which are available generally to
all of our salaried employees and certain perquisites and other personal
benefits received which do not exceed the lesser of $50,000 or 10% of his or her
salary and bonus as disclosed in this table.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------- -----------------------------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS TITAN OPTIONS (#) COMPENSATION
--------------------------- -------- -------- ----------------- ---------------
<S> <C> <C> <C> <C>
Gene W. Ray ............................. $408,366 260,000 200,000 $46,740(1)
Chief Executive Officer
Eric M. DeMarco ......................... 202,934 150,000 60,000 24,173(2)
Chief Financial Officer
</TABLE>
- ------------------------
(1) Represents Titan's contributions of $8,000, $33,000 and $2,624 on Dr. Ray's
behalf to Titan's 401(k) Retirement Plan, Supplemental Retirement Plan for
Key Executives, and Employee Stock Ownership Plan, respectively, and
interest earned in Titan's Supplemental Retirement Plan for Key Executives
that exceeded 120% of the applicable federal long-term rate with compounding
(as prescribed under Section 1274(d) of the Internal Revenue Code).
(2) Represents Titan's contributions of $8,000, $15,000 and $1,020 on Mr.
DeMarco's behalf to Titan's 401(k) Retirement Plan, Supplemental Retirement
Plan for Key Executives, and Employee Stock Ownership Plan, respectively,
and interest earned in Titan's Supplemental Retirement Plan for Key
Executives that exceeded 120% of the applicable federal long-term rate with
compounding (as prescribed under Section 1274(d) of the Internal Revenue
Code).
CAYENTA OPTION GRANTS IN FISCAL 1998
We did not grant any options to Dr. Ray or Mr. DeMarco during the fiscal
year ended December 31, 1998.
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<PAGE>
TITAN OPTION GRANTS IN FISCAL 1998
The following table sets forth each grant of stock options by Titan during
1998 to each of Messrs. Ray and DeMarco.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
PERCENT OF ASSUMED ANNUAL RATES OF
TOTAL TITAN OPTIONS STOCK PRICE APPRECIATION FOR
NUMBER OF SECURITIES GRANTED TO EXERCISE OR OPTION TERM(4)
UNDERLYING TITAN EMPLOYEES BASE PRICE EXPIRATION ------------------------------
NAME OPTION GRANTED(1) IN FISCAL 1998(2) (PER SHARE) DATE(3) 5% 10%
---- -------------------- ------------------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gene W. Ray........... 200,000 24.76% $5.00 11/03/08 $628,895 $1,593,742
Eric M. DeMarco....... 60,000 7.43 5.00 11/03/08 188,668 478,123
</TABLE>
- ------------------------
(1) Incentive stock options granted by Titan in 1998 were granted at fair market
value and are exercisable starting 12 months after grant date, with 25% of
the options becoming exercisable at that time and with an additional 25% of
the options becoming exercisable on each successive anniversary date, with
full vesting occurring on the fourth anniversary date. If Titan were
acquired by another company, the options would automatically vest unless the
acquiring company assumes the options.
(2) In 1998, employees of Titan received stock options covering a total of
807,876 shares.
(3) The options described above were granted for a term of 10 years, subject to
earlier termination in certain events related to termination of employment.
(4) Present value was calculated using an assumed annual compounded growth over
the term of the option of 5% and 10%, respectively. Use of this model should
not be viewed in any way as a forecast of the future performance of Titan's
stock, which will be determined by future events and unknown factors.
AGGREGATED CAYENTA OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END OPTION
VALUES
None of our named executive officers exercised options in 1998.
AGGREGATED TITAN OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth, with respect to Dr. Ray and Mr. DeMarco,
information regarding the number and value of securities underlying unexercised
options held by Dr. Ray and Mr. DeMarco as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES AT FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gene W. Ray................. -- -- 330,000 400,000 $432,500 $212,500
Eric M. DeMarco............. -- -- 25,000 135,000 23,437 100,312
</TABLE>
Dollar values in the table above are calculated by taking the fair market
value of Titan's common stock as of the date of exercise, subtracting the per
share exercise price of the option and multiplying the result by the number of
shares. Options were granted at an exercise price equal to the fair market value
of our common stock, as determined by Titan's board of directors on the date of
grant.
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<PAGE>
EMPLOYMENT AGREEMENTS
On January 12, 1999, we entered into an Employment Agreement with David P.
Porreca, our Chief Executive Officer. This agreement has a three year term
commencing on January 1, 1999. It provides for an annual base salary of $350,000
per year and for an annual performance bonus of up to $300,000. In addition,
Mr. Porreca is also eligible to receive options to purchase 125,000 shares of
our Class A common stock at an exercise price of $.36 per share and options to
purchase 30,000 shares of Titan common stock. Further, Mr. Porreca is entitled
to receive all other employment benefits generally available to our other
executive and managerial employees. This agreement further provides that
Mr. Porreca can terminate his employment with us only upon six months written
notice. We may terminate Mr. Porreca's employment for cause at any time.
Mr. Porreca's employment agreement does not terminate in the event of a
dissolution, merger or transfer of all or substantially all of our assets.
On January 12, 1999, we entered into an Employment Agreement with Gregory R.
Smith, our Chief Technology Officer. This agreement has a three year term
commencing on January 1, 1999. It provides for an annual base salary of $225,000
per year and for an annual bonus of up to $225,000. Mr. Smith is also entitled
to receive options to purchase 125,000 shares of our Class A common stock at an
exercise price of $.36 per share and options to purchase 30,000 shares of Titan
common stock. Further, Mr. Smith is entitled to all other employee benefits
generally available to our other executive and managerial employees. Mr. Smith
can terminate his employment with us only upon six months written notice. We can
terminate Mr. Smith's employment for cause at any time. Mr. Smith's employment
agreement does not terminate in the event of a dissolution, merger or transfer
of all or substantially all of our assets.
On October 31, 1999, we entered into a letter agreement with William G.
Atkinson, our Senior Vice President, Sales and Marketing regarding the terms of
his employment. This agreement provides for an annual base salary of $220,000
and provides that Mr. Atkinson is entitled to participate in our standard
benefit programs generally available to all of our executive and managerial
employees. In addition, Mr. Atkinson is entitled to options to purchase 75,000
shares of our Class A common stock at an exercise price of $6.58 per share and
options to purchase 5,000 shares of Titan common stock. In addition,
Mr. Atkinson shall receive shares of our Class A common stock upon the
achievement of performance criteria set forth in his letter agreement.
On December 18, 1999, we entered into a letter agreement with Edward M.
Lake, our Senior Vice President and Chief Financial Officer regarding the terms
of his employment. This agreement provides for an annual base salary of $250,000
and provides that Mr. Lake is entitled to participate in our standard benefit
programs generally available to all of our executive and managerial employees.
In addition, Mr. Lake is entitled to options to purchase 100,000 shares of our
Class A common stock at an exercise price to be determined by the board of
directors. If we terminate Mr. Lake's employment within the first two years, Mr.
Lake shall receive one year of base salary at the then current rate plus medical
benefits for one year.
1997 STOCK OPTION PLAN
Our 1997 Stock Option Plan was adopted by the board of directors on
September 16, 1997 and approved by the sole shareholder on September 16, 1997.
The 1997 plan will terminate on September 15, 2007 unless our board of directors
terminates it sooner.
The 1997 plan provides for the grant of stock options, including:
- incentive stock options, as defined in Section 422 of the Internal Revenue
Code of 1986, as amended, that may be granted solely to employees
(including officers); and
- nonstatutory stock options that may be granted to employees (including
officers), non-employee directors and consultants.
44
<PAGE>
STOCK OPTIONS. Stock options are granted pursuant to stock option
agreements. The exercise price for an incentive stock option cannot be less than
100% of the fair market value of the common stock on the date of grant. The
exercise price for a nonstatutory stock option cannot be less than 85% of the
fair market value of the common stock on the date of grant. Options granted
under the 1997 plan vest at the rate specified in the option agreement.
In general, the term of stock options granted under the 1997 plan may not
exceed 10 years. Unless the terms of an optionee's stock option agreement
provide for earlier termination, in the event an optionee's service relationship
with us, or any affiliate of ours, ceases due to disability or death, the
optionee (or his beneficiary) may exercise any vested options up to twelve
months after the date such service relationship ends. If an optionee's
relationship with us, or any affiliate of ours, ceases for any reason other than
disability or death, the optionee may (unless the terms of the stock option
agreement provide for earlier termination) exercise any vested options up to
90 days from cessation of service.
Acceptable consideration for the purchase of common stock issued under the
1997 plan is determined by our board of directors and may include cash, common
stock previously owned by the optionee, a deferred payment arrangement and other
legal consideration approved by our board of directors.
Generally, an optionee may not transfer a stock option other than by will or
the laws of descent or distribution unless the optionee holds a nonstatutory
stock option that provides otherwise. However, an optionee may designate a
beneficiary who may exercise the option following the optionee's death.
TAX LIMITATIONS ON STOCK OPTION GRANTS. Under current tax laws, incentive
stock options may be granted only to our employees. The aggregate fair market
value, determined at the time of grant, of shares of our common stock underlying
incentive stock options that are exercisable for the first time by an optionee
during any calendar year under all of our stock plans may not exceed $100,000.
No incentive stock option (and prior to our stock being publicly traded, no
nonstatutory stock option) may be granted to any person who, at the time of the
grant, owns or is deemed to own stock possessing more than 10% of the total
combined voting power of Cayenta or any affiliate unless the following
conditions are satisfied:
- the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and
- the term of any incentive stock option award must not exceed five years
from the date of grant.
SECTION 162(m). When we become subject to Section 162(m) of the Code (which
generally denies a corporate tax deduction to publicly held corporations for
some compensation paid to specified employees in a taxable year to the extent
that the compensation exceeds $1,000,000 and is not paid based on performance),
no person may be granted options under the 1997 plan covering more than 500,000
shares of common stock in any calendar year. In the event that our board of
directors exercises its authority to reprice outstanding options or to offer
optionees the opportunity to replace outstanding options with new options for
the same or a different number of shares, then both the original and new options
will count toward the Section 162(m) limitation.
CHANGES IN CONTROL. Under specified changes in control, all outstanding
options under the 1997 plan either will be assumed, continued or substituted for
by any surviving entity. If the surviving entity does not assume, continue or
substitute for these awards, the vesting provisions of these stock awards will
be accelerated and these stock awards will be terminated upon the change in
control if not previously exercised.
AUTHORIZED SHARES. An aggregate of 2,450,000 shares of Class A common stock
currently are authorized for issuance under the 1997 plan. As of December 27,
1999, options to purchase a total of 1,613,250 shares of our Class A common
stock were held by all participants under the 1997 plan. A
45
<PAGE>
total of 886,750 shares of our Class A common stock remain available for grant.
Shares subject to stock options that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the 1997 plan.
PLAN ADMINISTRATION. Our board of directors administers the 1997 plan. Our
board of directors may delegate authority to administer the 1997 plan to a
committee. Subject to the terms of the plan, our board of directors or its
authorized committee determines recipients, the numbers and types of stock
awards to be granted, and the terms and conditions of the stock awards including
the period of their exercisability and vesting. Subject to the plan limitations,
our board of directors or its authorized committee also determines the exercise
price of options granted.
Our board of directors or its designated committee may, in its sole
discretion, include additional provisions in any option or award granted or made
under the 1997 plan that are not inconsistent with the 1997 plan or applicable
law. Our board of directors or its designated committee may also, in its sole
discretion, accelerate or extend the date or dates on which all or any
particular option or options granted under the 1997 plan may be exercised. In
the event of a decline in the value of our common stock, our board of directors
or its designated committee has the authority to offer optionees the opportunity
to replace outstanding higher priced options with new lower priced options.
TAX QUALIFIED PLANS
We are a participating employer in The Titan Corporation Consolidated
Retirement Plan. The Consolidated Plan is composed of two portions: (1) the
401(k) portion of the Consolidated Plan and (2) the ESOP portion of the
Consolidated Plan as set forth below:
- 401(k) PLAN. The 401(k) portion of the Consolidated Plan is intended to be
a tax-qualified defined contribution plan under Subsections 401(a) and
401(k) of the Code. All employees who are at least 21 years old are
eligible to participate and may enter the 401(k) plan as of any
January 1, April 1, July 1 or October 1. Each participant may contribute
up to 15% of his or her pre-tax compensation to the savings plan, subject
to statutorily prescribed annual limits. We match employee contributions
dollar-for-dollar, up to a maximum of 5% of each participant's
compensation. Each participant's contributions, the matching
contributions, and the corresponding investment earnings, are generally
not taxable to the participants until withdrawn. Employee contributions
and our matching contributions are held in trust and invested by the
savings plan trustee as required by law. Individual participants may
direct the trustee to invest their accounts in authorized investment
alternatives.
- ESOP PLAN. The ESOP portion of the Consolidated Plan is intended to be a
tax-qualified defined contribution plan under Subsection 401(a) and an
employee stock ownership plan under 4975(e)(7) of the Code. This portion
of the plan is designed to invest primarily in employer securities. All
employees who are at least 21 years old and employed on December 31 of any
plan year in which we make a discretionary contribution are eligible to
receive a portion of such contribution. Our contributions are
discretionary. Our contributions, and the corresponding investment
earnings, are generally not taxable to the participants until withdrawn.
Contributions are held in trust as required by law. Certain individual
participants who are at least 55 years old and have participated in the
ESOP portion of the Consolidated Plan for at least 10 years may direct the
trustee to invest up to 50% of their accounts in authorized investment
alternatives.
46
<PAGE>
RELATIONSHIP WITH TITAN AND CERTAIN TRANSACTIONS
Titan has adopted a strategy of selling a minority interest in subsidiary
companies to outside investors as a means of financing the growth of its
commercial businesses.
GENERAL
As long as Titan beneficially owns a majority of our voting power, Titan
will have the ability to elect all of the members of the board of directors and
ultimately control our management. Titan may control or influence all decisions
relating to our acquisitions, dispositions, credit facilities and borrowing
levels, the sale of our equity or debt securities, and the declaration and
payment of any dividends on our common stock. In addition, Titan will be able to
determine the outcome of any matter submitted to a vote of our stockholders for
approval and to cause or prevent us from engaging in a transaction that involves
a change in control. Dr. Gene Ray, the chairman of our board of directors, was
during our fiscal year ended December 31, 1998 and is currently the president
and chief executive officer of Titan.
Titan could decide to sell or otherwise dispose of all or a portion of our
common stock that it holds, whether those shares be Class B or Class A common
stock.
Titan has advised us that its current intent is to continue to hold all of
its outstanding shares of Class B common stock. Titan has also generally agreed,
in connection with this offering, not to sell or otherwise dispose of any shares
of our common stock (or any security convertible into or exchangeable or
exercisable for our common stock) for a period of 180 days after the date of
this prospectus, without the prior written consent of Credit Suisse First
Boston. After such 180-day period, Titan may sell or otherwise dispose of its
Class B common stock.
Titan must beneficially own at least 80% of the total voting power of our
capital stock and 80% of any class of nonvoting capital stock to be able to
effect a tax-free distribution of its Cayenta stock to its stockholders in the
future. We currently do not have any class of nonvoting capital stock. Neither
Titan nor Cayenta currently contemplates that Titan will distribute its majority
interest to the Titan stockholders. We expect that Titan will continue to own at
least 80% of the total voting power of our capital stock after completion of
this offering. Titan may limit our future sale of equity securities to preserve
its ownership percentage and control of us.
Our bylaws provide that we shall indemnify our directors and officers to the
fullest extent permitted by Delaware law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. We also intend to
enter into indemnification agreements with our officers and directors. These
agreements may require us to pay or reimburse directors or officers for claims
brought against them and to advance expenses incurred by them in defending
claims. We also will maintain directors' and officers' insurance if available on
reasonable terms.
CONTRACTUAL ARRANGEMENTS
Our relationship with Titan will also be governed by a Corporate Services
Agreement, a Tax Allocation Agreement and a Facilities Agreement. We have not
negotiated these agreements at arm's length. As a result, the prices we pay to
Titan for these services may be higher or lower than the costs we would incur
from purchasing these services from third parties or hiring additional staff to
perform these services.
The following are summaries of these agreements, which have been filed as
exhibits to the registration statement relating to this prospectus.
CORPORATE SERVICES AGREEMENT
Titan provides to us routine and ordinary corporate services, including
financial, insurance, accounting, employee benefits, payroll, tax and legal
services. Titan also provides us corporate planning,
47
<PAGE>
government relations and corporate quality assurance services. We share certain
Titan systems, including its accounting system and human resource system.
Because Titan engages in government contracts work, Titan allocates costs to its
subsidiaries based upon government cost accounting requirements. We pay Titan
for human resources services based upon our percentage of the total number of
Titan group employees. We pay for other corporate services based upon the
average of three percentages: (1) the percentage of our payroll to the total
payroll of the Titan group, (2) the percentage of our operating revenues to the
total operating revenues of the Titan group and (3) the percentage of our
average net book value which is the sum of our tangible capital assets plus
inventories to the total average net book value of the tangible capital assets
plus inventory of the Titan group as of the end of the last fiscal year and as
of the final day of each calendar quarter in the current fiscal year. Titan may
adjust its fees based upon its assessment of our relative use of these services.
The initial term of the Corporate Services Agreement will be one year. This
agreement renews automatically unless we elect not to renew by giving Titan
notice. We intend to build our own administrative infrastructure and end our
Corporate Services Agreement with Titan by the end of 2000. If the agreement is
terminated, we cannot guarantee that we will be able to replace these services
in a timely manner or at comparable cost.
TAX ALLOCATION AGREEMENT
As long as Titan maintains beneficial ownership of at least 80% of the total
voting power of our capital stock and 80% of the total value of our outstanding
common stock, we will be included in Titan's consolidated federal income tax
returns. Following completion of this offering, we expect to file separate
federal income tax returns.
We and Titan intend to enter into a Tax Allocation Agreement. Under the Tax
Allocation Agreement, we will agree to pay to the applicable tax authorities an
amount generally equal to the tax liability that we would have incurred if we
had prepared and filed a separate return. Titan will have broad discretion in
determining the amount of separate taxable income and tax liability that we
would realize on such a separate return. In computing this separate tax
liability, our tax attributes, including net operating loss and tax credit
carryovers, will be deemed to be the amount that we would have had if we had
always owned the businesses transferred to us by Titan.
As a member of the Titan group for purposes of filing consolidated federal
income tax returns, we will be liable for the federal income tax of the Titan
group if Titan or any member of the group fails to pay its taxes.
FACILITIES AGREEMENT
We have subleased approximately 26,000 square feet in Reston, Virginia from
Titan. Under the Facilities Agreement, Titan provides us rent, maintenance,
property taxes, utilities, landlord pass-through expenses, property insurance,
reception desk services, telephone services and centralized mail and postage and
other services. We pay Titan an annual fee determined by our percentage of
Titan's annual costs for this facility. Our percentage is based upon the
percentage of the total square feet in the facility that we occupy.
ALLOCATED COSTS
Tax administrative, corporate services and facilities costs were $259,000
for the year ended December 31, 1996, $284,000 for the year ended December 31,
1997 and $230,000 for the year ended December 31, 1998.
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<PAGE>
SUBORDINATED PROMISSORY NOTE
As of December 27, 1999, we owed approximately $53.8 million to Titan under
a subordinated, unsecured promissory note. We can have a maximum of
$70.0 million of indebtedness outstanding under this promissory note at any one
time. The promissory note is due in December 2004 and bears interest, payable
quarterly, at the greater of the rate of 10% per annum or Titan's effective
weighted average interest rate under its senior credit facility. We can prepay
amounts outstanding under the promissory note at any time without penalty. We
may, with Titan's approval, prepay amounts outstanding under the promissory note
with the net proceeds of any asset sales we make that are not in the ordinary
course of business or if we obtain a credit facility from a third party lender
and the facility permits the use of proceeds to repay existing indebtedness. We
cannot use any of the proceeds of this offering to pay amounts outstanding under
the promissory note or under any indebtedness we incur to refinance the
promissory note.
TITAN'S SENIOR CREDIT FACILITY
We currently are subject to Titan's senior credit facility, which includes
covenants that restrict our operations and a covenant that requires Titan to pay
down this facility by an amount equal to the net proceeds of this offering. In
addition, we have, along with other Titan subsidiaries, guaranteed Titan's
obligations under the facility. Titan has informed us that it intends to
negotiate changes to the facility or replace the facility to remove us from the
guaranty and the other restrictions concurrently with the completion of this
offering. So long as we remain as a guarantor, we risk substantial liability if
Titan defaults on this facility. If Titan does not obtain the bank group's
consent to this offering, the completion of the offering will constitute a
default under the facility.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table contains information about the beneficial ownership of
our Class A common stock before and after our initial public offering for:
- each person who beneficially owns more than five percent of the Class A
common stock;
- each of our directors;
- each of our named executive officers; and
- all directors and executive officers as a group.
Unless otherwise indicated, the address for each person or entity named
below is c/o Cayenta, Inc., 225 Broadway, Suite 1500, San Diego, CA 92101.
In calculating beneficial ownership percentages, we assumed all 10,000,000
shares of Class B common stock outstanding as of December 27, 1999 were
converted into 10,000,000 shares of Class A common stock, so that 10,566,458
shares of Class A common stock were outstanding as of such date, and added to
that amount 2,345,000 shares of Class A common stock that are issuable upon the
conversion of all of our outstanding preferred stock upon the closing of this
offering. Accordingly, we based our beneficial ownership percentage calculations
on 12,911,458 shares of Class A common stock outstanding as of December 27,
1999.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
below have sole voting and investment power with respect to all shares of
Class A common stock shown as beneficially owned by them.
The table assumes no exercise of the underwriters' over-allotment option. If
the underwriters' over-allotment option is exercised in full, we will sell up to
an aggregate of additional shares of our common stock, and up to
shares of common stock will be outstanding after the completion of this
offering.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF CLASS A
COMMON STOCK PERCENTAGE OWNED
BENEFICIALLY OWNED -------------------
TITAN, DIRECTORS AND ------------------ PRIOR TO AFTER
NAMED EXECUTIVE OFFICERS NUMBER OFFERING OFFERING
- ------------------------ ------------------ -------- --------
<S> <C> <C> <C>
The Titan Corporation....................................... 10,000,000(1) 77.5%
3033 Science Park Road
San Diego, CA 92121
Transnational Partners II, LLC.............................. 2,345,000(2) 18.2%
David P. Porreca............................................ 1,325,690(3) 10.2%
Gene W. Ray................................................. 50,000 *
Eric M. DeMarco............................................. 20,000(4) *
Curtis R. Smith............................................. 2,500(5) *
Gregory R. Smith............................................ 894,210(6) 6.9%
Robert E. La Blanc.......................................... 1,250(7) *
All directors and officers as a group (9 persons)........... 2,293,650(8) 17.6%
</TABLE>
- --------------------------
* Represents beneficial ownership of less than 1%.
(1) Represents shares of Class A common stock issuable upon conversion of
10,000,000 shares of Class B common stock currently held by Titan. Titan has
pledged its shares of our Class B common stock as security for its
obligations under its credit facility. If an unremedied default occurs under
that credit facility, the bank group could cause all the shares of our
Class B common stock held by Titan to be registered in the name of its
50
<PAGE>
agent, which would result in a change of control of us. If Titan does not
obtain the bank group's consent to this offering, the completion of this
offering will constitute a default under its credit facility.
(2) Consists of 2,345,000 shares of Class A common stock issuable upon
conversion of 2,345,000 shares of preferred stock currently held by
Transnational Partners II. Mr. Porreca and Mr. Smith own 55.2% and 36.8%,
respectively, of Transnational Partners II.
(3) Includes 31,250 shares issuable upon exercise of options exercisable within
60 days of December 27, 1999 and 1,294,440 shares of Class A common stock
issuable upon conversion of 1,294,440 shares of preferred stock held by
Transnational Partners II that Mr. Porreca may be deemed to have beneficial
ownership of based on his 55.2% interest in Transnational Partners II.
(4) Includes 20,000 shares issuable upon exercise of options exercisable within
60 days of December 27, 1999.
(5) Includes 2,500 shares issuable upon exercise of options exercisable within
60 days of December 27, 1999.
(6) Includes 31,250 shares issuable upon exercise of options exercisable within
60 days of December 27, 1999 and 862,960 shares of Class A common stock
issuable upon conversion of 862,960 shares of preferred stock held by
Transnational Partners II that Mr. Smith may be deemed to have beneficial
ownership of based on his 36.8% interest in Transnational Partners II.
(7) Includes 1,250 shares issuable upon exercise of options exercisable within
60 days of December 27, 1999.
(8) Includes 86,250 shares issuable upon exercise of options exercisable within
60 days of December 27, 1999 and 2,157,400 shares of Class A common stock
issuable upon conversion of 2,157,400 shares of preferred stock held by
Transnational Partners II that Mr. Porreca and Mr. Smith may be deemed to
have beneficial ownership of based on their respective 55.2% and 36.8%
interests in Transnational Partners II.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of Class A
common stock, $0.001 par value per share, 50,000,000 shares of Class B common
stock, $0.001 par value per share, and 17,345,000 shares of preferred stock,
$0.001 par value per share, 2,345,000 of which shares are designated Series A
preferred stock. As of the date hereof, 566,458 of our Class A common stock,
10,000,000 of our Class B common stock and 2,345,000 of our Series A preferred
stock are issued and outstanding. All of our Class B common stock is held by
Titan. Upon completion of this offering, all of our outstanding Series A
preferred stock will convert into 2,345,000 shares of Class A common stock. We
also have 495,800 shares of Class A common stock subject to warrants
outstanding. Of the 100,000,000 shares of Class A common stock authorized,
are being offered in this offering ( shares if the
underwriters' over-allotment option is exercised in full), 50,000,000 shares
will be reserved for issuance upon conversion of Class B common stock into
Class A common stock and 2,450,000 shares have been reserved for issuance
pursuant to certain employee benefits plans. The following summary description
of the capital stock of Cayenta is qualified by reference to our certificate of
incorporation and bylaws, copies of which are filed as exhibits to the
registration statement relating to this prospectus.
COMMON STOCK
VOTING RIGHTS. The holders of Class A common stock and Class B common stock
generally have identical rights except that holders of Class A common stock are
entitled to one vote per share while holders of Class B common stock are
entitled to ten votes per share on all matters to be voted on by stockholders.
Holders of shares of Class A common stock and Class B common stock are not
entitled to cumulate their votes in the election of directors. Generally, all
matters to be voted on by stockholders must be approved by a majority of the
votes entitled to be cast by all shares of Class A common stock and Class B
common stock present in person or represented by proxy, voting together as a
single class, subject to any voting rights granted to holders of any preferred
stock. Except as otherwise provided by law, and subject to any voting rights
granted to holders of any outstanding preferred stock, amendments to our
certificate of incorporation generally must be approved by a majority of the
combined voting power of all Class A common stock and Class B common stock
voting together as a single class. However, amendments to our certificate of
incorporation that would alter or change the powers, preferences or special
rights of the Class A common stock or the Class B common stock so as to affect
them adversely also must be approved by a majority of the votes entitled to be
cast by the holders of the shares affected by the amendment, voting as a
separate class. Notwithstanding the foregoing, any amendment to our certificate
of incorporation to increase the authorized shares of any class or authorize the
creation, authorization or issuance of any securities convertible into, or
warrants or options to acquire, shares of any class or classes of stock shall be
approved by the affirmative vote of the holders of a majority of the Class A
common stock and Class B common stock, voting together as a single class.
Effective as of the first time at which Titan shall cease to be the
beneficial owner of an aggregate of at least a majority of the voting power of
the voting stock of Cayenta then outstanding, amendments to certain provisions
of the certificate of incorporation will require the approval of 80% of the
combined voting power of all Class A common stock and Class B common stock,
voting together as a single class.
DIVIDENDS. Holders of Class A common stock and Class B common stock will
share in an equal amount per share in any dividend declared by the board of
directors, subject to any preferential rights of any outstanding preferred
stock. Dividends consisting of shares of Class A common stock and Class B common
stock may be paid only as follows: (i) shares of Class A common stock may be
paid only to holders of Class A common stock and shares of Class B common stock
may be paid only to holders of Class B common stock and (ii) shares shall be
paid proportionally with respect to each outstanding share of Class A common
stock and Class B common stock.
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<PAGE>
CONVERSION. Each share of Class B common stock is convertible at the
holder's option into one share of Class A common stock. Additionally, each share
of Class B common stock shall automatically convert into one share of Class A
common stock if at any time prior to a tax-free spin-off the number of
outstanding shares of Class B common stock owned by Titan or any of its
subsidiaries (or a Class B transferee (as described below), or any of its
subsidiaries) represents less than 50% of the total voting power of Cayenta.
Except as provided below, any shares of Class B common stock transferred to
a person other than Titan or any of its subsidiaries or any Class B transferee
(as described below) shall automatically convert to shares of Class A common
stock upon such disposition. Shares of Class B common stock representing more
than 50% of the outstanding common stock of Cayenta transferred by Titan or any
of its subsidiaries in a single transaction to one unrelated person, or Class B
transferee, or any subsidiary of the Class B transferee shall not automatically
convert to shares of Class A common stock upon such disposition. Any shares of
Class B common stock retained by Titan or its subsidiaries following any such
transfer of shares of Class B common stock to the Class B transferee shall
automatically convert into shares of Class A common stock upon such transfer.
If Cayenta later determines that it is in its best interest to have Titan
spin-off its Class B common stock to the stockholders of Titan and Titan elects
to effect the spin-off, then the Class B common stock shall no longer be
convertible into shares of Class A common stock at the option of the holder
thereof. The shares of Class B common stock shall automatically convert into
shares of Class A common stock on the fifth anniversary of the tax-free
spin-off, unless prior to such transaction, Titan, or the Class B transferee, as
the case may be, delivers to Cayenta an opinion of counsel reasonably
satisfactory to Cayenta to the effect that (i) such conversion could adversely
affect the ability of Titan, or the Class B transferee, as the case may be, to
obtain a favorable ruling from the Internal Revenue Service that the transfer
would be a tax-free spin-off or (ii) the Internal Revenue Service has adopted a
general non-ruling policy on tax-free spin-offs and that such conversion could
adversely affect the status of the transaction as a tax-free spin-off, in which
case no such conversion shall take place.
OTHER RIGHTS. On liquidation, dissolution or winding up of Cayenta, after
payment in full of the amounts required to be paid to holders of preferred
stock, if any, all holders of common stock, regardless of class, are entitled to
share ratably in any assets available for distribution to holders of shares of
common stock. No shares of either class of common stock are subject to
redemption or have preemptive rights to purchase additional shares of common
stock. Upon consummation of the offering, all the outstanding shares of Class A
common stock and Class B common stock will be legally issued, fully paid and
nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of preferred stock
will be converted into 2,345,000 shares of Class A common stock. Under our
certificate of incorporation, the board has the authority, without further
action by stockholders, to designate shares of preferred stock in one or more
series and to fix the rights, preferences, privileges, qualifications and
restrictions granted to or imposed upon the preferred stock, including dividend
rights, conversion rights, voting rights, rights and terms of redemption,
liquidation preference and sinking fund terms, any or all of which may be
greater than the rights of the common stock. The issuance of preferred stock
could adversely affect the voting power of holders of common stock and reduce
the likelihood that common stockholders will receive dividend payments and
payments upon liquidation. The issuance could have the effect of decreasing the
market price of the common stock. The issuance of preferred stock also could
have the effect of delaying, deterring or preventing a change in control of
Cayenta. We have no present plans to issue any additional shares of preferred
stock.
53
<PAGE>
REGISTRATION RIGHTS
TRANSNATIONAL PARTNERS II REGISTRATION RIGHTS. In connection with that
certain Asset Purchase Agreement dated as of January 1, 1999, between us and
Transnational Partners II, we granted registration rights to these investors
covering an aggregate of 2,345,000 shares of our Class A common stock (giving
effect to the conversion of our preferred stock upon the closing of the
offering). These investors have "piggyback" registration rights. If we propose
to register any of our securities under the Securities Act, the investors may
require us to use our best efforts to include all or a portion of their
registrable securities in such registration. The managing underwriter, if any,
of any such offering will have the right to limit or exclude registrable
securities from such registration. In connection with this offering,
Transnational Partners II waived their right to our obligations under the above
mentioned registration rights to cause their shares of our Class A common stock
to be included in this offering and to comply with the specific notice
requirements of the registration rights with respect to this offering.
ASSIST CORNERSTONE REGISTRATION RIGHTS. In connection with the Assist
Cornerstone transaction and pursuant to the Investor Rights Agreement between
us, Titan and the shareholders of Assist Cornerstone, holders of an aggregate of
516,458 shares of our Class A common stock have registration rights and can
require us to file no more than one registration statement on Form S-3. We are
not required to affect any registrations on Form S-3 unless the aggregate price
to the public is $4.0 million or more. These investors also have "piggyback"
registration rights. If we propose to register any of our securities under the
Securities Act (other than pursuant to this initial public offering), the
investors may require us to use our best efforts to include all or a portion of
their registrable securities in such registration. The managing underwriter, if
any, of any such offering will have the right to limit or exclude registrable
securities from such registration. All of these registration rights will
terminate on the earlier of December 13, 2004 or the date on which an investor
may sell all of its or his shares under Rule 144(k) of the Securities Act or
during any 90-day period under Rule 144 of the Securities Act.
BATCHELDER & PARTNERS REGISTRATION RIGHTS. In connection with the
engagement of Batchelder & Partners, Inc. for certain advisory and consulting
services, we granted Batchelder warrants to purchase up to 495,800 shares of our
Class A common stock. The shares of Class A common stock issuable upon exercise
of these warrants have certain registration rights. These registration rights
can require us to file no more than one registration statement on Form S-3. We
are not required to affect any registrations on Form S-3 unless the aggregate
price to the public is $4.0 million or more. These investors also have
"piggyback" registration rights. If we propose to register any of our securities
under the Securities Act (other than pursuant to this initial public offering),
the investors may require us to use our best efforts to include all or a portion
of their registrable securities in such registration. The managing underwriter,
if any, of any such offering will have the right to limit or exclude registrable
securities from such registration. All of these registration rights will
terminate on the earlier of December 13, 2004 or the date on which an investor
may sell all of its or his shares under Rule 144(k) of the Securities Act or
during any 90-day period under Rule 144 of the Securities Act.
All registration expenses incurred in connection with the above
registrations would be borne by us, including, without limitation, all fees and
disbursements of counsel for the selling investors. Each selling investor would
pay all underwriting discounts and selling commissions applicable to the sale of
his or its registrable securities, as well as any fees and disbursements of
counsel.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW. We are governed by the provisions of Section 203 of the
Delaware General Corporation Law. In general, Section 203 prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination
54
<PAGE>
is approved in a prescribed manner. A "business combination" includes mergers,
asset sale or other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock. The statute could have the effect of delaying,
deferring or preventing a change in our control.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS. Our certificate of
incorporation and bylaws, provide that the board of directors will be divided
into three classes of directors, with each class serving a staggered three-year
term. The classification system of electing directors may tend to discourage a
third party from making a tender offer or otherwise attempting to obtain control
of us and may maintain the composition of the board of directors, as the
classification of the board of directors generally increases the difficulty of
replacing a majority of directors. Our certificate provides that any action
required or permitted to be taken by our stockholders must be effected at a duly
called annual or special meeting of stockholders and may not be effected by any
consent in writing. In addition, our bylaws provide that special meetings of our
stockholders may be called only by the Chairman of the board of directors, our
Chief Executive Officer, or by the board of directors pursuant to a resolution
adopted by a majority of the total number of authorized directors. Our
certificate also specifies that the authorized number of directors may be
changed only by resolution of the board of directors and does not include a
provision for cumulative voting for directors. Under cumulative voting, a
minority stockholder holding a sufficient percentage of a class of shares may be
able to ensure the election of one or more directors. These and other provisions
contained in our amended certificate and bylaws could delay or discourage
certain types of transactions involving an actual or potential change in control
of us or our management (including transactions in which stockholders might
otherwise receive a premium for their shares over then current prices) and may
limit the ability of stockholders to remove current management or approve
transactions that stockholders may deem to be in their best interests and,
therefore, could adversely affect the price of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our Class A common stock is American
Stock Transfer & Trust Co.
THE NASDAQ STOCK MARKET'S NATIONAL MARKET
We will make application to list our Class A common stock on The Nasdaq
National Market under the trading symbol "CYTA."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our Class A common
stock, and we cannot assure you that a significant public market for our
Class A common stock will develop or be sustained after this offering. As
described below, no shares currently outstanding will be available for sale
immediately after this offering due to certain contractual and securities law
restrictions on resale. Sales of substantial amounts of our Class A common stock
in the public market after the restrictions lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding
shares of our Class A common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
the shares offered for sale through the underwriters will be freely tradable
without restriction under the Securities Act unless purchased by our affiliates
or covered by a separate lock-up agreement with the underwriters.
The remaining shares of our Class A common stock held by
existing stockholders are restricted securities. Restricted securities may be
sold in the public market only if registered or if they qualify for an exemption
from registration described below under Rules 144, 144(k) or 701 promulgated
under the Securities Act.
As a result of the lock-up agreements and the provisions of Rules 144,
144(k) and 701 described below, these restricted shares will be available for
sale in the public market as follows:
- no shares may be sold prior to 180 days from the date of this prospectus;
- 2,345,000 shares of our Class A common stock (giving effect to the
conversion of our preferred stock upon the closing of this offering) will
have been held long enough to be sold under Rule 144 or Rule 701 beginning
181 days after the date of this prospectus; and
- the remaining shares may be sold under Rule 144 or 144(k) once they have
been held for the required time.
LOCK-UP AGREEMENTS. Most of our stockholders have agreed not to transfer or
dispose of, directly or indirectly, any shares of our Class A common stock or
any securities convertible into or exercisable or exchangeable for shares of our
Class A common stock, for a period of 180 days after the date the registration
statement of which this prospectus is a part is declared effective. Transfers or
dispositions can be made sooner with the prior written consent of Credit Suisse
First Boston Corporation.
RULE 144. In general, under Rule 144, a person who has beneficially owned
restricted securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of our common stock on The Nasdaq Stock
Market's National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to the sale.
Sales under Rule 144 are also limited by manner-of-sale provisions and
notice requirements and requirements regarding the availability of current
public information about us.
RULE 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years is
entitled to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144 discussed above.
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<PAGE>
RULE 701. In general, under Rule 701, any of our employees, consultants or
advisors who purchases or receives shares from us under a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell their shares beginning 90 days after the date of this prospectus.
Non-affiliates will be able to sell their shares subject only to the
manner-of-sale provisions of Rule 144. Affiliates will be able to sell their
shares without compliance with the holding period requirements of Rule 144.
REGISTRATION RIGHTS. Upon completion of this offering, the holders of
3,357,258 shares of our Class A common stock (giving effect to the conversion of
all of our outstanding preferred stock into 2,345,000 shares of Class A common
stock and the exercise of warrants outstanding to purchase 495,800 shares of
Class A common stock) will be entitled to rights with respect to the
registration of their shares under the Securities Act. See "Description of
Capital Stock--Registration Rights." Except for shares purchased by our
affiliates, registration of their shares under the Securities Act would result
in these shares becoming freely tradable without restriction under the
Securities Act immediately upon the effectiveness of the registration.
STOCK OPTIONS. Immediately after this offering, we intend to file a
registration statement under the Securities Act covering the shares of our
Class A common stock reserved for issuance upon exercise of outstanding options.
The registration statement is expected to be filed and become effective as soon
as practicable after the closing of this offering. Accordingly, shares
registered under the registration statement will be available for sale in the
open market beginning 181 days after the effective date of the registration
statement of which this prospectus is a part, except with respect to Rule 144
volume limitations that apply to our affiliates.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Donaldson,
Lufkin & Jenrette Securities Corporation and A.G. Edwards & Sons, Inc. are
acting as representatives, the following respective numbers of shares of
Class A common stock:
<TABLE>
<CAPTION>
Number
Underwriters of shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Donaldson, Lufkin & Jenrette Securities Corporation.........
A.G. Edwards & Sons, Inc....................................
---------
Total.....................................................
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of our Class A common stock in the offering if any are
purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an underwriter
defaults the purchase commitments of non-defaulting underwriters may be
increased or the offering of our Class A common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares of Class A common stock from us at the
initial public offering price less the underwriting discounts and commissions.
The option may be exercised only to cover any over-allotments of our Class A
common stock.
The underwriters propose to offer the shares of our Class A common stock
initially at the public offering price on the cover page of this prospectus and
to selling group members at that price less a concession of $ per share.
The underwriters and selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed by
the representatives.
The following table summarizes the compensation and expenses we will pay.
<TABLE>
<CAPTION>
Per share Total
------------------------------- -------------------------------
Without With Without With
over-allotment over-allotment over-allotment over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and commissions
paid by us.............................. $ $ $ $
Expenses payable by us.................... $ $ $ $
</TABLE>
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<PAGE>
The underwriters have informed us that they do not expect sales to accounts
over which any underwriter exercises discretionary authority to exceed
five percent of the shares of our Class A common stock being offered.
We, our officers and directors and some of our existing stockholders have
agreed that we will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933 relating
to, any additional shares of our Class A common stock or securities convertible
into or exchangeable or exercisable for any of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
issuances pursuant to the exercise of employee stock options outstanding on the
date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price up to shares of common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing our Class A common stock in the offering. The number of shares
available for sale to the general public in the offering will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general pubic on the same
terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or to contribute to payments which the underwriters may be
required to make in that respect.
We will make application to list our Class A common stock on The Nasdaq
Stock Market's National Market under the trading symbol "CYTA."
Prior to this offering, there has been no public market for our Class A
common stock. The initial public offering price will be determined by
negotiation between us and the representatives. The principal factors to be
considered in determining the public offering price include the following:
- the information included in this prospectus and otherwise available to the
representatives;
- market conditions for initial public offerings;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
We can offer no assurance that the initial public offering price will
correspond to the price at which our Class A common stock will trade in the
public market subsequent to the offering or that an active trading market for
our Class A common stock will develop and continue after the offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with
Regulation M under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
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<PAGE>
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the securities in the
open market after the distribution has been completed in order to cover
syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the securities originally sold by the
syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq Stock Market's National Market or otherwise and, if commenced, may be
discontinued at any time.
60
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of our Class A common stock in Canada is being made only on
a private placement basis exempt from the requirement that we prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of common stock are effected. Accordingly, any resale of our
Class A common stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of our Class A common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of our Class A common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that: (i) such purchaser is entitled under
applicable provincial securities laws to purchase our Class A common stock
without the benefit of a prospectus qualified under such securities laws,
(ii) where required by law, such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the SECURITIES ACT (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of our Class A common stock should consult their own
legal and tax advisors with respect to the tax consequences of an investment in
the common stock in their particular circumstances and with respect to the
eligibility of the common stock for investment by the purchaser under relevant
Canadian legislation.
61
<PAGE>
LEGAL MATTERS
Cooley Godward LLP, San Diego, California will pass upon the validity of the
shares of our Class A common stock offered by this prospectus for us. The
underwriters have been represented by Stoel Rives LLP, Seattle, Washington.
EXPERTS
The consolidated financial statements of Cayenta, Inc. as of December 31,
1997 and 1998 and for each of the three years in the period ended December 31,
1998, the financial statements of Transnational Partners II, LLC, as of
December 31, 1997 and 1998 and for the period from February 9, 1997
(commencement of operations) through December 31, 1997 and for the year ended
December 31, 1998 and the financial statements of JB Systems, Inc. (d.b.a.
Mainsaver), as of December 31, 1997 and 1998 and for each of the three years in
the period ended December 31, 1998, included in this prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The financial statements of Assist Cornerstone Technologies, Inc. as of
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, included in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of SFG Technologies, Inc. as of
December 31, 1998 and April 30, 1998 and for the eight months ended
December 31, 1998 and for the years ended April 30, 1996, 1997 and 1998,
included in this prospectus and registration statement have been audited by KPMG
LLP, independent auditors, as indicated in their report with respect thereto,
and are included herein in reliance upon the authority of such firm as experts
in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act, with respect to our Class A
common stock offered by this prospectus. As permitted by the rules and
regulations of the Commission, this prospectus, which is a part of the
registration statement, omits certain information, exhibits, schedules and
undertakings set forth in the registration statement. For further information
pertaining to us and our Class A common stock offered hereby, reference is made
to such registration statement and the exhibits and schedules thereto.
Statements contained in this prospectus as to the contents or provisions of any
contract or other document referred to herein are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference. A copy of the registration
statement may be inspected without charge at the Commission's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center,
13th Floor, New York, New York 10048. You may obtain information on the
operation of the Commission's Public Reference Room by calling the Commission at
1-800-SEC-0330. Copies of all or any part of the registration statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. In addition, registration statements and certain other filings made
with the Commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system, including our registration statement and all
exhibits and amendments to our registration statements, are publicly available
through the Commission's Web site at http://www.sec.gov.
62
<PAGE>
CAYENTA, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
CAYENTA, INC.
Pro Forma Financial Statements (Unaudited):
Pro Forma Condensed Combined Balance Sheet
(Unaudited)............................................ F-2
Pro Forma Condensed Combined Statements of Operations
(Unaudited)............................................ F-3
Notes to Pro Forma Condensed Combined Financial
Statements (Unaudited)................................. F-5
Consolidated Financial Statements:
Report of Independent Public Accountants................ F-8
Consolidated Balance Sheets............................. F-9
Consolidated Statements of Income....................... F-10
Consolidated Statements of Stockholders' Equity......... F-11
Consolidated Statements of Cash Flows................... F-12
Notes to Consolidated Financial Statements.............. F-13
TRANSNATIONAL PARTNERS II, LLC
Report of Independent Public Accountants.................. F-25
Balance Sheets............................................ F-26
Statements of Income...................................... F-27
Statements of Members' Equity............................. F-28
Statements of Cash Flows.................................. F-29
Notes to Financial Statements............................. F-30
JB SYSTEMS, INC.
Report of Independent Public Accountants.................. F-32
Balance Sheets............................................ F-33
Statements of Operations.................................. F-34
Statements of Stockholders' Deficit....................... F-35
Statements of Cash Flows.................................. F-36
Notes to Financial Statements............................. F-37
ASSIST CORNERSTONE TECHNOLOGIES, INC.
Report of Independent Auditors............................ F-44
Balance Sheets............................................ F-45
Statements of Operations.................................. F-46
Statements of Shareholders' Equity (Deficit).............. F-47
Statements of Cash Flows.................................. F-48
Notes to Financial Statements............................. F-49
SFG TECHNOLOGIES, INC.
Auditors Report........................................... F-60
Balance Sheets............................................ F-61
Consolidated Statements of Operations..................... F-62
Consolidated Statements of Deficit........................ F-63
Consolidated Statements of Cash Flows..................... F-64
Notes to Consolidated Financial Statements................ F-65
</TABLE>
F-1
<PAGE>
CAYENTA, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUES)
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------------ ADJUSTMENTS PRO FORMA
CAYENTA MAINSAVER ASSIST SFG (NOTE 4) COMBINED
-------- --------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......... $ -- $ -- $ 413 $ -- $ -- $ 413
Accounts receivable--net......... 18,253 1,559 2,627 2,639 25,078
Prepaid expenses and other....... 37 69 380 290 -- 776
------- -------- ------- ------- ------- --------
Total current assets........... 18,290 1,628 3,420 2,929 -- 26,267
------- -------- ------- ------- ------- --------
Property and equipment--net........ 882 805 293 693 2,673
Goodwill--net...................... 12,575 -- -- 55,795 68,370
Other assets....................... 5,000 64 260 128 -- 5,452
------- -------- ------- ------- ------- --------
Total assets................... $36,747 $ 2,497 $ 3,973 $ 3,750 $55,795 $102,762
------- -------- ------- ------- ------- --------
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Line of credit................... $ -- $ 1,512 $ -- $ 947 $(1,512) $ 947
Accounts payable................. 4,273 953 1,219 1,266 -- 7,711
Acquisition debt................. 2,800 -- -- -- 2,800
Current portion of long-term
debt........................... -- 211 187 400 (400) 398
Deferred revenue................. -- 1,515 508 1,996 4,019
Other accrued liabilities........ 6,100 729 445 -- 2,300 9,574
------- -------- ------- ------- ------- --------
Total current liabilities...... 13,173 4,920 2,359 4,609 388 25,449
Other long term liabilities........ 15 485 197 504 4,300 5,501
Long term debt..................... 1,653 2,327 3,110 (6,590) 500
Subordinated promissory note....... 9,441 -- -- -- 44,352 53,793
STOCKHOLDERS' EQUITY:
Preferred stock.................. 2 -- 305 -- (305) 2
Common stock..................... 10 6,197 5 2,981 (9,182) 11
Additional paid-in capital....... 2,981 -- 9 -- 3,391 6,381
Deferred compensation............ (928) -- -- -- -- (928)
Parent company investment........ 6,359 6,359
Retained earnings................ 5,694 (10,758) (1,229) (7,454) 19,441 5,694
------- -------- ------- ------- ------- --------
Total stockholders' equity..... 14,118 (4,561) (1,215) (4,473) 13,650 17,519
------- -------- ------- ------- ------- --------
Total liabilities and
stockholders' equity......... $36,747 $ 2,497 $ 3,973 $ 3,750 $55,795 $102,762
======= ======== ======= ======= ======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS UNAUDITED PRO FORMA BALANCE
SHEET.
F-2
<PAGE>
CAYENTA, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------- PRO FORMA
ASSIST SFG ADJUSTMENTS PRO FORMA
CAYENTA MAINSAVER CORNERSTONE TECHNOLOGIES (NOTE 4) COMBINED
-------- --------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $25,148 $ 6,267 $9,585 $4,960 $ -- $45,960
Cost of revenues................... 16,917 1,626 5,596 219 -- 24,358
------- ------- ------ ------ ------- -------
Gross profit..................... 8,231 4,641 3,989 4,741 -- 21,602
Operating expenses:
Selling, general and
administrative................. 3,225 3,962 4,049 4,113 2,092 17,441
Research and development......... -- 1,774 440 597 -- 2,811
------- ------- ------ ------ ------- -------
Total operating expenses....... 3,225 5,736 4,489 4,710 2,092 20,252
Income (loss) from operations...... 5,006 (1,095) (500) 31 (2,092) 1,350
------- ------- ------ ------ ------- -------
Interest expense................... (691) (309) (146) (215) (2,269) (3,630)
Income (loss) before tax........... 4,315 (1,404) (646) (184) (4,361) (2,280)
------- ------- ------ ------ ------- -------
Income tax provision (benefit)..... 1,726 -- -- -- (908) 818
------- ------- ------ ------ ------- -------
Net income (loss).................. $ 2,589 $(1,404) $ (646) $ (184) $(3,453) $(3,098)
======= ======= ====== ====== ======= =======
Basic earnings (loss) per share.... $ 0.26 $ (0.29)
======= =======
Weighted average shares--basic..... 10,000 -- 516 -- -- 10,516
======= ======= ====== ====== ======= =======
Diluted earnings (loss) per
share............................ $ .21 $ (0.29)
======= =======
Weighted average shares--diluted... 12,638 -- 516 -- (2,638) 10,516
======= ======= ====== ====== ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED PRO FORMA
FINANCIAL STATEMENTS.
F-3
<PAGE>
CAYENTA, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------------ PRO FORMA
ASSIST SFG ADJUSTMENTS PRO FORMA
CAYENTA TNP MAINSAVER CORNERSTONE TECHNOLOGIES (NOTE 4) COMBINED
-------- -------- --------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $12,095 $5,644 $ 7,218 $11,523 $4,868 $ -- $ 41,348
Cost of revenues............ 7,413 4,067 2,387 6,917 206 -- 20,990
------- ------ ------- ------- ------ ------- --------
Gross profit.............. 4,682 1,577 4,831 4,606 4,662 -- 20,358
Operating expenses:
Selling, general and
administrative.......... 2,259 146 5,187 4,477 3,016 3,213 18,298
Research and
development............. -- -- 946 397 1,853 -- 3,196
------- ------ ------- ------- ------ ------- --------
Total operating
expenses.............. 2,259 146 6,133 4,874 4,869 3,213 21,494
------- ------ ------- ------- ------ ------- --------
Income (loss) from
operations................ 2,423 1,431 (1,302) (268) (207) (3,213) (1,136)
Interest expense............ (204) -- (165) (319) (363) (2,641) (3,692)
Interest income............. -- 9 -- 29 -- -- 38
------- ------ ------- ------- ------ ------- --------
Income (loss) before tax.... 2,219 1,440 (1,467) (558) (570) (5,854) (4,790)
Income tax provision
(benefit)................. 908 5 -- (180) -- (1,057) (324)
------- ------ ------- ------- ------ ------- --------
Net income (loss)........... $ 1,311 $1,435 $(1,467) $ (378) $ (570) $(4,797) $ (4,466)
======= ====== ======= ======= ====== ======= ========
Basic earnings (loss) per
share..................... $ 0.13 $ (0.42)
======= ========
Weighted average shares--
basic..................... 10,000 -- -- 516 -- -- 10,516
======= ====== ======= ======= ====== ======= ========
Diluted earnings (loss) per
share..................... $ 0.13 $ (0.42)
======= ========
Weighted average shares--
diluted................... 10,148 2,345 -- 516 -- (2,493) 10,516
======= ====== ======= ======= ====== ======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED PRO FORMA
FINANCIAL STATEMENTS.
F-4
<PAGE>
CAYENTA, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
Cayenta, Inc. ("Cayenta" or the "Company") was formed as a wholly-owned
subsidiary of The Titan Corporation ("Titan") in 1997. Cayenta acquired
substantially all of the assets and liabilities of Transnational Partners II,
LLC ("TNP") in January 1999, and acquired three additional companies in 1999
("the 1999 Acquired Companies") (see Note 3). Effective December 13, 1999, Titan
contributed its software integration division to the Company. This transaction
has been accounted for as a combination of entities under common control on a
historical cost basis in a manner similar to a pooling of interests for all
periods presented. The Company is currently a majority-owned subsidiary of
Titan.
2. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated financial
statements are based on adjustments to the historical consolidated financial
statements of Cayenta to give effect to the acquisitions described in Note 3
below. The pro forma condensed consolidated statements of operations assume the
acquisitions were consummated as of the beginning of the periods presented. The
pro forma condensed consolidated statements of operations are not necessarily
indicative of results that would have occurred had the acquisitions been
consummated as of the beginning of the periods presented or the results that may
be attained in the future.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The pro forma condensed consolidated financial statements should be
read in conjunction with the historical consolidated financial statements of
Cayenta, the historical financial statements of the 1999 Acquired Companies and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
The information in the unaudited pro forma condensed consolidated statements
of operations for the year ended December 31, 1998 and for the nine months ended
September 30, 1999 have been derived from (i) the audited statements of
operations of Cayenta, TNP and each of the 1999 Acquired Companies for the year
ended December 31, 1998, (except with respect to SFG Technologies which includes
the audited eight month period ended December 31, 1998 and the unaudited four
month period ended April 30, 1998) (ii) the unaudited statements of operations
of Cayenta for the nine months ended September 30, 1999 and (iii) the unaudited
statements of operations of the 1999 Acquired Companies for the nine months
ended September 30, 1999.
The financial statements of SFG Technologies are translated from Canadian
dollars to U.S. dollars based on the end of the period exchange rate for balance
sheet items and average for the period rates for statement of operations data.
There are no significant differences between U.S. and Canadian GAAP relative to
SFG Technologies.
F-5
<PAGE>
CAYENTA, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. ACQUISITIONS
All acquisitions were accounted for as purchases. Accordingly the operating
results are reflected in the consolidated results of Cayenta from the date of
acquisition. Summary information on the acquisitions follows:
TNP. In January 1999, Cayenta acquired substantially all of the assets of
TNP, an enterprise application integration consulting company. The Company
acquired these assets for an initial installment of $7.0 million in cash and
2,345,000 shares of Cayenta convertible preferred stock. The Company will pay an
additional $2.8 million note that was issued as part of its acquisition of TNP,
plus 7% interest thereon, in January 2000. Acquisition goodwill of
$12.7 million is being amortized on a straight-line basis over 30 years.
THE 1999 ACQUIRED COMPANIES
MAINSAVER. In November 1999, Cayenta acquired J.B. Systems, an enterprise
asset management, or EAM, company doing business under the name Mainsaver. The
Company acquired Mainsaver for $11.7 million in cash, of which $8.2 million was
paid at the closing. Of the $3.5 million withheld at the closing, $500,000 is
due in February 2000 and $3.0 million is due in May 2001, after satisfaction of
possible working capital adjustments or indemnification obligations. In
addition, the Company paid approximately $3.4 million to reduce outstanding
indebtedness of Mainsaver.
ASSIST CORNERSTONE. In December 1999, Cayenta acquired Assist Cornerstone,
an e-commerce solutions and software company. The Company acquired Assist
Cornerstone for 516,000 shares of Cayenta Class A common stock and approximately
$12.9 million in cash, of which $9.9 million was paid at the closing. Of the
$3.0 million withheld at the closing, $1.7 million is due in March 2000 and
$1.3 million is due in June 2001, after satisfaction of possible working capital
adjustments or indemnification obligations. In addition, the Company paid
approximately $3.2 million to retire outstanding indebtedness of Assist
Cornerstone and redeem all of its outstanding redeemable preferred stock.
SFG TECHNOLOGIES. In December 1999, Cayenta acquired SFG Technologies, a
solutions and software provider focusing on revenue cycle services for the
utility industry. The Company acquired SFG Technologies for $11.6 million in
cash, of which $9.5 million was paid at the closing. Of the $2.1 million placed
into escrow at the closing, $600,000 is due in March 2000 and $1.5 million is
due in June 2001, after satisfaction of possible working capital adjustments or
indemnification obligations. In addition, the Company paid approximately
$3.1 million to retire outstanding indebtedness of SFG Technologies and redeem
all of its outstanding redeemable preferred stock.
Acquisition costs related to the 1999 Acquired Companies approximated $5.1
million which includes approximately $2.1 million of estimated fair value
assigned to 495,800 warrants granted to an investment advisor for certain
advisory services performed in connection with these acquisitions. Goodwill
related to these acquisitions amounted to approximately $55.8 million and is
being amortized over 20 years.
F-6
<PAGE>
CAYENTA, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. ADJUSTMENTS TO HISTORICAL FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the historical
condensed consolidated balance sheets and statements of operations as if the
acquisitions described in Note 3 were consummated at September 30, 1999 and as
of the beginning of the periods presented, respectively:
BALANCE SHEETS
(a) To reflect the goodwill related to the 1999 Acquired Companies,
(b) To reflect the retirement of certain of the 1999 Acquired Companies
using advances under our subordinated promissory note,
(c) To reflect the purchase price holdbacks and to accrue for
transaction costs,
(d) To eliminate the 1999 Acquired Companies equity accounts
STATEMENTS OF OPERATIONS
(e) To reflect incremental amortization (on a straight-line basis over
20 years) of goodwill related to the purchase of the 1999 Acquired Companies
and to reflect the amortization (on a straight line basis over 30 years) of
goodwill related to the TNP acquisition
(f) To reflect incremental interest expense on advances under our
subordinated promissory note to fund the cash portion of the purchase prices
of the 1999 Acquired Companies and to reflect interest expense related to
holdback amounts for the 1999 Acquired Companies.
(g) To reflect (i) the change in income taxes related to pro forma
adjustments, and (ii) income taxes on TNP as if it were a C corporation for
federal income tax purposes.
F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cayenta, Inc.:
We have audited the accompanying consolidated balance sheets of Cayenta,
Inc. (a Delaware Corporation and a majority-owned subsidiary of The Titan
Corporation) and subsidiaries as of December 31, 1997 and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cayenta, Inc. and
subsidiaries as of December 31, 1997 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
December 28, 1999
F-8
<PAGE>
CAYENTA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ -- $ -- $ --
Accounts receivable....................................... 3,651 10,984 18,253
Prepaid expenses and other................................ 71 54 37
------ ------- -------
Total current assets.................................... 3,722 11,038 18,290
Property and equipment--net................................. 624 649 882
Goodwill--net............................................... 295 236 12,575
Investment in Joint Venture................................. -- -- 5,000
------ ------- -------
Total assets............................................ $4,641 $11,923 $36,747
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 93 $ 2,634 $ 4,273
Accrued compensation and benefits......................... 520 367 898
Acquisition debt.......................................... -- -- 2,800
Other current liabilities................................. 23 1 5,202
------ ------- -------
Total current liabilities............................... 636 3,002 13,173
------ ------- -------
Deferred income tax liability............................... 25 15 15
Subordinated promissory note................................ -- -- 9,441
Commitments and contingencies
Stockholders' Equity:
Preferred Stock, $.001 par value 17,345 shares authorized
Series A Convertible Preferred Stock, 2,345 shares
authorized,
0, 0 and 2,345 issued and outstanding................... -- -- 2
Class A Common Stock, $.001 par value, 100,000 shares
authorized, none issued and outstanding................... -- -- --
Class B Common Stock, $.001 par value, 50,000 shares
authorized,
10,000, 10,000 and 10,000 issued and outstanding.......... 10 10 10
Additional paid-in-capital.................................. -- 83 2,981
Deferred compensation....................................... -- (49) (928)
Parent company investment................................... 2,176 5,757 6,359
Retained earnings........................................... 1,794 3,105 5,694
------ ------- -------
Total stockholders' equity.............................. 3,980 8,906 14,118
------ ------- -------
Total liabilities and stockholders' equity.............. $4,641 $11,923 $36,747
====== ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE
SHEETS.
F-9
<PAGE>
CAYENTA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- -----------------
1996 1997 1998 1998 1999
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................................ $8,633 $10,191 $12,095 $ 7,073 $25,148
Cost of revenues................................ 6,068 6,514 7,413 4,298 16,917
------ ------- ------- ------- -------
Gross profit.................................. 2,565 3,677 4,682 2,775 8,231
Selling, general and administrative expenses.... 1,831 1,705 2,259 1,629 3,225
------ ------- ------- ------- -------
Income from operations.......................... 734 1,972 2,423 1,146 5,006
Interest expense................................ 116 139 204 123 691
------ ------- ------- ------- -------
Income before tax............................... 618 1,833 2,219 1,023 4,315
Income tax provision............................ 247 734 908 370 1,726
------ ------- ------- ------- -------
Net income...................................... $ 371 $ 1,099 $ 1,311 $ 653 $ 2,589
====== ======= ======= ======= =======
Basic earnings per share........................ $ 0.04 $ 0.11 $ 0.13 $ 0.07 $ 0.26
====== ======= ======= ======= =======
Weighted average shares--basic.................. 10,000 10,000 10,000 10,000 10,000
====== ======= ======= ======= =======
Diluted earnings per share...................... $ 0.04 $ 0.11 $ 0.13 $ 0.06 $ 0.21
====== ======= ======= ======= =======
Weighted average shares--diluted................ 10,000 10,030 10,148 10,117 12,638
====== ======= ======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-10
<PAGE>
CAYENTA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE COMMON STOCK ADDITIONAL PARENT
PREFERRED --------------------- PAID-IN- DEFERRED COMPANY RETAINED
STOCK CLASS A CLASS B CAPITAL COMPENSATION INVESTMENT EARNINGS TOTAL
----------- --------- --------- ---------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1,
1996...................... $ -- $ -- $ 10 $ -- $ -- $ 719 $ 324 $ 1,053
Net income................ -- -- -- -- -- -- 371 371
Titan investment, net..... -- -- -- -- -- 1,564 -- 1,564
---- ---- ---- ------ ------- ------- ------ -------
Balances at December 31,
1996...................... -- -- 10 -- -- 2,283 695 2,988
Net income................ -- -- -- -- -- -- 1,099 1,099
Distribution to Titan,
net..................... -- -- -- -- -- (107) -- (107)
---- ---- ---- ------ ------- ------- ------ -------
Balances at December 31,
1997...................... -- -- 10 -- -- 2,176 1,794 3,980
Net income................ -- -- -- -- -- -- 1,311 1,311
Titan investment, net..... -- -- -- -- -- 3,581 -- 3,581
Deferred compensation
related to the issuance
of stock options........ -- -- -- 83 (83) -- -- --
Amortization of deferred
compensation............ -- -- -- -- 34 -- -- 34
---- ---- ---- ------ ------- ------- ------ -------
Balances at December 31,
1998...................... -- -- 10 83 (49) 5,757 3,105 8,906
The following information is
unaudited:
Net income................ -- -- -- -- -- -- 2,589 2,589
Deferred compensation
related to the issuance
of stock options........ -- -- -- 1,000 (1,000) -- -- --
Amortization of deferred
compensation............ -- -- -- -- 121 -- -- 121
Titan investment, net..... -- -- -- -- -- 602 -- 602
Issuance of preferred
stock in connection with
the acquisition of
TNP..................... 2 -- -- 1,898 -- -- -- 1,900
---- ---- ---- ------ ------- ------- ------ -------
Balances at September 30,
1999...................... $ 2 $ -- $ 10 $2,981 $ (928) $ 6,359 $5,694 $14,118
==== ==== ==== ====== ======= ======= ====== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-11
<PAGE>
CAYENTA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 371 $ 1,099 $ 1,311 $ 653 $ 2,589
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................ 91 375 286 181 513
Deferred income taxes........................ -- 20 10 (8) (112)
Deferred compensation charge................. -- -- 34 34 121
Change in operating assets and liabilities, net
of effects of businesses acquired:
Accounts receivable.......................... (1,968) (487) (7,333) (3,065) (7,269)
Prepaid expenses and other................... -- (71) 17 44 17
Accounts payable............................. -- 93 2,541 918 1,639
Accrued compensation and benefits............ -- 520 (153) (166) 531
Other accrued liabilities.................... 17 (264) (42) (276) 360
-------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities............................... (1,489) 1,285 (3,329) (1,685) (1,611)
-------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................... (75) (883) (252) (199) (432)
Payment for purchase of businesses, net of cash
acquired..................................... -- (295) -- -- (8,000)
-------- ------- ------- ------- -------
Net cash used in investing activities...... (75) (1,178) (252) (199) (8,432)
-------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Subordinated promissory note................... -- -- -- -- 9,441
Titan investment (distribution), net........... 1,564 (107) 3,581 1,884 602
-------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities................................... 1,564 (107) 3,581 1,884 10,043
-------- ------- ------- ------- -------
Net change in cash............................. $ -- $ -- $ -- $ -- $ --
======== ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Note payable issued in exchange for 10
percent interest in joint venture.......... $ -- $ -- $ -- $ -- $ 5,000
======== ======= ======= ======= =======
Acquisition of TNP:
Premium paid in excess of assets
acquired............................. -- -- -- -- 12,700
Note payable........................... -- -- -- -- (2,800)
Series A Convertible Preferred Stock... (1,900)
-------- ------- ------- ------- -------
Cash................................... -- -- -- -- 8,000
======== ======= ======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-12
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION AS OF SEPTEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1. DESCRIPTION OF THE BUSINESS
Cayenta, Inc. ("Cayenta" or the "Company") was formed as a wholly-owned
subsidiary of The Titan Corporation ("Titan") in 1997. In January 1999, the
Company acquired substantially all of the assets and liabilities of
Transnational Partners II, LLC ("TNP"), an enterprise application integration
consulting company, to broaden its systems integration capabilities and access
its customer base. Effective December 13, 1999, Titan contributed its software
integration division to the Company. This transaction has been accounted for as
a combination of entities under common control on a historical cost basis in a
manner similar to a pooling of interests for all periods presented. The Company
is currently a majority-owned subsidiary of Titan.
In September 1999, together with a Sempra Energy subsidiary and modis, the
Company established Soliance LLC ("Soliance"), a joint venture that markets and
delivers systems and solutions, including total services provider ("TSP")
offerings, to the utility industry. The Company owns a 10% equity interest in
Soliance. Cayenta has a Management Services Agreement with Soliance pursuant to
which the Company provides TSP services to Soliance's customers in the utility
industry.
During late 1999, the Company acquired all of the capital stock of J.B.
Systems, Inc., an enterprise asset management, or EAM, company doing business
under the name Mainsaver. Also during late 1999, the Company acquired all of the
capital stock of Assist Cornerstone Technologies, Inc., an e-commerce solutions
and software company, and SFG Technologies, Inc., a solutions and software
company focusing on revenue cycle services for the utility industry.
Cayenta has historically derived its revenues from application integration
and consulting services and from sales of its proprietary software solutions.
Historically, the Company has provided services primarily on a fixed-time,
fixed-price basis and, to a lesser extent, on a time and materials basis.
On a historical basis, the Company's principal business risks generally
result from its dependence upon a small number of customers and the
uncertainties inherent in government contracting. As the Company launches its
TSP offering, the Company faces a number of new risks, including but not limited
to:
- The market for TSP offerings is new and undeveloped. Furthermore, the
Company has no history of generating revenues from its TSP offering.
- The development of the Company's TSP offering is highly dependent upon the
successful integration of the products recently acquired from Mainsaver,
Assist Cornerstone Technologies, Inc., and SFG Technologies, Inc.
- The Company's TSP strategy will require a significant investment in
infrastructure, sales and marketing, processes and solutions. As a result,
the Company expects to incur losses for the foreseeable future.
See "Risk Factors" in the accompanying prospectus for a more complete
discussion of risks faced by the Company.
F-13
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF SEPTEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Cayenta and its subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
INTERIM RESULTS (UNAUDITED). The accompanying consolidated balance sheet as
of September 30, 1999 and the related consolidated statements of income and of
cash flows for the nine months ended September 30, 1998 and 1999, and the
consolidated statement of stockholders' equity for the nine months ended
September 30, 1999 are unaudited. In the opinion of management, these statements
have been prepared on the same basis as the audited financial statements and
include all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of results of the interim periods. The data
disclosed in these notes to the financial statements at such dates and for such
periods are also unaudited.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION. Revenues for consulting services are recorded at the
time services are performed, except for fixed-price contracts, which are
accounted for using the percentage-of-completion method. Estimated losses on
fixed-price contracts are recorded in the period the losses are determinable.
PROPERTY AND EQUIPMENT. Property and equipment are stated at acquisition
cost. Depreciation is provided using the straight-line method, with estimated
useful lives of two to eight years for leasehold improvements (or the life of
the lease if shorter) and three to seven years for machinery and equipment and
furniture and fixtures.
GOODWILL. The excess of the cost over the fair value of net assets of
purchased businesses ("goodwill") is amortized on a straight-line basis over
lives ranging from five to 30 years. The Company periodically re-evaluates the
original assumptions and rationale utilized in the establishment of the carrying
value and estimated lives of its goodwill. The criteria used for these
evaluations include management's estimate of the asset's continuing ability to
generate positive income from operations and positive cash flow in future
periods as well as the strategic significance of the intangible asset to the
Company's business objectives.
IMPAIRMENT OF LONG-LIVED ASSETS. Periodically, the Company reviews for
possible impairment of its long-lived assets and certain identifiable
intangibles to be held and used. Whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable,
asset values are adjusted accordingly.
F-14
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF SEPTEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION. The Company has elected to adopt the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Accordingly, the
Company will continue to account for its stock-based compensation plans under
the provisions of APB No. 25.
INCOME TAXES. The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires the use of the liability method of accounting for deferred income
taxes. Under this method, deferred income taxes are recorded to reflect the tax
consequences on future years of temporary differences between the tax bases of
assets and liabilities and their financial reporting amounts at each year-end.
If it is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is recognized.
The Company and Titan intend to enter into a tax allocation agreement under
which the Company will be included in Titan's consolidated federal and certain
state income tax returns. The Company believes that the agreement will be
structured so that in the years in which the Company has taxable income, it will
pay Titan amounts comparable to the taxes the Company would have paid if it had
filed separate tax returns. For so long as Titan maintains beneficial ownership
of at least 80% of the total voting power and 80% of the total value of the
outstanding Common Stock, the Company will be included in the consolidated
federal and certain state income tax returns filed by Titan.
PER SHARE INFORMATION. Basic and diluted earnings per share are presented
in conformity with Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"), for all periods presented. In accordance with
SFAS 128, basic earnings per share has been computed using the weighted-average
number of shares of common stock outstanding during the period. Diluted earnings
per share include the effects of potentially dilutive securities using the
as-converted and treasury stock methods.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts of the Company's
financial instruments, including cash, accounts receivable, and accounts payable
and accrued liabilities approximate their fair values due to their short term
nature. Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company believes it is not exposed to any significant credit risk on its
accounts receivable.
PARENT COMPANY INVESTMENT. The cash receipts and disbursements of the
Company's operations have historically been combined with other Titan cash
transactions and balances. Titan funded all of the Company's cash requirements
through September 30, 1999.
NOTE 3. ACQUISITION AND JOINT VENTURE.
In September 1999, together with a Sempra Energy subsidiary and modis, the
Company established Soliance, a joint venture that markets and delivers systems
and solutions, including TSP offerings, to the utility industry. In exchange for
a $5.0 million investment, the Company received a 10% equity interest in
Soliance. Cayenta has a Management Services Agreement with Soliance pursuant to
which the Company provides TSP services to Soliance's customers in the utility
industry. The accompanying
F-15
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF SEPTEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3. ACQUISITION AND JOINT VENTURE. (CONTINUED)
consolidated balance sheet as of September 30, 1999 reflects a $5.0 million
liability, included in other current liabilities, for the funding of this
investment which occured in October 1999. Under certain circumstances, the
Company may also be required to make up to $2.5 million in additional capital
contributions.
On January 1, 1999, the Company acquired certain assets of TNP for a
purchase price of $9.8 million, consisting of $7.0 million cash, a $2.8 million
note due January 2000 (bearing interest at 7%), subject to certain post-closing
adjustments, and 2,345 shares of Series A convertible preferred stock
representing a minority interest in Cayenta. The transaction was accounted for
as a purchase. The excess of the purchase price over the estimated fair value of
net assets acquired, approximately $12.3 million, net at September 30, 1999, is
being amortized on a straight-line basis over 30 years. TNP's results of
operations have been consolidated with the Company's results of operations since
January 2, 1999.
Unaudited pro forma data for the year ended December 31, 1998 giving effect
to the purchase of TNP, as if it had been acquired at the beginning of 1998 is
shown below:
<TABLE>
<CAPTION>
<S> <C>
Revenues.................................................... $17,739
Net income.................................................. 2,400
Earnings per share.......................................... $ 0.19
</TABLE>
Goodwill of approximately $200 at September 30, 1999 relates to an acquisition
in 1997, and is being amortized over five years.
NOTE 4. OTHER FINANCIAL DATA
Following are details concerning certain balance sheet accounts as of
December 31, 1997 and 1998 and September 30, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts Receivable:
Billed........................................ $ 774 $ 1,297 $ 3,777
Unbilled...................................... 2,877 9,687 14,476
------ ------- -------
$3,651 $10,984 $18,253
====== ======= =======
</TABLE>
Unbilled receivables represent work-in-process that will be billed in
accordance with contract terms and delivery schedules. Also included in unbilled
receivables are amounts billable upon final execution
F-16
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF SEPTEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4. OTHER FINANCIAL DATA (CONTINUED)
of contracts, contract completion, milestones or completion of rate
negotiations. Generally, unbilled receivables are expected to be collected
within one year.
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Property and Equipment:
Machinery and equipment................................... $ 952 $1,190 $1,484
Furniture, fixtures and leasehold improvements............ 138 152 290
------ ------ ------
1,090 1,342 1,774
Less accumulated depreciation and amortization.............. (466) (693) (892)
------ ------ ------
$ 624 $ 649 $ 882
====== ====== ======
</TABLE>
NOTE 5. RELATED PARTY TRANSACTIONS
CORPORATE SERVICES AGREEMENT. Titan provides to the Company routine and
ordinary corporate services, including financial, insurance, accounting,
employee benefits, payroll, tax and legal services. Titan also provides the
Company corporate planning, government relations and corporate quality assurance
services. The Company shares certain Titan systems, including its accounting
system and human resource system. Because Titan engages in government contracts
work, Titan allocates costs to its subsidiaries based upon government cost
accounting requirements. The Company pays Titan for human resources services
based upon the Company's percentage of the total number of Titan group
employees. The Company pays for other corporate services based upon the average
of three percentages: (1) the percentage of the Company's payroll to the total
payroll of the Titan group, (2) the percentage of the Company's operating
revenues to the total operating revenues of the Titan group and (3) the
percentage of the Company's average net book value which is the sum of the
Company's tangible capital assets plus inventories to the total average net book
value of the tangible capital assets plus inventory of the Titan group as of the
end of the last fiscal year and as of the final day of each calendar quarter in
the current fiscal year. Titan may adjust its fees based upon its assessment of
the Company's relative use of these services.
The initial term of the Corporate Services Agreement is one year. This
agreement renews automatically unless the Company elects not to renew by giving
Titan notice. The Company intends to build its own administrative infrastructure
and end the Corporate Services Agreement with Titan by the end of 2000. Amounts
aggregating $259, $284, $230, $167 and $286 are included in the Company's
results of operations in the accompanying consolidated financial statements for
the years ended December 31, 1996, 1997 and 1998 and for the nine months ended
September 30, 1998 and 1999, respectively. Management believes that these
allocations have been and will be reasonable.
TAX ALLOCATION AGREEMENT As long as Titan maintains beneficial ownership of
at least 80% of the total voting power of the Company's capital stock and 80% of
the total value of the Company's outstanding common stock, the Company will be
included in Titan's consolidated federal income tax
F-17
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF SEPTEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5. RELATED PARTY TRANSACTIONS (CONTINUED)
returns. Following completion of this offering, the Company expects to file
separate federal income tax returns.
Cayenta and Titan intend to enter into a Tax Allocation Agreement. Under the
Tax Allocation Agreement, the Company will agree to pay to the applicable tax
authorities an amount generally equal to the tax liability that the Company
would have incurred if it had prepared and filed a separate return. Titan will
have broad discretion in determining the amount of separate taxable income and
tax liability that the Company would realize on such a separate return. In
computing this separate tax liability, the Company's tax attributes, including
net operating loss and tax credit carryovers, will be deemed to be the amount
that it would have had had it always owned the businesses transferred to the
Company by Titan.
As a member of the Titan group for purposes of filing consolidated federal
income tax returns, the Company will be liable for the federal income tax of the
Titan group if Titan or any member of the group fails to pay its taxes.
FACILITIES AGREEMENT The Company has subleased approximately 26 square feet
in Reston, Virginia from Titan. Under the Facilities Agreement, Titan provides
the Company rent, maintenance, property taxes, utilities, landlord pass-through
expenses, property insurance, reception desk services, telephone services and
centralized mail and postage and other services. The Company pays Titan an
annual fee determined by the Company's percentage of Titan's annual costs for
this facility. This percentage is based upon the percentage of the total square
feet in the facility that the Company occupies. Amounts aggregating $42, $227,
$145, $309 and $369 are included in the Company's results of operations in the
accompanying consolidated financial statements for the years ended December 31,
1996, 1997 and 1998 and for the nine months ended September 30, 1998 and 1999,
respectively.
EMPLOYEE BENEFIT PLANS The Company's employees are eligible to participate
in the Titan benefit plans. Those plans include a 401(k) plan, an employee stock
ownership plan, a non-qualified executive deferred compensation plan, an
employee stock purchase plan, and a health and welfare cafeteria plan. The
direct cost of these plans for the Company's employees are charged by Titan to
the Company.
TITAN'S SENIOR CREDIT FACILITY The Company is currently subject to Titan's
senior credit facility, which includes covenants that restrict the Company's
operations and requires Titan to pay down this facility by an amount equal to
the net proceeds of its initial public offering. In addition, the Company, along
with other Titan subsidiaries, has guaranteed Titan's obligations under this
facility. Titan has informed the Company that it intends to negotiate changes to
the facility or replace the facility and to remove the Company from the guaranty
and the other restrictions concurrently with the completion of this offering. So
long as the Company remains as a guarantor, the Company risks substantial
liability if Titan defaults on this facility. Titan's outstanding borrowings
subject to this guarantee amounted to approximately $117 million at
September 30, 1999.
SUBORDINATED PROMISSORY NOTE As of September 30, 1999, the Company owed
$9.4 million to Titan under a subordinated, unsecured promissory note. The
Company can have a maximum of $70.0 million of indebtedness outstanding under
this promissory note at any one time. The promissory note is due in
F-18
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF SEPTEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5. RELATED PARTY TRANSACTIONS (CONTINUED)
December 2004 and bears interest, payable quarterly, at the greater of the rate
of 10% per annum or Titan's effective weighted average interest rate under its
senior credit facility. The Company can repay amounts outstanding under the
promissory note at any time without penalty. At Titan's option, the Company may
repay amounts outstanding under the promissory note with the net proceeds of any
asset sales the Company makes that are not in the ordinary course of business or
if the Company obtains a credit facility from a third party lender and the
lender and the facility permits the use of proceeds to repay existing
indebtedness. The Company cannot use any of the proceeds of its initial public
offering to repay amounts outstanding under the promissory note or under any
indebtedness the Company incurs to refinance the promissory note.
NOTE 6. SIGNIFICANT CUSTOMERS
Sales to a single federal agency were $6,730, $8,816, $11,171 and $6,461 for
the years ended December 31, 1996, 1997 and 1998 and for the nine months ended
September 30, 1999 (unaudited), respectively. Sales to another local government
customer and to a single utility customer were $9,823 and $8,119, respectively,
for the nine months ended September 30, 1999. For all periods presented,
substantially all accounts receivable were due from these customers.
Sales to a single commercial customer were $1,093 and $1,399 for the years
ended December 31, 1996 and 1997, respectively.
No other single customer accounted for 10% or more of the revenues for these
periods.
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Company periodically is a defendant in cases incidental to its business
activities. Furthermore, providers of products and services to the U.S.
government are generally subject to multiple levels of audit and investigation
by various U.S. government agencies. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not materially
affect the financial position or results of operations of the Company.
During 1999, the Company entered into employment agreements with certain key
officers of Cayenta. The agreements specify, among other things, an annual base
salary, annual bonus and entitlement to receive options to purchase shares of
the Company's Class A common stock at $0.36 per share. These agreements also
provide eligibility to receive options to purchase Titan common shares.
The Company leases office space from an unrelated third party under a
noncancelable operating lease expiring in 2004. Rent expense for this lease was
$74 for the nine months ended September 30,
F-19
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF SEPTEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
1999. The related future minimum lease payments as of September 30, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING:
- ------------
<S> <C>
1999........................................................ $ 37
2000........................................................ 155
2001........................................................ 163
2002........................................................ 172
2003........................................................ 226
Thereafter.................................................. 753
------
$1,506
======
</TABLE>
The Company has also guaranteed certain obligations of Titan, see Note 5.
NOTE 8. INCOME TAXES
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal............................................... $210 $641 $780
State................................................. 37 113 138
---- ---- ----
247 754 918
Deferred................................................ -- (20) (10)
---- ---- ----
$247 $734 $908
==== ==== ====
</TABLE>
Following is a reconciliation of the income tax provision expected (based on
the United States federal income tax rate applicable in each year) to the actual
tax provision on income:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Expected federal income tax provision................... $210 $623 $750
State income taxes, net of federal income tax
benefits.............................................. 37 110 132
Other................................................... -- 1 26
---- ---- ----
Actual income tax provision............................. $247 $734 $908
==== ==== ====
</TABLE>
F-20
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF SEPTEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8. INCOME TAXES (CONTINUED)
The deferred tax liability as of December 31, 1997 and 1998, result from the
following temporary differences:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Accrued payroll and employee benefits....................... 29 42
Deferred compensation....................................... 7 7
Depreciation................................................ (61) (64)
---- ----
Net deferred tax liability.................................. $(25) $(15)
==== ====
</TABLE>
NOTE 9. STOCKHOLDERS' EQUITY
The Company has two classes of authorized common stock, Class A common stock
and Class B common stock. The rights of the holders of Class A common stock and
Class B common stock are identical, except with respect to voting and
conversion. Each share of Class A common stock is entitled to one vote per
share. Each share of Class B common stock is entitled to ten votes per share and
is convertible into one share of Class A common stock. As of September 30, 1999
Titan owns 100% of the issued and outstanding Class B common stock. No shares of
Class A common stock are issued or outstanding.
The Company also has 17,345 authorized shares of $.001 par value preferred
stock with voting rights. Each preferred share is convertible into one Class A
common share. As of September 30, 1999, 100% of the 2,345 issued preferred
shares are held by the former owners of TNP. These preferred shares have no
dividend requirements and automatically convert to 2,345 shares of Class A
common stock upon the occurrence of an initial public offering of the Company's
Class A common stock. The Board of Directors has the authority, without further
action by the shareholders to issue any authorized but undesignated series of
preferred stock in one or more series and to fix all the terms, including
rights, preferences, restrictions and redemptions.
NOTE 10. STOCK-BASED AND OTHER COMPENSATION PLANS
The Company provides stock-based compensation to officers, directors and key
employees through a stock option plan. The Company's board of directors has
options available for grant under the 1997 Stock Option Plan (the "Plan") of
1,343 shares. Total options authorized for grant under this Plan are 2,500.
Under the Plan, an option's maximum term is ten years, and the exercise price of
each option equals the fair market value of the Company's stock on the date of
grant. Employee options may be granted throughout the year. All options vest in
four equal annual increments beginning one year after the grant date.
F-21
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF SEPTEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 10. STOCK-BASED AND OTHER COMPENSATION PLANS (CONTINUED)
A summary of the status of the Company's Plan as of December 31, 1997, 1998
and September 30, 1999, and changes during the periods ended on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------- ------------------------- -------------------------
WEIGHTED-AVG. WEIGHTED-AVG. WEIGHTED-AVG.
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
OPTIONS -------- -------------- -------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period....................... -- $0.36 419 $0.36 503 $0.36
Granted........................ 419 84 654,700
--- --- -------
Outstanding at end of period... 419 503 1,157
=== === =======
Options exercisable at end of
period....................... 105 230 458
=== === =======
</TABLE>
The following table summarizes information about stock options outstanding
at September 30, 1999 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------
WEIGHTED-AVERAGE
EXERCISE OUTSTANDING REMAINING
PRICE AT 9/30/99 CONTRACTUAL LIFE
- -------- ----------- ----------------
<C> <C> <S>
$0.36 1,157 9.2
</TABLE>
Certain employees who qualify as sophisticated investors have agreed to
resell any shares purchased under their options back to the Company at book
value. This constitutes a variable plan under APB No. 25. Accordingly, deferred
compensation has been recorded to the extent that book value exceeds the
exercise price of the options at the date of grant. Deferred compensation is
also recorded for changes in book value occurring subsequent to the initial
grant date. Compensation expense related to these grants is recognized as these
options vest. Compensation expense amounted to $0 in 1997, $34 in 1998 and $121
for the nine months ended September 30, 1999. There are 628 options outstanding
at September 30, 1999 subject to this buyback provision.
On August 12, 1999, the Company issued 245 options at $0.36 per share to
employees not covered by the book value repurchase options discussed above. On
this date the deemed fair value of a share of common stock was $2.46 per share.
Accordingly, the Company has recognized deferred compensation related to these
grants of $514 on August 12, 1999. This deferred charge will be amortized to
expense over the four year vesting period of these options. Of the remaining
284 options granted, 26 and 258 were granted in February 1998 and September
1997, respectively. These options were granted at exercise prices which the
Company believes approximated fair value at the date of grant. The fair value of
these option grants were estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1996, 1997 and 1998: zero dividend yield; expected volatility of 0%; a
risk-free interest rate of 5.5%; and an expected life of five years.
F-22
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF SEPTEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 10. STOCK-BASED AND OTHER COMPENSATION PLANS (CONTINUED)
As permitted, the Company has adopted the disclosure only provisions of SFAS
123. Accordingly, no compensation expense, except as specifically described
above, has been recognized for the stock option plans. Had compensation expense
been determined based on the fair value at the date of the grant for the years
ended December 31, 1997 and 1998 and for the nine months ended September 30,
1999 consistent with the provisions of SFAS 123, the Company's net income and
net income per share would have been reported as the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Net income--as reported......................... $1,099 $1,311 $2,589
Net income--pro forma........................... 1,099 1,153 2,309
Net income per share--as reported............... $ 0.11 $ 0.13 $ 0.21
Net income per share--pro forma................. 0.11 0.12 0.18
</TABLE>
Certain officers and key employees participate in the Titan non-qualified
executive deferred compensation plan. The Company also has performance bonus
plans for certain of its employees. Related expense for these two plans amounted
to approximately $152, $189, and $557 in years ended December 31, 1997 and 1998
and for the nine months ended September 30, 1999 (unaudited), respectively.
NOTE 11. GEOGRAPHIC OPERATIONS
The Company has historically operated in one business segment, application
integration and consulting services, exclusively in North America and
principally the United States.
NOTE 12. SUBSEQUENT EVENTS
MAINSAVER. In November 1999, Cayenta acquired J.B. Systems, an EAM company
doing business under the name Mainsaver. The Company acquired Mainsaver for
$11.7 million in cash, of which $8.2 million was paid at the closing. Of the
$3.5 million withheld at the closing, $500 is due in February 2000 and
$3.0 million is due in May 2001, after satisfaction of possible working capital
adjustments or indemnification obligations. In addition, the Company paid
approximately $3.4 million to reduce outstanding indebtedness of Mainsaver.
ASSIST CORNERSTONE. In December 1999, Cayenta acquired Assist Cornerstone
Technologies, Inc., an e-commerce solutions and software company. The Company
acquired Assist Cornerstone for 516 shares of Cayenta Class A common stock and
approximately $12.9 million in cash, of which $9.9 million was paid at the
closing. Of the $3.0 million withheld at the closing, $1.7 million is due in
March 2000 and $1.3 million is due in June 2001, after satisfaction of possible
working capital adjustments or indemnification obligations. In addition, the
Company paid approximately $3.2 million to retire
F-23
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF SEPTEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 12. SUBSEQUENT EVENTS (CONTINUED)
outstanding indebtedness of Assist Cornerstone and redeem all of its outstanding
redeemable preferred stock.
SFG TECHNOLOGIES. In December 1999, Cayenta acquired SFG Technologies,
Inc., a solutions and software provider focusing on revenue cycle services for
the utility industry. The Company acquired SFG Technologies for $11.6 million in
cash, of which $9.5 million was paid at the closing. Of the $2.1 million placed
into escrow at the closing, $600 is due in March 2000 and $1.5 million is due in
June 2001, after satisfaction of possible working capital adjustments or
indemnification obligations. In addition, the Company paid approximately
$3.1 million to retire outstanding indebtedness of SFG Technologies and redeem
all of its outstanding redeemable preferred stock.
All of these acquisitions have been funded by Titan subsequent to
September 30, 1999.
In connection with the acquisitions described above the Company has issued
warrants to a financial advisor to purchase up to 496 shares of Class A common
stock for $13.11 per share. The warrants are exercisable at any time and expire
in 5 years.
F-24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cayenta, Inc.:
We have audited the accompanying balance sheets of Transnational
Partners II, LLC, a California limited liability company, (the "Company"), as of
December 31, 1997 and 1998, and the related statements of income, members'
equity, and cash flows for the period from commencement of operations (February
9, 1997) to December 31, 1997 and for the year ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Transnational Partners II,
LLC as of December 31, 1997 and 1998, and the results of its operations and its
cash flows for the period from commencement of operations (February 9, 1997) to
December 31, 1997 and for the year ended December 31, 1998 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
December 28, 1999
F-25
<PAGE>
TRANSNATIONAL PARTNERS II, LLC
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash...................................................... $183 $259
Accounts receivable....................................... 370 612
---- ----
Total assets............................................ $553 $871
==== ====
LIABILITIES AND MEMBERS' EQUITY
Accounts payable and accrued expenses..................... $285 $448
---- ----
Total liabilities....................................... 285 448
---- ----
Commitments and contingencies
Members' Equity:
Members' capital.......................................... 20 20
Retained earnings......................................... 248 403
---- ----
Total members' equity................................... 268 423
---- ----
Total liabilities and members' equity................... $553 $871
==== ====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-26
<PAGE>
TRANSNATIONAL PARTNERS II, LLC
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 9, 1997
(COMMENCEMENT
OF OPERATIONS) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
----------------- ------------
<S> <C> <C>
Revenues.................................................... $2,850 $5,644
Cost of revenues............................................ 2,211 4,067
------ ------
Gross profit.............................................. 639 1,577
Selling, general, and administrative expenses............... 31 146
------ ------
Income from operations...................................... 608 1,431
Interest income............................................. 5 9
------ ------
Income before tax........................................... 613 1,440
Provision for income tax.................................... 5 5
------ ------
Net income.................................................. $ 608 $1,435
====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-27
<PAGE>
TRANSNATIONAL PARTNERS II, LLC
STATEMENTS OF MEMBERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
MEMBERS' RETAINED
CAPITAL EARNINGS TOTAL
-------- -------- --------
<S> <C> <C> <C>
Balances at February 9, 1997 (Commencement of Operations)... $-- $ -- $ --
Membership contributions.................................. 20 -- 20
Net income................................................ 608 608
Distributions............................................. -- (360) (360)
--- ------- -------
Balances at December 31, 1997............................... 20 248 268
Membership contributions.................................. 2 -- 2
Repurchase of membership shares........................... (2) -- (2)
Net income................................................ 1,435 1,435
Distributions............................................. -- (1,280) (1,280)
--- ------- -------
Balances at December 31, 1998............................... $20 $ 403 $ 423
=== ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
F-28
<PAGE>
TRANSNATIONAL PARTNERS II, LLC
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 9, 1997
(COMMENCEMENT
OF OPERATIONS) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
----------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 608 $ 1,435
Adjustments to reconcile net income to net cash provided
by operating activities:
Changes in operating assets and liabilities:
Accounts receivable................................... (370) (242)
Accounts payable and accrued expenses................. 285 163
------ -------
Net cash provided by operating activities................... 523 1,356
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of membership shares................................. 20 2
Repurchase of membership shares........................... -- (2)
Distributions to members.................................. (360) (1,280)
------ -------
Net cash used in financing activities....................... (340) (1,280)
------ -------
Net increase in cash........................................ 183 76
Cash at beginning of period................................. -- 183
------ -------
Cash at end of period....................................... $ 183 $ 259
====== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
State income taxes paid................................... $ 1 $ 4
====== =======
</TABLE>
THE ACCOMPANYINIG NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-29
<PAGE>
TRANSNATIONAL PARTNERS II, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(IN THOUSANDS)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Transnational Partners II, LLC a California limited liability company, (the
"Company") is an enterprise application integration consulting company. The
Company was formed on September 25, 1996, with the execution of a limited
liability company operating agreement (the "Agreement"), commenced operations on
February 9, 1997. In January 1999, Cayenta, Inc. acquired substantially all of
the assets and liabilities of the Company.
REVENUE RECOGNITION The majority of the Company's revenues are derived from
time and material contracts and are recognized as services are performed.
Revenues derived from fixed-price contracts are recognized under the
percentage-of-completion method. Estimated losses on fixed-price contracts are
recorded in the period the losses are determinable.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES The Company is treated as a partnership for income tax
reporting purposes, rather than an association taxable as a corporation.
Accordingly, no provision for federal taxes has been included in the
accompanying statements of income. Such taxes are imposed on the individual
members for their respective shares of the Company's income. The tax returns and
amounts of distributable income or loss of the Company are subject to
examination by federal and state taxing authorities. If such examination results
in a change in the Company's income tax status or in a change to distributable
income or loss of the Company, the tax liability of the Company or of the
members could be changed accordingly.
DISTRIBUTIONS Membership interests of the members reflect capital
contributions made in accordance with the Agreement. Distributions or
allocations of assets are made in proportion to the partner's respective
membership interest, and are made at the sole discretion of the Company's
management.
FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the Company's
financial instruments, including cash, accounts receivable, and accounts payable
approximate their fair values due to the short-term nature. Financial
instruments which potentially subject the Company to concentrations of credit
risk consist primarily of trade accounts receivable. The Company believes it is
not exposed to any significant credit risk on its accounts receivable.
2. CREDIT RISK
All of the Company's revenues are from a single customer. Accounts
receivable due from this customer totaled $612 and $370 at December 31, 1998 and
1997, respectively. Historically, the Company has not incurred credit losses.
F-30
<PAGE>
TRANSNATIONAL PARTNERS II, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS)
3. SALE OF LLC MEMBERSHIP UNITS
The Company was formed with a contribution of $20 made by the two senior
(voting) members for 60% and 40% of the membership units, respectively.
On April 2, 1998, the Company sold associate membership units to 16
individuals. Associate membership units are non-voting but are otherwise
entitled to all the benefits afforded to associated members as defined in the
agreement. The units were sold for $0.1 and entitled the member to 0.5% of the
equity of the Company.
4. SUBSEQUENT EVENT
In January 1999, the Company was acquired by Cayenta, Inc., a wholly owned
subsidiary of The Titan Corporation, for $9.8 million in a transaction that was
accounted for as a purchase. The purchase price consisted of $7.0 million cash,
a $2.8 million note due January 2000 (bearing interest at 7%), subject to
certain post-closing adjustments, and 2,345 shares of convertible preferred
stock of Cayenta, Inc.
F-31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cayenta, Inc.:
We have audited the accompanying balance sheets of JB Systems, Inc., d.b.a.
Mainsaver (the "Company") (a California corporation) as of December 31, 1997 and
1998, and the related statements of operations, stockholders' deficit and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of JB Systems, Inc. as of
December 31, 1997 and 1998 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
December 28, 1999
F-32
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 15 $ 24 --
Accounts receivable, net of allowance for doubtful
accounts of $0, $123 and $400, respectively............. 522 729 1,559
Prepaid expenses and other current assets................. 16 75 69
------- ------- --------
Total current assets.................................... 553 828 1,628
Property and equipment, net................................. 295 605 805
Capitalized software, net................................... 182 45 --
Other assets................................................ 23 102 64
------- ------- --------
Total assets............................................ $ 1,053 $ 1,580 $ 2,497
======= ======= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank overdraft............................................ $ 192 $ 191 452
Line of credit............................................ -- 1,192 1,512
Accounts payable.......................................... 227 560 953
Accrued expenses.......................................... 280 230 277
Deferred revenues......................................... 1,087 1,020 1,515
Current portion of capital lease obligations.............. 70 67 211
Current portion of note payable to stockholder............ 79 -- --
------- ------- --------
Total current liabilities............................... 1,935 3,260 4,920
------- ------- --------
Deferred revenues........................................... 388 326 222
Capital lease obligations................................... 93 148 263
Notes payable to stockholder, net........................... 423 1,400 1,653
------- ------- --------
Total liabilities....................................... 2,839 5,134 7,058
------- ------- --------
Stockholders' Deficit:
Common Stock:...............................................
Class A common stock, no par value; 2,250 shares
authorized, 1,272 and 1,174 shares issued and
outstanding, respectively............................... 216 5,800 6,197
Class B nonvoting common stock, no par value; 250 shares
authorized, no shares issued and outstanding............ -- -- --
Accumulated deficit......................................... (2,002) (9,354) (10,758)
------- ------- --------
Total stockholders' deficit............................. (1,786) (3,554) (4,561)
------- ------- --------
Total liabilities and stockholders' deficit................. $ 1,053 $ 1,580 $ 2,497
======= ======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
F-33
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................................... $5,183 $6,162 $ 7,218 $5,909 $ 6,267
Cost of revenues................................... 1,747 2,459 2,387 2,043 1,626
------ ------ ------- ------ -------
Gross profit..................................... 3,436 3,703 4,831 3,866 4,641
------ ------ ------- ------ -------
Operating expenses:
Selling, general and administrative.............. 2,714 2,932 4,892 3,139 3,799
Research and development......................... 823 778 946 594 1,774
Depreciation and amortization.................... 255 274 295 253 163
------ ------ ------- ------ -------
Total operating expenses....................... 3,792 3,984 6,133 3,986 5,736
------ ------ ------- ------ -------
Loss from operations............................... (356) (281) (1,302) (120) (1,095)
Interest expense................................... 68 75 165 93 309
------ ------ ------- ------ -------
Net loss......................................... $ (424) $ (356) $(1,467) $ (213) $(1,404)
====== ====== ======= ====== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-34
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
NUMBER ACCUMULATED
OF SHARES AMOUNT DEFICIT TOTAL
--------- -------- ----------- --------
<S> <C> <C> <C> <C>
Balances at December 31, 1995.......................... 477 $ 77 $ (1,208) $(1,131)
Net loss............................................. -- -- (424) (424)
Stock compensation charge............................ -- 100 -- 100
Exercise of stock options and warrants............... 809 33 -- 33
------ ------ -------- -------
Balances at December 31, 1996.......................... 1,286 210 (1,632) (1,422)
Net loss............................................. -- -- (356) (356)
Repurchase of common stock and stockholder
distributions...................................... (15) (1) (14) (15)
Stock compensation charge............................ -- 6 -- 6
Exercise of stock options and warrants............... 1 1 -- 1
Issuance of common stock............................. -- -- -- --
------ ------ -------- -------
Balances at December 31, 1997.......................... 1,272 216 (2,002) (1,786)
Net loss............................................. -- -- (1,467) (1,467)
Repurchase of common stock and stockholder
distributions...................................... (1,272) (216) (5,885) (6,101)
Issuance of common stock............................. 1,174 5,800 -- 5,800
------ ------ -------- -------
Balances at December 31, 1998.......................... 1,174 5,800 (9,354) (3,554)
------ ------ -------- -------
The following information is unaudited:
Net loss (unaudited)................................... -- -- (1,404) (1,404)
Issuance of warrants................................... -- 397 -- 397
Balances at September 30, 1999 (unaudited)............. 1,174 $6,197 $(10,758) $(4,561)
====== ====== ======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-35
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(424) $(356) $(1,467) $ (213) $(1,404)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 255 274 295 253 163
Stock compensation charge............................... 100 6 -- --
Amortization of debt discount........................... -- -- -- 50
Loss on disposal of assets.............................. -- -- 8 --
Changes in operating assets and liabilities:
Accounts receivable, net.............................. 144 145 (207) (427) (830)
Prepaid expenses and other current assets............. 25 18 (59) (100) 5
Accounts payable...................................... (32) (50) 333 (188) 393
Accrued expenses...................................... 85 (41) (50) 211 46
Deferred revenues..................................... (122) 249 (129) 341 392
Other assets.......................................... 16 -- (79) (82) 39
----- ----- ------- ------ -------
Net cash provided by (used in) operating
activities........................................ 47 245 (1,355) (205) (1,146)
----- ----- ------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (43) (67) (352) (45) (27)
----- ----- ------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net line of credit borrowings (repayments)................ 110 (200) 1,192 -- 320
Change in bank overdraft.................................. -- 192 -- (192) 261
Net (repayments) borrowings on note payable to
stockholder............................................. (3) 404 (502) (502) 600
Repayment of capital lease obligations.................... (41) (59) (73) (51) (32)
Net repayments on long term debt.......................... (89) (502) -- --
Proceeds from issuance of common stock.................... 33 1 5,800 5,800
Repurchase of Common Stock................................ -- (15) -- -- --
Distributions to stockholders............................. -- -- (4,701) (4,701) --
----- ----- ------- ------ -------
Net cash provided by (used in) financing
activities........................................ 10 (179) 1,716 354 1,149
----- ----- ------- ------ -------
Net increase (decrease) in cash............................. 14 (1) 9 104 (24)
Cash, beginning of year..................................... 2 16 15 15 24
----- ----- ------- ------ -------
Cash, end of year........................................... $ 16 $ 15 $ 24 119 --
===== ===== ======= ====== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest................................................ 58 59 139 69 235
Income taxes............................................ 1 -- -- -- 1
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Redemption of common stock in exchange for note payable to
stockholder in connection with the leveraged
recapitalization........................................ -- -- 1,400 1,400 --
Acquisition of equipment financed by capital lease
obligations............................................. 80 32 125 92 290
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-36
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. DESCRIPTION OF BUSINESS
JB Systems, Inc. (the "Company") is an enterprise asset management, or EAM,
company whose software enables customers to efficiently manage their equipment
maintenance processes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION The Company generates revenues from licensing the
rights to use its software products primarily to end users. The Company also
generates revenues from post-contract support (maintenance), consulting and
training services performed for customers who license its products.
Revenues from software license agreements are recognized currently, provided
that all of the following conditions are met: a noncancelable license agreement
has been signed, the software has been delivered, there are no material
uncertainties regarding customer acceptance, collection of the resulting
receivable is deemed probable and the risk of concession is deemed remote, and
no other significant vendor obligations exist. Revenues from maintenance
services are recognized ratably over the term of the maintenance period,
generally one year. Maintenance revenues which are bundled with license
agreements are unbundled using vendor specific objective evidence. Consulting
revenues are primarily related to implementation services performed on a time
and material basis under separate service agreements for the installation of the
Company's software products. Revenues from consulting and training services are
recognized as the respective services are performed.
DEFERRED REVENUES Deferred revenues consists principally of customer
deposits and payments for software maintenance agreements with customers whereby
the Company receives payment in advance of performing the service. Revenues from
the contracts is recognized ratably over the contract period.
SOFTWARE DEVELOPMENT COSTS In accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the costs of computer software to
be sold, leased or otherwise marketed", software development costs are
capitalized from the time the product's technological feasibility has been
established until such time as the product is released for sale to the general
public. Amortization of capitalized software is generally recorded on a
straight-line basis over four years. No amounts were capitalized in the years
ended December 31, 1996, 1997, 1998 or in the nine month period ended
September 30, 1999, respectively. Amortization of capitalized software amounted
to $137, $137, $137, and $45 in such periods.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost.
Depreciation and amortization of property and equipment are provided for using
the straight-line method over the estimated useful lives of the assets of five
years. Leasehold improvements are amortized on a straight-line basis over the
shorter of the lease term or estimated useful life of the leasehold improvement.
INCOME TAXES
Deferred income taxes are provided for temporary differences between the
financial statement and income tax bases of the Company's assets and
liabilities, based on statutory tax rates. A valuation
F-37
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
allowance is provided when it is more likely than not that some portion or all
of the deferred income tax assets will not be realized.
CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to credit risk consist
primarily of accounts receivable. The Company performs ongoing credit
evaluations of its customers and maintains an allowance for potential credit
losses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. If the sum of the expected future cash flows is less than the
carrying amount of the asset, the Company recognizes an impairment loss.
INTERIM RESULTS (UNAUDITED). The accompanying balance sheet as of
September 30, 1999 and the related statements of operations and of cash flows
for the nine months ended September 30, 1998 and 1999, and the statement of
stockholders' deficit for the nine months ended September 30, 1999 are
unaudited. In the opinion of management, these statements have been prepared on
the same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of results of the interim periods. The data disclosed in these notes
to the financial statements at such dates and for such periods are also
unaudited.
3. RECAPITALIZATION
On August 11, 1998, the Company completed a leveraged buyout
recapitalization (the "Recapitalization") pursuant to a Plan of Merger (the
"Merger") among JBS Acquisition, Inc. ("Newco") as a purchaser, and both the
Company and the founder and majority stockholder of the Company (the "Founder")
as sellers. Under the Recapitalization, Newco was merged with and into the
Company, and the separate corporate existence of Newco ceased, resulting in the
Company as the surviving corporation. Each share of common stock of Newco issued
and outstanding immediately prior to the Merger was converted into one share of
common stock of the Company.
Under the Recapitalization, each share of the Company's stock issued and
outstanding immediately prior to the merger, other than the Founder's 25%
retained interest, was canceled and extinguished and converted automatically
into the right to receive Merger consideration as follows: (a) the Founder
F-38
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
3. RECAPITALIZATION (CONTINUED)
received a note in the principal amount of $2.0 million and a cash payment of
$1.9 million and (b) the minority stockholders of the Company who owned common
stock prior to the Merger received a cash payment of $2.3 million. The
Recapitalization was financed through cash contributions of $5.0 million by
stockholders of Newco in exchange for Newco common stock. These transactions are
being accounted for as a recapitalization under which the existing basis of
accounting will be continued, and assets and liabilities of the continuing
business are being carried forward.
On April 30, 1999, as a result of certain disputes, the Company, its
stockholders and the Founder agreed to reduce the note payable to the Founder
from $2.0 million $1.4 million, which has been recorded as a $600 reduction in
note payable to stockholder and repurchase of common stock and stockholder
distributions in the accompanying financial statements.
On August 11, 1998, one of the stockholders of Newco entered into a Purchase
Option Agreement with the Company and each of the other stockholders of the
Company, whereby the stockholder is entitled to buy out the other stockholders
of the Company. The purchase price of the option paid to the stockholders was
$757 in aggregate, which the stockholders used to acquire additional shares of
stock from the Company. The purchase option expired upon the acquisition of the
Company by Cayenta, Inc. (See Note 13.)
Sources and uses of cash in connection with the Recapitalization are
summarized below:
<TABLE>
<S> <C>
Sources of cash:
Newco common stock issued................................. $5,043
Purchase option agreement................................. 757
------
$5,800
======
Uses of cash:
Payment to founder........................................ $1,924
Payment to minority stockholders.......................... 2,326
Repayment of debt and accrued interest.................... 772
Transaction costs......................................... 421
Remaining cash............................................ 357
------
$5,800
======
</TABLE>
F-39
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Computer equipment.......................................... $ 518 $ 721
Leasehold improvements...................................... -- 21
Furniture and fixtures...................................... 140 277
----- ------
Total cost.................................................. 658 1,019
Accumulated depreciation.................................... (363) (414)
----- ------
Net property and equipment.................................. $ 295 $ 605
===== ======
</TABLE>
5. LINE OF CREDIT
The Company has a $2.0 million line of credit with a bank. Advances against
the line of credit bear interest at the bank's reference rate plus 0.75% (8.5 %
at December 31, 1998). Interest is payable monthly. The line of credit matures
April 2000 and is collateralized by substantially all of the assets of the
Company. The line of credit contained certain restrictions and financial
covenants. The line of credit was extinguished in connection with the Company
being acquired by Titan.
6. NOTES PAYABLE TO STOCKHOLDERS
At December 31, 1996, the Company had a note payable to an
officer/stockholder in the amount of $45 with interest payable quarterly at 8%
and principal due on demand. Additionally, the Company had a note payable to an
officer/stockholder of $457, due in monthly installments of $11 including
interest at 11.25%, maturing September 2002. Both of these notes were
extinguished in connection with the recapitalization (see Note 3).
In connection with the Recapitalization, the Company issued a note payable
to the Founder in the amount of $2.0 million, which was subsequently reduced to
$1.4 million (see Note 3), payable in full on September 1, 2001, plus interest
at a rate of ten percent per annum. The principal sum of this note may be
prepaid in whole or in part without penalty at any time by or on behalf of the
Company. Interest is payable monthly. This note was paid down to $500 in
connection with Cayenta's acquisition of the Company (see Note 13).
7. INCOME TAXES
As of December 31, 1998, the Company had net operating loss carryforwards of
approximately $2.0 million and $800 for Federal and California reporting
purposes, respectively. The differences between the federal and the California
losses are primarily attributable to the 50% limitation on state carryforwards.
The Federal loss carryforwards will begin expiring in 2018, unless previously
utilized, while the California losses will begin expiring in 2003. Utilization
of the Company's net operating loss carryforwards may be limited as a result of
certain changes in the Company's ownership. The realization of the deferred tax
asset is dependant upon the Company generating sufficient taxable income prior
to expiration of its operating loss and credit carryforwards. Due to the
uncertainty
F-40
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
7. INCOME TAXES (CONTINUED)
regarding realization of the deferred tax asset, management has provided a full
valuation allowance against the net deferred tax asset.
8. COMMITMENTS
The Company leases its facilities under operating leases that require
minimum monthly payments of $24, as well as payment of all property taxes,
insurance and other costs. In addition, the Company leases certain office
equipment under operating leases through September 2002.
Property under capital leases at December 31, 1998 consists primarily of
computer and office equipment. Total cost of property under capital leases was
$412 at December 31, 1998. Accumulated depreciation related to property under
capital leases was $218 at December 31, 1998.
Future minimum rentals under capital and operating leases as of
December 31, 1998 are approximately as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
-------- ---------
<S> <C> <C>
1999.................................................... $ 87 $ 307
2000.................................................... 68 179
2001.................................................... 51 6
2002.................................................... 31 --
2003.................................................... 23 --
-------- --------
Total future minimum lease payments..................... 260 $ 492
========
Less amount representing interest....................... (45)
--------
Present value of minimum lease payments................. 215
Current portion of capital lease obligations............ (67)
--------
Long-term capital lease obligations..................... $ 148
========
</TABLE>
9. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) plan. Under the plan, qualified employees may
elect to defer up to 15% of their salaries, subject to the Internal Revenue Code
limits. The Company contributes a matching 30% of employee contributions for all
employees with annual incomes less than $80. Employees with annual incomes of
$80 or more do not receive matching contributions from the Company. Company
contributions to the Plan were $13, $14, $36, $32, and $46 during the years
ended December 31, 1996, 1997, 1998 and for the nine months ended September 30,
1998 and 1999, respectively.
10. STOCK OPTIONS
The Company had an incentive stock option plan which was terminated in 1998,
and all outstanding options were canceled. The Company adopted a new stock
option plan (the "Plan") in 1998 to enable key employees and non-employees to
acquire shares of the Company's common stock.
F-41
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
10. STOCK OPTIONS (CONTINUED)
Up to 141 options may be issued under the Plan at an exercise price of not less
than 100% of the fair market value at the date of grant. The stock options vest
ratably over a four-year period from the date of grant. The stock options may be
granted with expiration dates not to exceed ten years. The Company granted 118
and 14 stock options during the year ended 1998 and the nine month period ended
September 30, 1999, respectively, with an exercise price of $6.31 per share. No
options are exercisable at December 31, 1998.
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," defines and encourages the use of the fair-value
method of accounting for employee stock-based compensation, but allows the
continued use of the intrinsic value based method of accounting prescribed in
Accounting Principles Board Opinion No. 25 and related interpretations. As
permitted under SFAS No. 123, the Company continues to use the intrinsic method
of accounting for stock-based compensation. Had the compensation cost for the
Plan been determined using the fair-value method described in SFAS No. 123, the
Company's net loss would not have been substantially different from the reported
net loss in 1997 and 1998.
11. RELATED PARTY TRANSACTIONS
The Company has a management agreement with one of its stockholders to
provide management and consulting services related to the operations of the
Company. The monthly service fee in connection with the agreement is $8 plus
out-of-pocket expenses, and will continue until the occurrence of certain events
as defined in the agreement. Additionally, the Company paid a $50 transaction
fee to the stockholder in connection with the Recapitalization described in
Note 3.
Additionally, the Company entered into a consulting agreement with the
Founder to provide services commencing February 1999 at $17 per month, plus
benefits and out-of-pocket expenses, for one year.
12. LEGAL PROCEEDINGS
On September 14, 1998, a former distributor of the Company filed an action
alleging the Company wrongfully terminated its distribution agreement and is
claiming damages of not less than $650. Settlement negotiations are in process.
Management believes that the claim is without merit. Additionally, the Company
has received indemnification from loss on the claim from the Founder.
13. EVENTS SUBSEQUENT TO DECEMBER 31, 1998
On August 18, 1999, the Company entered into a Convertible Subordinated Loan
Agreement whereby a total of $600 was loaned to the Company by its stockholders
in amounts proportionate to their respective ownership percentages. The loans
are payable in $100 monthly installments commencing March 15, 2000, with a final
payment due on August 15, 2000. Interest is payable monthly commencing
September 15, 1999 at eight %. The loan is subordinated to the credit line the
Company has with a bank (see Note 5).
The stockholders may convert any unpaid balance on August 15, 2000 into a
certain number of Class A common stock determined by dividing the unpaid balance
by the conversion price of $3.71.
F-42
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
13. EVENTS SUBSEQUENT TO DECEMBER 31, 1998 (CONTINUED)
The agreement also provides that, upon repayment of the loans, the Company will
issue the stockholders 59 warrants of the Company's Class A common stock at an
exercise price of $3.71 per share. The warrants expire after ten years. The
Company has recorded debt discount related to these warrants of $397 as of
August 1999 and has recorded related amortization of $50 in the nine month
period ended September 30, 1999.
In November 1999, the Company was acquired by Cayenta, Inc. for
$11.7 million cash of which approximately $8.2 million was paid at closing, $500
due in February 2000 and $3.0 million due May 2001 after satisfaction of
possible working capital adjustments or indemnification obligations. In
addition, Cayenta paid approximately $3.4 million to reduce the outstanding
indebtedness of the Company. The Company entered into agreements with its option
and warrant holders pursuant to which all options and warrants of the Company
were terminated concurrently with the closing of the acquisition.
F-43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Assist Cornerstone Technologies, Inc.
We have audited the accompanying balance sheets of Assist Cornerstone
Technologies, Inc. as of December 31, 1998 and 1997, and the related statements
of operations, shareholders' equity (deficit), and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Assist Cornerstone
Technologies, Inc. at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
[SIGNATURE]
May 28, 1999, except for
Note 9, as to which the date
is September 22, 1999.
F-44
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------
1999 1998 1997
-------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 412,692 $ 741,701 $ 764,488
Accounts receivable, less allowance of $207,809
(unaudited) at September 30, 1999, $160,392 in 1998 and
$143,338 in 1997........................................ 2,626,812 2,813,220 2,573,775
Prepaid expenses.......................................... 171,289 77,328 27,220
Deferred income taxes..................................... 128,000 128,000 --
Other receivables......................................... 81,184 107,277 75,719
----------- ---------- ----------
Total current assets........................................ 3,419,977 3,867,526 3,441,202
Property and equipment:
Office furniture and equipment............................ 316,247 312,447 315,198
Leasehold improvements.................................... 45,122 45,122 45,123
Computer equipment........................................ 499,209 369,647 350,044
----------- ---------- ----------
860,578 727,216 710,365
Less accumulated depreciation............................. (567,767) (445,556) (338,222)
----------- ---------- ----------
Net property and equipment.................................. 292,811 281,660 372,143
Loan fees, net of accumulated amortization of $80,296 in
1998 and $26,346 in 1997.................................. 260,159 298,853 334,803
Intangible asset, net of accumulated amortization of
$225,000 in 1998 and $75,000 in 1997...................... 0 75,000 225,000
----------- ---------- ----------
$ 3,972,947 $4,523,039 $4,373,148
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 1,218,837 $ 928,770 $ 860,048
Accrued liabilities....................................... 338,129 397,353 282,795
Deferred revenue.......................................... 507,547 989,763 647,762
Taxes payable............................................. -- -- 132,821
Deferred income taxes..................................... 107,000 -- 159,000
Current portion of capital leases......................... 80,461 74,490 67,212
Current portion of notes payable to related parties....... 107,010 160,000 --
----------- ---------- ----------
Total current liabilities................................... 2,358,984 2,550,376 2,149,638
Long-term portion of capital leases......................... 79,908 142,243 218,836
Notes payable to related parties............................ 2,326,830 1,845,617 1,892,333
Deferred income taxes....................................... -- 107,000 --
Other long-term liabilities................................. 117,457 151,558 --
Commitments and contingencies
Redeemable preferred stock:
Preferred stock, issuable in series, $.001 par value,
12,000 shares authorized; $100 per share liquidation
value:
Series A, redeemable preferred stock, 7,000 shares
authorized; 6,200 shares issued and outstanding in
1998 and 1997 (redemption value of $685,100).......... 197,963 197,963 65,992
Series B, redeemable preferred stock, 5,000 shares
authorized; 5,000 shares issued and outstanding in
1998 and 1997 (redemption value of $500,000).......... 107,148 107,148 35,719
Shareholders' equity (deficit):
Common stock, $.001 par value, 20,000,000 shares
authorized; 4,654,145 (unaudited) shares issued as of
September 30, 1999, 4,642,787 shares issued in 1998 and
4,662,542 shares in 1997................................ 4,654 4,643 4,663
Additional paid-in-capital................................ 9,471 -- 199,642
Accumulated deficit....................................... (1,229,468) (583,509) (193,675)
----------- ---------- ----------
Total shareholders' (deficit) equity........................ (1,215,343) (578,866) 10,630
----------- ---------- ----------
$ 3,972,947 $4,523,039 $4,373,148
=========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
F-45
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31
------------------------ ---------------------------------------
1999 1998 1998 1997 1996
----------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses..................... $ 1,831,172 $1,737,438 $ 2,392,583 $ 2,105,301 $ 979,141
Service and support.......... 4,585,366 3,198,204 4,604,541 3,399,074 3,386,197
Hardware..................... 3,168,424 3,133,083 4,525,538 5,418,202 2,968,239
----------- ---------- ----------- ----------- -----------
Total revenues................. 9,584,962 8,068,725 11,522,662 10,922,577 7,333,577
Operating expenses:
Cost of license revenue...... 355,272 346,338 498,031 527,082 179,174
Cost of service and support
revenue.................... 2,475,991 2,035,608 2,734,878 2,498,159 2,466,812
Cost of hardware revenue..... 2,764,945 2,750,342 3,684,431 4,519,858 2,254,561
General and administrative... 2,749,837 2,347,870 2,499,123 1,921,569 1,581,882
Sales and marketing.......... 1,298,699 824,911 1,978,027 1,588,379 1,063,893
Research and development..... 440,578 272,866 396,965 139,144 136,280
----------- ---------- ----------- ----------- -----------
10,085,322 8,577,935 11,791,455 11,194,191 7,682,602
----------- ---------- ----------- ----------- -----------
Loss from operations........... (500,360) (509,210) (268,793) (271,614) (349,025)
Other income (expense):
Interest income.............. 88,095 32,819 29,690 35,052 18,418
Interest expense............. (233,694) (234,837) (318,716) (200,939) (21,672)
Cumulative effect of change
in taxable status of
entity..................... -- -- -- (236,000) --
----------- ---------- ----------- ----------- -----------
Loss before income taxes....... (645,959) (711,228) (557,819) (673,501) (352,279)
Income tax benefit
(expense).................. -- 207,725 179,794 (76,000) --
----------- ---------- ----------- ----------- -----------
Net loss....................... (645,959) (503,503) (378,025) (749,501) (352,279)
Accretion of:
Series A preferred stock..... -- (98,978) (131,971) (65,986) --
Series B preferred stock..... -- (53,572) (71,429) (35,714) --
----------- ---------- ----------- ----------- -----------
Net loss applicable to common
shareholders................. $ (645,959) $ (656,053) $ (581,425) $ (851,201) $ (352,279)
=========== ========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-46
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996........ 8,500,000 $ 2,000 $ -- $ 1,500,421 $ 1,502,421
Net loss........................ -- -- -- (352,279) (352,279)
Distributions to Shareholders... -- -- -- (30,000) (30,000)
----------- ------- ----------- ----------- -----------
Balances at December 31, 1996..... 8,500,000 2,000 -- 1,118,142 1,120,142
Issuance of common stock........ 97,112 97 43,403 -- 43,500
Issuance of common stock upon
exercise of preemptive
right......................... 315,430 315 (215) -- 100
Adjustment to par value for
stock split................... -- 6,501 (6,501) -- --
Issuance of Series A preferred
stock......................... -- -- 619,994 -- 619,994
Issuance of Series B preferred
stock......................... -- -- 499,995 -- 499,995
Issuance of warrant to purchase
2,166,377 common shares....... -- -- 198,100 -- 198,100
Shares acquired in shareholder
buyout........................ (4,250,000) (4,250) (1,053,434) (562,316) (1,620,000)
Accretion of Series A preferred
stock......................... -- -- (65,986) -- (65,986)
Accretion of Series B preferred
stock......................... -- -- (35,714) -- (35,714)
Net loss........................ -- -- -- (749,501) (749,501)
----------- ------- ----------- ----------- -----------
Balances at December 31, 1997..... 4,662,542 4,663 199,642 (193,675) 10,630
Issuance of common stock for
services...................... 43,331 43 13,886 -- 13,929
Issuance of warrant to purchase
100,000 common shares......... 18,000 -- 18,000
Shares acquired in shareholder
buyout........................ (63,086) (63) (39,937) -- (40,000)
Accretion of Series A preferred
stock......................... -- -- (131,971) -- (131,971)
Accretion of Series B preferred
stock......................... -- -- (59,620) (11,809) (71,429)
Net loss........................ -- -- -- (378,025) (378,025)
----------- ------- ----------- ----------- -----------
Balances at December 31, 1998..... 4,642,787 $ 4,643 $ -- $ (583,509) $ (578,866)
=========== ======= =========== =========== ===========
The following information is
unaudited:
Issuance of common stock........ 11,358 11 9,471 -- 9,482
Net loss........................ (645,959) (645,959)
----------- ------- ----------- ----------- -----------
Balances at September 30, 1999.... 4,654,145 $ 4,654 $ 9,471 $(1,229,468) $(1,215,343)
=========== ======= =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-47
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss....................................... $(645,959) $(503,503) $(378,025) $(749,501) $(352,279)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization.............. 122,211 227,844 309,121 217,664 98,707
Amortization of loan fees.................. -- -- 53,950 26,346 --
Amortization of rental fees................ -- -- 3,789 -- --
Accretion on note payable to related party
for warrant.............................. -- -- 28,284 15,333 --
Provision for bad debts.................... -- -- 219,153 9,023 --
Common stock issued for services........... -- -- 13,929 -- --
Deferred income taxes...................... -- -- (180,000) 159,000 --
Change in operating assets and liabilities:
Accounts receivable...................... 186,407 341,391 (458,598) (300,669) (305,517)
Prepaid expenses and other receivables... (67,867) (80,250) (81,666) (43,339) 109,596
Accounts payable......................... 290,067 288,423 68,722 286,404 397,603
Accrued liabilities and other............ 47,785 81,503 106,980 19,779 100,571
Deferred revenue......................... (482,216) (102,438) 342,001 349,047 58,745
Income taxes payable..................... -- (349,158) (132,821) 132,821 --
--------- --------- --------- --------- ---------
Net cash (used in) provided by operating
activities................................... (549,572) (96,188) (85,181) 121,908 107,426
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment............ (19,668) (31,537) (68,638) (62,679) (106,996)
Proceeds from sale of property and equipment... -- -- -- -- 5,054
Addition of intangible asset................... -- -- -- (300,000) --
--------- --------- --------- --------- ---------
Net cash used in investing activities.......... (19,668) (31,537) (68,638) (362,679) (101,942)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes to related parties......... 460,000 160,000 160,000 -- --
Principal payments on notes to related
parties...................................... -- -- (75,000) (25,000) --
Net proceeds from issuance of debt............. -- -- -- 1,638,851 --
Proceeds from borrowings under line of
credit....................................... -- -- -- -- 200,000
Principal payments on line of credit........... -- -- -- (200,000) (160,000)
Net proceeds from lease buyout................. -- -- 155,347 -- --
Principal payments on capital lease
obligations.................................. (229,251) (99,919) (69,315) (61,182) (35,462)
Net proceeds from issuance of common stock..... 9,482 -- -- 43,600 --
Proceeds from issuance of preferred stock...... -- -- -- 500,000 --
Issuance of warrant............................ -- -- -- 100 --
Shareholder buyout............................. -- (35,000) (40,000) (900,000) --
Distributions to shareholders.................. -- -- -- -- (30,000)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities................................... 240,231 25,081 131,032 996,369 (25,462)
--------- --------- --------- --------- ---------
Net (decrease) increase in cash................ (329,009) (102,644) (22,787) 755,598 (19,978)
Cash at beginning of year...................... 741,701 764,488 764,488 8,890 28,868
--------- --------- --------- --------- ---------
Cash at end of period.......................... $ 412,692 $ 661,844 $ 741,701 $ 764,488 $ 8,890
========= ========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
F-48
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Assist Cornerstone Technologies, Inc., (the Company) is a Utah Corporation
formed in December 1987. The Company develops financial accounting software
designed to run on the IBM AS/400. The Company has a working relationship with
IBM, which includes the remarketing of IBM hardware. The Company generates
revenue from four primary sources: license fees, consulting services, software
support agreements, and hardware resales.
The Company employs a direct sales force with salespersons located in
California, Florida, Illinois, and Utah.
On June 11, 1997 the Company entered into a series of transactions, the net
effect of which was a recapitalization of the Company. The Company received
$2,500,100 from an outside group of investors. Of this total, $2,000,000 was
received in exchange for a promissory note (Note 4) bearing interest at twelve
percent and due in seven years; $500,000 was received in exchange for 5,000
shares of Series B Non-Cumulative Non-Voting Redeemable Preferred Stock; and,
$100 was received for 2,166,377 warrants convertible into common stock at zero
cost.
The Company used a portion of the proceeds to repurchase 4,250,000 shares of
common stock from a selling shareholder and also paid a portion of the proceeds
as consideration for a non-compete agreement. The selling shareholder received
additional consideration in the form of a $100,000 note payable and 6,200 shares
of Series A Cumulative Convertible Redeemable Exchangeable Non-Voting Preferred
Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements and the accompanying
notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash and accounts receivable. Risks
associated with cash are mitigated by banking with creditworthy institutions.
The Company sells its products to distributors and end users. To reduce credit
risk, management performs periodic credit evaluations of its customers'
financial condition and requires deposits from new customers. The Company
maintains reserves for potential credit losses, but historically has not
experienced any significant losses related to end users or distributors.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation and amortization are determined using the straight-line method over
the estimated useful lives of the assets ranging from three to ten years. Assets
acquired pursuant to capital lease obligations are amortized over the assets'
estimated useful lives. Maintenance and repairs are expensed as incurred.
F-49
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist of a non-compete agreement that is stated at cost.
Amortization is calculated on the straight-line method, a rate based on an
estimated useful life of two years.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF,
the Company reviews long-lived and intangible assets for impairment whenever
events or circumstances indicate the carrying value of an asset may not be
recoverable.
DEFERRED REVENUE
Service revenue is deferred and recognized ratably over the term of the
service contracts, on a straight-line basis. Costs for work performed under the
service contracts are charged to operations as incurred.
INCOME TAXES
The Company was an S Corporation from inception through June 11, 1997 and
therefore did not compute a federal or state income tax provision under current
tax laws. Shareholders were taxed on their share of the Company's income while
the Company was an S Corporation. From June 12, 1997 forward the Company will
operate as a C Corporation. The 1997 tax provision on the financial statements
reflects the cumulative effect of changing from an S corporation and also
provides for the period the Company was a C Corporation.
The Company uses an asset and liability approach to account for income taxes
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the financial
statement carrying amount and the tax bases of assets and liabilities and net
operating loss and tax credit carry forwards.
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25) and related
Interpretations in accounting for its employee stock options rather than
adopting the alternative fair value accounting provided for under
FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS 123).
Under APB 25, because the exercise price of the Company's stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
REVENUE RECOGNITION
Revenue from license fees is recognized after a signed contract has been
secured and the software has been delivered. Installation of the software and
employee training are the responsibilities of each customer.
Support revenue is recognized ratably over the life of the support contract,
which is generally one year. Service revenue from consulting and custom
programming is recognized as the services are
F-50
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
performed. The associated costs are included in the cost of service and support
revenue. Hardware revenue is recognized on the date IBM ships the hardware to
the customer with the associated costs included in cost of hardware revenue.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as incurred.
Statement of Financial Accounting Standards ("SFAS") No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility.
Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Costs incurred by
the Company between completion of the working model and the point at which the
product is ready for general release have been insignificant.
ADVERTISING COSTS
Advertising costs are expensed during the year in which they are incurred.
Advertising costs were $51,234, $14,736, and $33,184 respectively for years
ended December 31, 1998, 1997 and 1996.
Advertising costs for the unaudited periods ended September 30, 1999 and
1998 were $246,971 and $43,167, respectively.
COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME,
which is effective for fiscal years beginning after December 15, 1997. SFAS
No. 130 requires that all items that are recognized under accounting standards
as components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. The items
of other comprehensive income that are typically required to be displayed are
foreign currency items, minimum pension liability adjustments, and unrealized
gains and losses on certain investments in debt and equity securities. There
were no items of other comprehensive income in 1998 or prior.
F-51
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information were as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------------
1999 1998 1997 1996
------------- -------- -------- --------
(UNAUDITED)
-------------
<S> <C> <C> <C> <C>
Cash paid for:
Interest........................ $190,881 $288,075 $185,606 $ 21,672
Income taxes.................... -- -- 24,000 --
SCHEDULE OF NON CASH INVESTING AND
FINANCING ACTIVITIES
Issuance of warrant(s) in
connection with $160,000 note
in 1998 and $2,000,000 note in
1997.......................... -- 18,000 198,000 --
Issuance of note in shareholder
buyout........................ -- -- 100,000 --
Property and equipment acquired
under capital lease........... -- -- -- 344,781
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Company entered into a $345,000, sixty month lease agreement in
September 1996. The agreement was used to acquire furniture, a phone system, and
computer equipment for the new leased facilities and is collateralized by this
equipment. The ownership of the equipment passes to the Company at the end of
the lease period. The lease carries an annual interest rate of 10.4%. Annual
lease payments total $93,746.
The Company entered into a sixty month lease agreement in October 1995. The
Company acquired leasehold improvements valued at $20,255, and the lease is
collateralized by these improvements.
The Company entered into an operating lease with a related party for its new
headquarters in May 1996. Beginning November 1, 1998, the Company agreed to
modify the lease. In exchange for consideration received of $155,347, the
Company agreed to a monthly rent increase of $4,205 through the remaining term
of the lease. The consideration received has been capitalized and is being
offset against future rent expense on a straight-line basis over the remaining
initial lease term. The lease runs through April 30, 2004, and contains an
option to renew the lease for two, successive five year periods. The Company may
exercise the option at any time. The lease requires future annual payments of
$201,856. The Company entered into two other facilities leases in 1997. One
lease is for a sales office in Illinois, and the other is for a sales office in
Southern California. Both leases are on a month to month basis. Rent expense was
approximately $161,000, $157,000 and $127,148 for 1998, 1997 and 1996,
respectively. Rent expense was approximately $132,000 and $120,000 for the
unaudited nine months ended September 30, 1999 and 1998, respectively.
F-52
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The following summarizes the future minimum lease payments required under
leases with initial terms greater than one year as of December 31, 1998:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31 CAPITAL LEASES LEASE
- ----------------------- -------------- ----------
<S> <C> <C>
1999........................................................ $ 93,746 $ 222,899
2000........................................................ 92,483 207,993
2001........................................................ 66,521 201,856
2002........................................................ -- 201,856
2003........................................................ -- 201,856
Thereafter.................................................. -- 67,285
-------- ----------
Total....................................................... 252,750 1,103,745
Amount representing interest................................ (36,017)
--------
Present value of minimum payments........................... 216,733
Current portion of capital leases........................... (74,490)
--------
Long-term portion of capital leases......................... $142,243
========
</TABLE>
Furniture and equipment includes assets recorded under capital leases of
approximately $243,632 at December 31, 1998 and 1997. Accumulated depreciation
on assets recorded under capital leases was $192,914 and $115,749 at
December 31, 1998 and 1997. Furniture and equipment assets under capital leases
totaled $243,632 (unaudited) as of September 30, 1999. Accumulated depreciation
on assets recorded under capital leases was $266,993 (unaudited) as of
September 30, 1999.
The Company is involved in various legal proceedings which arise from time
to time in connection with the conduct of the Company's business. In the opinion
of management, such proceedings will not have a material adverse effect on the
Company's financial condition, results of operations, or cash flows.
4. DEBT FINANCING
On June 11, 1997 the Company issued a $2,000,000 Note to an outside group of
investors. The Note is due in seven years and carries an interest rate of twelve
percent. Interest is due monthly with principal payments due quarterly over the
final three years of the Note. The Note is secured by all tangible and
intangible assets of the Company. The Company has various financial covenants
that it must conform to under the terms of the Note.
At December 31, 1998 the Company was in violation of certain loan covenants
under the debt agreement (see Note 9).
On February 13, 1998 the Company issued a $160,000 secured convertible
promissory note to an outside group of investors with a warrant to purchase up
to 100,000 common shares at $.45 per share. The note is convertible at any time
into 1,600 Series B preferred shares, subject to certain adjustments. In
addition, the Company will issue a warrant to purchase 257,341 common shares at
$.45 per share, if the outside group of investors converts the note to Series B
preferred shares. The note is due in one year and carries an interest rate of
ten percent. Interest is due monthly. Interest payments on the notes totaled
$172,111 (unaudited) for the nine months ended September 30, 1999.
Interest payments on the Notes totaled $252,000 and $134,667 for the years
ended December 31, 1998 and 1997, respectively.
F-53
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. REDEEMABLE PREFERRED STOCK
On June 9, 1997 the Company authorized a total of 12,000 shares of
Redeemable Preferred Stock, with a par value per share of $0.001 and a
liquidation value per share of $100. The Redeemable Preferred Stock is issuable
in series consisting of 7,000 shares of Series A 7% Cumulative Convertible
Redeemable Exchangeable Non-Voting preferred stock (Series A Preferred) and
5,000 shares of Series B 8% Non-Cumulative Non-Voting Redeemable preferred stock
(Series B Preferred).
In exchange for $100 and in connection with the recapitalization, the
Company issued a warrant convertible into 2,166,377 shares of common stock at
zero cost. An additional $500,000 was received in exchange for 5,000 shares of
Series B Preferred. The holder of the Series B Preferred and warrant is entitled
to designate two of the five directors to the Company's Board of Directors. The
Series B Preferred is mandatorily redeemable upon maturity, prepayment or
mandatory prepayment of the Note (See Note 4). Accretion totaling $71,429 and
$35,714 have been recorded in the accompanying balance sheets for the years
ended December 31, 1998 and 1997, respectively, as an increase to the value of
the Series B Preferred stock to reflect the redemption provision.
In June 1997, the Company used a portion of the proceeds from the
recapitalization to repurchase 4,250,000 shares of common stock from a selling
shareholder and also paid a portion of the proceeds as consideration for a
non-compete agreement. The selling shareholder received additional consideration
in the form of a $100,000 note payable (none of which remains outstanding at
December 31, 1998) issued by the Company and 6,200 shares of Series A Preferred
stock. The Series A Preferred stock is convertible on a share-for-share basis
into common stock at $1.50 per share. The Series A Preferred stock is
mandatorily redeemable if the Note is still outstanding at the end of the 85(th)
month from the original issue date. The preferred shares, however, cannot be
redeemed if the Note is in default or redemption of the preferred shares would
cause the Note to be in default or cause a reduction in the Company's capital to
less than the amount of capital required by law. At December 31, 1998 and 1997,
the Company accreted $131,971 and $65,986, respectively, relating to the
Series A preferred shares.
6. SHAREHOLDERS' EQUITY
In March 1997, the Company authorized a 425 for one forward stock split. All
share amounts have been retroactively adjusted to reflect the forward stock
split.
At December 31, 1998, the Company had reserved 5,940,319 shares of common
stock for future issuance, including 413,333 shares reserved for the conversion
of Series A Preferred, 2,719,275 shares for exercise of warrants, and 2,807,711
shares for the exercise of stock options.
On June 9, 1997 the Company changed the par value per share of the Common
Stock from $0.0002 to $0.001 and increased the number of authorized shares of
the Company's Common Stock from 10,000,000 shares to 20,000,000 shares
In 1997, a former shareholder exercised his preemptive right to purchase
5 percent of the Company's common stock for $100, which resulted from the sale
of ten percent or more of the then outstanding stock.
STOCK OPTION PLAN
On March 1, 1996, the Board of Directors adopted an employee stock option
plan which authorized 1,000,000 common shares for issuance under the provisions
of the plan. The stock option plan was subsequently amended to increase the
authorized number of common shares issuable to 2,807,711. In 1996 the Company
granted 740,500 options to employees and 3,000 options to a
F-54
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
consultant. During 1997, 410,830 options were granted to Company personnel and
31,602 shares were issued to an outside consultant. The options issued to
Company personnel vest three or four years from the date of grant and expire no
more than ten years from the date of grant.
A summary of stock option activity, and related information for the years
ended December 31, 1996, 1997 and 1998 follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK
OPTIONS
SHARES --------------------- WEIGHTED-
AVAILABLE NUMBER OF PRICE PER AVERAGE
FOR GRANT SHARES SHARE EXERCISE PRICE
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
March 1, 1996.................................... 1,000,000 -- -- --
Options granted................................ (743,500) 743,500 $ .60 $.60
Options canceled............................... 17,000 (17,000) $ .60 $.60
--------- ---------
Balance at December 31, 1996..................... 273,500 726,500 $ .60 $.60
Additional authorization....................... 1,807,711 -- -- --
Options granted................................ (442,432) 442,432 $.45-.60 $.58
Options canceled............................... 249,477 (249,477) $ .60 $.60
--------- ---------
Balance at December 31, 1997..................... 1,888,256 919,455 $.45-.60 $.60
Options granted................................ (207,900) 207,900 $ .45 $.45
--------- ---------
Balance at December 31, 1998..................... 1,680,356 1,127,355 $.45-.60 $.51
========= =========
Exercisable at December 31, 1998................. 228,139 $ .45 $.45
=========
</TABLE>
The weighted average fair value of options granted for the years ended
December 31, 1998, 1997 and 1996 was $.18, $.18 and $.15, respectively. The
weighted average remaining contractual life of the options outstanding and
options exercisable at December 31, 1998 was 8.5 years.
Pro forma information regarding net income (loss) is required by SFAS 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method. The fair value of these options was
estimated at the date of grant using a Minimum Value option pricing model with
the following weighted average assumptions for 1998, 1997 and 1996,
respectively: risk-free interest rate of 5.0; dividend yield of 0%; and a
weighted-average expected life of the option of 10 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. Because the effect of
SFAS No. 123 is prospective, the initial impact on pro forma net loss may not be
representative of compensation expense in future years.
For the years ended December 31, 1998, 1997 and 1996, pro forma net loss was
approximately $343,000, $805,000 and $374,074, respectively.
F-55
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
WARRANTS
In connection with the issuance of a $2,000,000 Note to a related party, the
Company issued a warrant to purchase 2,166,377 shares of the Company's common
stock at zero cost. Each warrant is exercisable for a period of ten years from
the date of the closing of the Note. In addition, at closing, the Company issued
a warrant to acquire an additional 373,576 for $.10 per share to one individual
In June 1997 the Company also issued a warrant for services provided to
purchase 79,322 shares of common stock at $.10 per share.
In February 1998, the Company issued a warrant to purchase 100,000 common
shares at $.45 per share in connection with the issuance of a secured promissory
note for $160,000 to a related party. In conjunction with the issuance of the
warrant, the Company capitalized additional expense of $18,000 to loan fees in
the accompanying balance sheet. The warrant expires one year from the date of
issuance.
7. BENEFIT PLAN
The Company has a 401(k) savings plan that covers substantially all
full-time employees. Under the terms of the plan, the Company provides no match
of employee contributions. Employees are eligible for participation after one
month of service. The Company's administrative expenses relating to the 401(k)
plan were $4,744, $5,230 and $3,977 for 1998, 1997 and 1996, respectively.
8. INCOME TAXES
The provision for income taxes is computed for the period June 11, 1997
(when the Company converted from Subchapter S to Subchapter C status) to
December 31, 1998 and consists of the following:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Current taxes:
Federal.............................................. $ -- $127,000
State................................................ -- 26,000
Deferred taxes:
Federal.............................................. (164,000) (70,000)
State................................................ (16,000) (7,000)
--------- --------
$(180,000) $ 76,000
========= ========
</TABLE>
F-56
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Deferred income taxes are provided for temporary differences in recognizing
certain income and expense items for financial and tax reporting purposes.
Significant components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts..................... $ 60,000 $ 53,000
Accrued liabilities and other....................... 80,000 42,000
Covenant not to compete............................. 73,000 24,000
--------- ---------
Total deferred assets................................. 213,000 119,000
Deferred tax liabilities:
Change from Cash to Accrual......................... (155,000) (232,000)
Depreciation........................................ (24,000) (32,000)
Other............................................... (13,000) (14,000)
--------- ---------
Total deferred liabilities............................ (192,000) (278,000)
--------- ---------
Net deferred tax asset (liability).................... $ 21,000 $(159,000)
========= =========
</TABLE>
9. SUBSEQUENT EVENTS
In May of 1999 the Company extended the $160,000 secured promissory note to
May 12, 2000 under substantially similar terms.
In July of 1999 the Company signed an accounts receivable purchase agreement
with Silicon Valley Bank authorizing availability of up to $1,000,000 from
receivable balances less than 90 days past due to be purchased by Silicon Valley
Bank. Interest is charged at prime plus 4% and the agreement is effective for
1 year.
On September 22, 1999 the Company issued a note to a shareholder for cash of
$300,000. The Company agreed to a repayment schedule to coincide with the
original loan agreement for $2,000,000 (see Note 4). As part of the agreement
the shareholder agreed to subordinate its security position to Silicon Valley
Bank, waive the original loan covenants under the $2,000,000 loan agreement and
modify the loan covenants. The Company is in compliance with the modified loan
covenants.
F-57
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
SFG TECHNOLOGIES INC.
(EXPRESSED IN U.S. DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
F-58
<PAGE>
AUDITORS' REPORT
To the Board of Directors
SFG Technologies Inc.
We have audited the consolidated balance sheets of SFG Technologies Inc. as
at December 31, 1998 and April 30, 1998 and the consolidated statements of
operations, deficit and cash flows for the eight months ended December 31, 1998
and the years ended April 30, 1998, 1997 and 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1998 and April 30, 1998 and the results of its operations and cash flows for the
eight months ended December 31, 1998 and the years ended April 30, 1998, 1997
and 1996 in accordance with Canadian generally accepted accounting principles.
Significant measurement differences between Canadian and United States
accounting principles as they affect these consolidated financial statements are
explained and quantified in note 16.
Chartered Accountants
Vancouver, Canada
June 22, 1999, except as
to note 13 which is as of
November 26, 1999
F-59
<PAGE>
SFG TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, APRIL 30,
1999 1998 1998
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ -- $ 331,709 $ 96,908
Accounts receivable...................................... 2,638,755 2,320,197 1,433,429
Investment tax credits receivable........................ 159,792 195,338 195,338
Prepaid expenses......................................... 130,215 64,766 60,190
----------- ----------- -----------
2,928,762 2,912,010 1,785,865
Capital assets (note 4).................................... 693,602 535,856 605,493
Investment................................................. 128,104 130,225 130,225
----------- ----------- -----------
$ 3,750,468 $ 3,578,091 $ 2,521,583
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Bank indebtedness (note 6)............................... $ 947,389 $ 1,084,126 $ 1,119,937
Accounts payable and accrued liabilities................. 1,265,964 1,150,286 1,255,263
Current portion of long-term debt (note 8)............... 313,176 318,454 432,999
Current portion of obligations under capital leases (note
9)..................................................... 86,960 161,777 137,165
Current portion of deferred revenue (note 7)............. 1,995,615 1,462,142 1,263,317
----------- ----------- -----------
4,609,104 4,176,785 4,208,681
Deferred revenue (note 7).................................. 386,434 435,238 --
Long-term debt (note 8).................................... 3,110,046 3,184,209 2,329,435
Obligations under capital leases (note 9).................. 118,210 39,125 141,800
----------- ----------- -----------
8,223,794 7,835,357 6,679,916
Shareholders' deficiency:
Share capital (note 10).................................. 2,981,348 3,013,364 3,020,381
Deficit.................................................. (7,582,330) (7,398,286) (7,304,757)
Foreign currency translation account..................... 127,656 127,656 126,043
----------- ----------- -----------
(4,473,326) (4,257,266) (4,158,333)
Commitments (notes 10(b), 10(e) and 12)
Subsequent event (note 13)
Uncertainty due to the Year 2000 Issue (note 15)
----------- ----------- -----------
$ 3,750,468 $ 3,578,091 $ 2,521,583
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-60
<PAGE>
SFG TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED EIGHT MONTHS
SEPTEMBER 30, ENDED YEARS ENDED APRIL 30,
----------------------- DECEMBER 31, -------------------------------------
1999 1998 1998 1998 1997 1996
---------- ---------- ------------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues....................... $4,960,773 $4,001,276 $3,604,916 $ 3,533,514 $7,188,855 $7,333,592
Cost of sales.................. 219,384 354,687 360,498 465,312 674,341 1,320,201
---------- ---------- ---------- ----------- ---------- ----------
Gross profit................... 4,741,389 3,646,589 3,244,418 3,068,202 6,514,514 6,013,391
Costs and expenses:
Selling, general and
administrative expenses.... 4,113,419 2,310,918 1,968,633 3,520,889 5,582,570 4,856,248
Research and development..... 596,856 1,241,462 1,117,714 2,513,268 1,027,829 586,143
Write-down of deferred
software development costs
(note 5)................... -- -- -- 2,653,486 -- --
Gain on sale of division
(note 14).................. -- -- -- -- (424,366) --
---------- ---------- ---------- ----------- ---------- ----------
4,710,275 3,552,380 3,086,347 8,687,643 6,186,033 5,442,391
---------- ---------- ---------- ----------- ---------- ----------
Operating profit (loss)........ 31,114 94,209 158,071 (5,619,441) 328,481 571,000
Interest expense............... 215,158 228,634 217,905 366,412 203,501 97,988
---------- ---------- ---------- ----------- ---------- ----------
Income (loss) before income tax
expense...................... (184,044) (134,425) (59,834) (5,985,853) 124,980 473,012
Income tax benefit (expense)
(note 11).................... -- -- -- 397,445 (29,995) (179,667)
---------- ---------- ---------- ----------- ---------- ----------
Net income (loss).............. $ (184,044) $ (134,425) $ (59,834) $(5,588,408) $ 94,985 $ 293,345
========== ========== ========== =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-61
<PAGE>
SFG TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF DEFICIT
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED EIGHT MONTHS
SEPTEMBER 30, ENDED YEARS ENDED APRIL 30,
------------------------- DECEMBER 31, ---------------------------------------
1999 1998 1998 1998 1997 1996
----------- ----------- ------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Deficit, beginning of
period............. $(7,398,286) $(6,759,761) $(7,304,757) $(1,686,037) $(1,694,303) $(1,985,551)
Premium on redemption
of shares (note
10(f))............. -- -- (33,695) (30,312) (86,719) --
Dividends............ -- -- -- -- -- (2,097)
Net income (loss).... (184,044) (134,425) (59,834) (5,588,408) 94,985 293,345
----------- ----------- ----------- ----------- ----------- -----------
Deficit, end of
period............. $(7,582,330) $(6,894,186) $(7,398,286) $(7,304,757) $(1,686,037) $(1,694,303)
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-62
<PAGE>
SFG TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED EIGHT MONTHS
SEPTEMBER 30, ENDED YEAR ENDED APRIL 30,
---------------------- DECEMBER 31, ---------------------------------------
1999 1998 1998 1998 1997 1996
--------- ---------- ------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................... $(184,044) $ (134,425) $ (59,834) $(5,588,408) $ 94,985 $ 293,345
Items not involving cash:
Amortization............................ 150,379 198,289 100,877 197,545 1,479,420 857,981
Gain on sale of division................ -- -- -- -- (424,366) --
Loss on sale of asset................... -- -- -- -- 12,243 --
Common stock issued in exchange for
services.............................. -- -- -- 19,534 -- --
Write-down of deferred software
development costs..................... -- -- -- 2,653,486 -- --
Deferred income taxes................... -- -- -- (390,587) 29,477 275,427
Changes in non-cash operating working
capital:
Accounts receivable................... (318,560) (1,162,459) (886,768) 386,758 (527,753) (761,021)
Investment tax credits receivable..... 35,546 -- -- 503,105 (140,855) (253,022)
Prepaid and other expenses............ (63,328) (75,460) (4,576) 43,886 (31,639) (47,147)
Deferred software development costs... -- -- -- -- (1,763,335) (1,121,344)
Accounts payable and accrued
liabilities......................... 115,678 (396,154) (104,977) (404,731) 55,912 505,161
Deferred revenue...................... 484,671 407,425 634,063 (133,647) (576,982) 533,576
--------- ---------- --------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities.............................. 220,342 (1,162,784) (321,215) (2,713,059) (1,792,893) 282,956
Cash flows from investing activities:
Purchase of capital assets................ (308,122) (12,088) (31,240) (106,423) (569,597) (347,674)
Disposal of capital assets................ -- -- -- -- 4,964 --
Proceeds from sale of investments......... -- -- -- -- 210,224 --
--------- ---------- --------- ----------- ----------- -----------
Net cash used in investing activities..... (308,122) (12,088) (31,240) (106,423) (354,409) (347,674)
Cash flows from financing activities:
Bank indebtedness......................... -- -- (35,811) 885,321 234,616 --
Proceeds from issuance of long-term
debt.................................... -- 1,170,351 893,191 2,663,509 453,789 --
Repayment of long-term debt............... (216,178) -- (152,962) (498,112) (55,803) (136,564)
Obligations under capital leases.......... (27,751) 4,521 (78,063) (100,869) 140,560 118,263
Issue of common and preferred shares...... -- -- 346 (100,098) 1,240,936 162,781
Redemption of common and preferred
shares.................................. -- -- (41,058) (30,312) (225,429) (119,659)
Dividends paid............................ -- -- -- -- -- (2,097)
--------- ---------- --------- ----------- ----------- -----------
Net cash provided by financing
activities.............................. (243,929) 1,174,872 585,643 2,819,439 1,788,669 22,724
Net effect of foreign exchange rate changes
on cash................................... -- -- 1,613 96,951 (142) (104,367)
--------- ---------- --------- ----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents............................... (331,709) -- 234,801 96,908 (358,775) (146,361)
Cash and cash equivalents, beginning of
period.................................... 331,709 -- 96,908 -- 358,775 505,136
--------- ---------- --------- ----------- ----------- -----------
Cash and cash equivalents, end of period.... -- -- $ 331,709 $ 96,908 $ -- $ 358,775
========= ========== ========= =========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for taxes..... $ -- $ -- $ -- $ -- $ -- $ --
Cash paid during the period for
interest................................ $ 215,158 $ 228,634 142,592 366,412 203,501 97,988
Supplemental disclosure of non-cash
financing activities:
Common stock issued in exchange for
services................................ $ -- $ -- $ -- $ 19,534 $ -- $ --
Common stock issued in exchange for
redeemable
preferred stock......................... $ -- $ -- -- -- 759,256 --
</TABLE>
See accompanying notes to financial statements.
F-63
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
1. GENERAL:
SFG Technologies Inc. ("SFG" or the "Company") is a private company
incorporated under the Canada Business Corporations Act. Its principal business
activity is developing and marketing computing software for the utilities and
public sector markets.
2. SIGNIFICANT ACCOUNTING POLICIES:
(A) PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the financial statements of
SFG Technologies Inc. and its wholly-owned subsidiaries Nissi Technologies
(U.S.A.) Inc. ("Nissi"), SFG Technologies (U.S.) Inc., SFG Technologies Limited
and SFG Technologies Pty Limited. All material intercompany transactions and
balances have been eliminated.
(B) CASH AND CASH EQUIVALENTS:
Cash and cash equivalents have terms of maturity at the date of acquisition
of not more than three months.
(C) REVENUE RECOGNITION:
The Company generates and recognizes revenue as follows:
(I) SOFTWARE LICENCE FEES:
The Company licences Nissi and SFG products to customers under perpetual
software licence agreements. Generally, revenue from software licence fees
is recognized upon delivery and implementation of the software. If any
portion of the cash has not been collected, the respective portion of the
revenue deferred until collection is complete.
Software licence fees from contracts involving significant production,
modification or customization of software are recognized as revenue using
the completed contract method. Contracts are considered complete when
customer acceptance of the software is obtained.
(II) PROFESSIONAL SERVICES:
The Company provides consulting and implementation services to its
customers. Revenues from these services are recognized as the services are
performed in accordance with contract terms.
(III) MAINTENANCE:
Maintenance agreements generally call for the Company to provide
technical support and certain systems updates to customers. Revenue is
recognized proportionately over the maintenance period, typically one year.
F-64
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(IV) SOFTWARE MODIFICATIONS:
The Company provides updates to software licensed to customers. Revenues
from these services are recognized as the services are performed in
accordance with contract terms.
(V) HARDWARE SALES:
Hardware sales are recognized as revenue upon delivery of the hardware
to customer locations.
(D) RESEARCH AND DEVELOPMENT COSTS:
The Company expenses research costs as incurred. Development costs are
deferred if they meet certain specified and stringent criteria; otherwise they
are expensed as incurred. At December 31, 1998, there are no deferred
development costs.
(E) CAPITAL ASSETS:
Capital assets are recorded at historical cost less applicable investment
tax credits and accumulated amortization. Amortization is computed using the
declining balance method over their estimated useful lives at the following
annual rates:
<TABLE>
<CAPTION>
CAPITAL ASSETS RATE
- -------------- ---------
<S> <C>
Automotive equipment........................................ 30%
Computer equipment.......................................... 30% - 40%
Office equipment............................................ 15% - 20%
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the term
of the lease.
(F) INVESTMENT TAX CREDITS:
Investment tax credits are accounted for using the cost reduction method
whereby the benefit of the credits is recognized as a reduction to the carrying
value of the related asset or expenditure.
(G) INCOME TAXES:
The Company follows the tax allocation method of accounting for income taxes
under which deferred income taxes are recognized for the difference in the
timing of recognition of transactions in income for accounting and income tax
purposes. The major timing differences relate primarily to fixed assets and
research and development expenditures.
(H) FOREIGN CURRENCY TRANSLATION:
The Canadian dollar is the functional currency of the Company and its
subsidiaries. Monetary assets and liabilities denominated in a foreign currency
have been translated into Canadian dollars at rates of exchange in effect at the
balance sheet date. Other assets and revenue and expense items are
F-65
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
translated at rates prevailing when they were acquired or incurred. Exchange
gains and losses arising on translation of assets and liabilities denominated in
foreign currencies are included in income.
For U.S. dollar reporting purposes, the balance sheet amounts have been
translated at the exchange rate in effect at the end of December 31, 1998, and
the income statement amounts have been translated at the average exchange rate
for the eight month period ended December 31, 1998. Differences arising on
translation have been recorded on the balance sheet in shareholder's deficiency.
(I) USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Significant areas requiring the use of management estimates relate to the
valuation of accounts and investment tax credit receivable. Actual amounts may
differ from those estimates.
(J) INVESTMENT:
Investment is carried at cost. Income from the investment is recognized as
receivable.
3. FINANCIAL INSTRUMENTS:
(A) FAIR VALUE:
Carrying amounts of certain of the Company's financial instruments,
including accounts receivable, bank indebtedness and accounts payable and
accrued liabilities, approximate fair value due to their short-term maturities.
Based on borrowing notes available to the Company for loans with similar terms,
the carrying value of its long-term debt approximates fair value.
(B) FOREIGN EXCHANGE RISK:
Foreign exchange risk reflects the risk that the Company's earnings will
decline due to fluctuations in exchange rates. As payments on contracts billed
in United States dollars are due in the short-term the Company has determined
there is no significant exposure to its reported assets due to foreign exchange
fluctuations. At December 31, 1998, the Company does not have foreign exchange
hedges in place.
(C) CREDIT RISK:
Credit risk reflects the risk that the Company may be unable to recover
contractual receivables. The Company has a significant number of individual
contracts and no one contract represents a concentration of credit risk. In
addition, the Company employs established credit approval practices to further
mitigate this risk.
F-66
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
4. CAPITAL ASSETS:
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
SEPTEMBER 30, 1999 COST AMORTIZATION VALUE
- ------------------ ---------- ------------ --------
<S> <C> <C> <C>
Automotive equipment....................... $ 54,644 $ 21,085 $ 33,559
Computer equipment......................... 1,372,814 961,606 411,208
Office equipment........................... 441,134 229,410 211,724
Leasehold improvements..................... 97,809 60,698 37,111
---------- ---------- --------
$1,966,401 $1,272,799 $693,602
========== ========== ========
<CAPTION>
ACCUMULATED NET BOOK
DECEMBER 31, 1998 COST AMORTIZATION VALUE
- ----------------- ---------- ------------ --------
<S> <C> <C> <C>
Automotive equipment....................... $ 22,131 $ 20,676 $ 1,455
Computer equipment......................... 1,324,154 990,404 333,750
Office equipment........................... 384,962 222,774 162,188
Leasehold improvements..................... 97,730 59,267 38,463
---------- ---------- --------
$1,828,977 $1,293,121 $535,856
========== ========== ========
<CAPTION>
ACCUMULATED NET BOOK
APRIL 30, 1998 COST AMORTIZATION VALUE
- -------------- ---------- ------------ --------
<S> <C> <C> <C>
Automotive equipment....................... $ 22,131 $ 20,308 $ 1,823
Computer equipment......................... 1,280,548 897,358 383,190
Office equipment........................... 397,748 222,253 175,495
Leasehold improvements..................... 97,308 52,323 44,985
---------- ---------- --------
$1,797,735 $1,192,242 $605,493
========== ========== ========
</TABLE>
Included in automotive, computer and office equipment are assets under
capital leases with a cost of $1,228,355 (April 30, 1998--$1,202,659) and
accumulated amortization of $890,257 (April 30, 1998--$808,164).
5. DEFERRED SOFTWARE DEVELOPMENT COSTS:
The Company wrote-off all deferred software development costs in the year
ended April 30, 1998 as recoverability of the costs was not reasonably assured.
6. BANK INDEBTEDNESS:
The Company has an operating loan facility with a credit limit of
approximately $1,500,000 (Canadian). The facility is due on demand, bears
interest at prime plus 1% and is secured by a general security agreement. At
December 31, 1998 the Company was under negotiations with the bank to
restructure its loan facility and, accordingly, indicated that they would not
require immediate payment of the loan facility.
F-67
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
7. DEFERRED REVENUE:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, APRIL 30,
1999 1998 1998
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred maintenance................... $2,382,051 $ 1,897,380 $ 1,263,317
Less current portion................... (1,995,617) (1,462,142) (1,263,317)
---------- ----------- -----------
$ 386,434 $ 435,238 $ --
========== =========== ===========
</TABLE>
8. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
1998 1998
------------- ----------
<S> <C> <C>
Bank term loan, maturing December 2001, bearing interest at
prime plus 1.25% per annum payable monthly, principle
repayable in 30 equal installments beginning July 1999,
secured by a general security agreement................... $ 192,000 $ 192,000
Bank demand loan, maturing March 2002, bearing interest at
prime plus 2.0% per annum payable monthly, principle
repayable upon receipt of SR&ED refunds, secured by SR&ED
refund.................................................... 280,037 433,000
Promissory notes including accrued interest of $44,387
(April 1998--$nil), maturing July 2002, bearing interest
at 5.0% until July 1999 and 13.0% per annum, thereafter,
payable monthly in arrears beginning July 1999, secured by
a general security agreement.............................. 1,672,203 1,627,816
Promissory notes including accrued interest of $29,626
(April 1998--$nil), maturing July 2002, bearing interest
at 13.0% per annum payable monthly, secured by a general
security agreement, convertible into Class A preferred
shares at $2 (Canadian) per share......................... 420,302 390,676
Promissory notes, bearing interest at 13.0% per annum
payable in event of agreement default, principal payable
July 30, 2002 or in event of agreement default; secured by
a general security agreement, convertible into Class A
preferred shares at $0.05 (Canadian) per share. 20,000
Class X common shares have been issued for each $651 of
promissory notes (see note 10(b)) and are cancellable upon
each $651 conversion of promissory notes.................. 651,126 --
Promissory notes, maturing July 2002, bearing interest at
12.0% per annum payable monthly in arrears beginning
July 1999 or in event of agreement default, secured by a
general security agreement, convertible into Class B
preferred shares at $100 (Canadian) per share............. 162,782 --
Shareholder loan, bearing interest at prime plus 1.0% per
annum, no specific terms of repayment, unsecured,
shareholder has indicated that payment will not be
demanded within the next twelve months.................... 120,619 115,348
Other....................................................... 3,594 3,594
---------- ----------
3,502,663 2,762,434
Less current portion........................................ (318,454) (432,999)
---------- ----------
$3,184,209 $2,329,435
========== ==========
</TABLE>
F-68
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
8. LONG-TERM DEBT: (CONTINUED)
The minimum aggregate amounts of principal payments required in each of the
next five years, assuming that the shareholder loan is not repaid, are as
follows:
<TABLE>
<S> <C>
1999........................................................ $ 318,454
2000........................................................ 76,833
2001........................................................ 76,833
2002........................................................ 2,906,414
2003........................................................ --
----------
$3,378,534
==========
</TABLE>
Subsequent to December 31, 1998, $1,762,991 in promissory notes were
converted into preferred shares (see note 13).
9. OBLIGATIONS UNDER CAPITAL LEASES:
The Company has commitments under capital leases as follows:
<TABLE>
<S> <C>
1999........................................................ $ 175,968
2000........................................................ 36,654
2001........................................................ 3,516
---------
216,138
Less interest imputed at rates between 9% and 15%........... (15,236)
---------
200,902
Less current portion........................................ (161,777)
---------
$ 39,125
=========
</TABLE>
10. SHARE CAPITAL:
(A) AUTHORIZED:
Unlimited common shares, Class A, non voting, no par value
Unlimited common shares, Class B, voting, no par value
Unlimited common shares, Class X, voting, no par value, non participating
Unlimited preferred shares, Class A, voting, convertible, retractable,
redeemable
Unlimited preferred shares, Class B, voting, convertible, retractable,
redeemable
Unlimited preferred shares, Class F, non voting, redeemable
Each Class A and Class B preferred share is convertible into one Class B
common share at the option of the holder and is entitled to one vote.
F-69
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
10. SHARE CAPITAL: (CONTINUED)
Dividends are provided at the discretion of the directors of the Company.
Only Class A and Class B common shareholders and Class A and Class B
preferred shareholders are entitled to dividends.
Class X common shares are cancellable upon promissory note conversion (see
note 8).
Class A and Class B preferred shares are retractable any time after July 30,
2002 and under certain other instructions.
Class A and Class B preferred shares are redeemable at the Company's option
at any time, in whole or in part, after July 1, 2002 at the issue price plus
any unpaid dividends.
Class F preferred shares are redeemable at the Company's option at $1
(Canadian) per share (see note10(e)).
(B) ISSUED:
<TABLE>
<CAPTION>
NUMBER OF
SHARES AMOUNT
---------- ----------
<S> <C> <C>
Class A common shares:
Balance at April 30, 1995................................. 68,900 $ 39,923
Shares redeemed for cash.................................. (1,850) (5,712)
---------- ----------
Balance at April 30, 1996................................. 67,050 34,211
Shares redeemed for cash.................................. (22,650) (8,486)
---------- ----------
Balance at April 30, 1997................................. 44,400 25,725
Shares issued for cash.................................... 8,231 22,374
Shares issued for services rendered....................... 3,614 19,534
Shares redeemed for cash.................................. (7,205) (5,268)
---------- ----------
Balance at April 30, 1998................................. 49,040 62,365
Shares issued for cash.................................... 133 345
Shares redeemed for cash.................................. (7,979) (7,363)
---------- ----------
Balance at December 31, 1998.............................. 41,194 55,347
---------- ----------
Class B common shares:
Balance at April 30, 1995................................. 1,460,480 506,398
Shares redeemed for nil consideration..................... (79,000) --
Shares issued for cash.................................... 23,720 81,391
---------- ----------
Balance at April 30, 1996................................. 1,405,200 587,779
Shares issued in exchange for Class Z preferred shares.... 302,500 759,256
Shares issued for cash.................................... 240,973 1,240,937
Shares issued for cash.................................... 30,700 81,400
---------- ----------
Balance at April 30, 1997, 1998 and December 31, 1998..... 1,979,373 2,669,372
---------- ----------
</TABLE>
F-70
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
10. SHARE CAPITAL: (CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES AMOUNT
---------- ----------
<S> <C> <C>
Class X common shares:
Balance at April 30, 1995, 1996, 1997 and 1998............ -- --
Shares issued in conjunction with issuance of promissory
notes (see note 8)...................................... 20,000,000 1
---------- ----------
Balance at December 31, 1998.............................. 20,000,000 1
---------- ----------
Total common shares, December 31, 1998...................... 22,020,567 $2,724,720
---------- ----------
Class D preferred shares:
Balance at April 30, 1995................................. 15,000 $ 9,767
Shares redeemed in exchange for cash...................... (15,000) (9,767)
---------- ----------
Balance at April 30, 1996, 1997 and 1998 and December 31,
1998.................................................... -- --
---------- ----------
Class F preferred shares:
Balance at April 30, 1995................................. 983,300 640,253
Shares redeemed for cash.................................. (160,000) (104,181)
---------- ----------
Balance at April 30, 1996................................. 823,300 536,072
Shares redeemed for cash.................................. (200,000) (130,225)
---------- ----------
Balance at April 30, 1997................................. 623,300 405,847
Shares redeemed for cash.................................. (180,000) (117,203)
---------- ----------
Balance at April 30, 1998 and December 31, 1998........... 443,300 288,644
---------- ----------
Class Z preferred shares:
Balance at April 30, 1995 and 1996........................ 302,500 759,256
Shares redeemed in exchange for Class B common stock...... (302,500) (759,256)
---------- ----------
Balance at April 30, 1997 and 1998 and December 31,
1998.................................................... -- --
---------- ----------
Total common and preferred shares........................... $3,013,364
========== ==========
</TABLE>
Pursuant to a price adjustment clause relating to previous equity financing
an additional 759,037 Class B common shares are required to be issued at
April 30, 1998. As at December 31, 1998, these shares have not been issued.
(C) STOCK OPTION PLAN:
Certain employees and directors of the Company hold options to purchase
Class A non-voting shares. At December 31, 1998, 121,377 options were
outstanding at exercise prices ranging between $4 (Canadian) to $7 (Canadian)
per share, expiring on April 30, 2006. At December 31, 1998, the Company was
committed to issue an additional 6,900,000 options at a price of $0.05
(Canadian) per share, which options will expire ten years from date of issuance.
F-71
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
10. SHARE CAPITAL: (CONTINUED)
(D) WARRANTS:
At December 31, 1998, 74,534 warrants were outstanding that entitle the
holders to purchase one Class B common share at a price of $0.01 (Canadian) per
share prior to July 30, 2002.
(E) SHARE REDEMPTIONS:
The Company, pursuant to an agreement for the redemption of all Class F
preferred shares, is required to make monthly payments of $13,902 beginning
July 1, 1999 and ending March 1, 2001.
(F) PREMIUM ON REDEMPTION OF SHARES:
The Company records the excess of purchase price over par value of shares as
a premium on redemption of shares.
11. INCOME TAXES:
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED YEARS ENDED APRIL 30,
DECEMBER 31, -------------------------------
1998 1998 1997 1996
------------- -------- -------- ---------
<S> <C> <C> <C> <C>
Current........................... $ -- $ -- $ -- $ (490)
Deferred.......................... -- 397,445 (29,995) (179,177)
---- -------- -------- ---------
$ -- $397,445 $(29,995) $(179,667)
==== ======== ======== =========
</TABLE>
The Company has non-capital losses carried forward of approximately $846,126
which are available to reduce taxable income of future years, the benefit of
which has not been recorded in the accounts and which expire as follows:
<TABLE>
<S> <C>
December 31, 2004........................................... $651,126
2012............................................ 195,000
--------
$846,126
========
</TABLE>
12. COMMITMENTS:
At December 31, 1998, the Company was committed to the following operating
lease payments for premises and equipment:
<TABLE>
<S> <C>
1999........................................................ $ 377,002
2000........................................................ 418,023
2001........................................................ 344,446
2002........................................................ 223,987
----------
$1,363,458
==========
</TABLE>
F-72
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
13. SUBSEQUENT EVENT:
On November 26, 1999, the Company converted $1,824,378 of promissory notes,
owing to Working Opportunity Fund (EVCC) Ltd., SCC Canada Inc., Ventures West
III--Canada Limited Partnership, and Discovery Enterprises Inc. into preferred
shares. Of the notes converted, $651,126 were converted into Class B preferred
shares (see note 10(a)) at a price of $0.05 (Canadian) per share and $1,173,258
were converted into Class C preferred shares at a price of $100 (Canadian) per
share. Class C preferred shares are voting, retractable, and redeemable. In
addition, all Class X common shares outstanding (see note 10(b)) were cancelled.
Of the promissory notes converted, $1,762,991 were outstanding at
December 31, 1998. The balances were issued subsequent to December 31, 1998.
The following debt outstanding at December 31, 1998 would have been
converted:
<TABLE>
<S> <C>
Promissory notes, maturing July 2002, bearing interest at
5.0% until July 1999 and 13.0% thereafter................. $ 668,881
Promissory notes, maturing July 2002, bearing interest at
13.0%..................................................... 931,328
Promissory notes, maturing July 2002, bearing interest at
12.0%..................................................... 162,782
----------
$1,762,991
==========
</TABLE>
The following pro forma balance sheet presents the position of the Company
as if the debt conversion had occurred on December 31, 1998:
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, PRO FORMA DECEMBER 31,
1998 ADJUSTMENTS 1998
------------- ----------- -------------
<S> <C> <C> <C>
Assets:
Current.............................. $ 2,912,009 $ -- $ 2,912,009
Non-current.......................... 666,082 -- 666,082
----------- ----------- -----------
$ 3,578,091 $ -- $ 3,578,091
=========== =========== ===========
Liabilities:
Current.............................. $ 4,176,784 $ -- $ 4,176,784
Non-current--Long-term debt.......... 3,184,209 (1,762,991) 1,421,218
--Other.................... 474,364 -- 474,364
----------- ----------- -----------
7,835,357 (1,762,991) 6,072,366
Shareholders' equity:
Share capital........................ 3,013,364 1,762,991 4,776,355
Deficit and cumulative translation
account............................ (7,270,630) -- (7,270,630)
----------- ----------- -----------
(4,257,266) 1,762,991 (2,494,275)
----------- ----------- -----------
$ 3,578,091 $ -- $ 3,578,091
=========== =========== ===========
</TABLE>
F-73
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
14. SALE OF DIVISION:
On April 30, 1997 the Company disposed of the net assets and operations of
its Govern division for proceeds of $340,449 which includes $130,225 of
preferred shares of the purchaser.
For the year ended April 30, 1997, the division incurred an operating loss
of $118,337 (1996--income of $125,726) and revenues of $498,636
(1996--$592,104).
The gain on sale of division comprises:
<TABLE>
<S> <C>
Cash proceeds............................................... $210,224
Preferred shares............................................ 130,225
--------
Net proceeds................................................ 340,449
Net assets sold:
Accounts receivable....................................... (33,877)
Deferred revenue.......................................... 118,106
Fixed assets.............................................. (10,251)
Contract.................................................. 9,939
--------
83,917
--------
Gain on sale of division.................................... $424,366
========
</TABLE>
15. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
Year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
December 31, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
16. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles ("GAAP") in Canada, of
which conform, in all material respects, with those in the United States except
as described below:
(A) RESEARCH AND DEVELOPMENT:
For United States GAAP purposes, Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," provides for the capitalization of certain software
development costs after technological feasibility of the software is
established. Under the Company's current practice of developing new products and
F-74
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
16. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
enhancements, the technological feasibility of the underlying software is not
established until substantially all product development is complete, including
the development of a working model. No such costs have been capitalized as their
impact would not be material.
Deferred software development costs of $2,153,130 and $1,482,444 which were
capitalized during the years ended April 30, 1997 and 1996, respectively, would
have been expensed as incurred under U.S. accounting principles. As such,
deferred software development costs of $1,010,094 and $586,143 which were
amortized during the years ended April 30, 1997 and 1996, respectively, and the
write-down of deferred software development costs in the year ended April 30,
1998 of $2,653,486 would not have been required.
(B) LOSS PER SHARE:
For United States GAAP purposes, Statement of Financial Accounting Standards
No. 128, "Earnings Per Share," requires the disclosure of basic and diluted
earning per share for each period presented. Basic earnings per share is
computed by dividing the net loss by the weighted average number of all classes
of common shares outstanding during the period. Diluted earnings per share is
computed by dividing the net loss by the weighted average number of all classes
of common and dilutive common equivalent shares outstanding during the period.
Excluded from the computation of diluted earnings per share for the eight
months ended December 31, 1998 and the years ended April 30, 1998, 1997 and 1996
are options to acquire common shares and preferred shares convertible into
common shares, as their effects would be anti-dilutive.
(C) INCOME TAXES:
Under the asset and liability method of United States Statement of Financial
Accounting Standards No. 109 ("FAS 109"), deferred income tax assets and
liabilities are measured using enacted tax rates for the future income tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases. The application of the provisions of FAS 109 on the Company's balance
sheet would result in no net difference in deferred taxes from that reported
under Canadian GAAP. At December 31, 1998, the gross deferred tax asset amount
relating to a non-capital loss carry forward was $380,757 which is reduced by a
valuation allowance of $380,757 as management does not consider that it is more
likely than not that such assets will be realized in the carry forward period.
(D) STOCK-BASED COMPENSATION:
For United States GAAP purposes, the Company has elected to follow the
disclosure-only provisions under Statement of Financial Accounting Standards No.
123 ("FAS 123"), "Accounting for Stock-Based Compensation", and applies
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations in accounting for its
stock-based compensation to employees. As such, the Company's stock-based
compensation is measured based on the intrinsic value of the option on the date
of grant.
F-75
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
16. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
Under the intrinsic value method of APB 25, the stock option compensation is
the excess, if any, of the quoted market value of the stock at the measurement
date of the grant over the amount an optionee must pay to acquire the stock.
Under this method, no stock-based compensation expense has resulted for the
eight month period ended December 31, 1998, and the years ended April 30, 1998,
1997 and 1996, for United States GAAP purposes.
(E) REDEEMABLE PREFERRED SHARES:
For United States GAAP purposes, preferred stock subject to mandatory
redemption requirements or whose redemption is outside the control of the issuer
is required to be presented outside of shareholders' equity. For the periods
presented, the Company's Class F preferred shares are to be presented outside of
shareholders' equity.
(F) SUMMARY OF UNITED STATES GAAP ADJUSTMENTS:
The amounts in the balance sheets that differ from those reported under
Canadian GAAP are as follows.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 APRIL 30, 1998
--------------------- ---------------------
CDN GAAP US GAAP CDN GAAP US GAAP
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current portion of Class F redeemable preferred
shares.......................................... $ -- $ 166,819 $ -- $ --
Class F redeemable preferred shares, net of
current portion................................. -- 121,825 -- 288,644
Shareholders' equity:
Share capital................................... 3,013,364 -- 3,020,381 --
Class A common stock, issued and outstanding
41,194 and 49,194............................. -- 55,347 -- 62,365
Class B common stock, issued and outstanding
1,979,363 and 1,979,363....................... -- 2,669,372 -- 2,669,372
Class X common stock, issued and outstanding
20,000,000 and nil............................ -- 1 -- --
</TABLE>
F-76
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
16. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
The following table sets forth the effect on the loss for the period and
loss per share:
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED YEARS ENDED APRIL 30,
DECEMBER 31, ---------------------------------------
1998 1998 1997 1996
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) under Canadian GAAP...... $ (59,834) $(5,588,408) $ 94,985 $ 293,345
Less deferred software development costs
capitalized.............................. -- -- (2,153,130) (1,482,444)
Add deferred software development costs
amortized................................ -- -- 1,010,094 586,143
Add write-down of software development
costs.................................... -- 2,653,486 -- --
----------- ----------- ----------- -----------
Loss determined under United States GAAP... $ (59,834) $(2,934,922) $(1,048,051) $ (602,956)
=========== =========== =========== ===========
Weighted average number of shares
outstanding, United States GAAP.......... 16,084,028 2,002,344 1,509,658 1,498,805
=========== =========== =========== ===========
Net loss per share under United States
GAAP..................................... $ (0.004) $ (1.47) $ (0.69) $ (0.40)
=========== =========== =========== ===========
</TABLE>
(G) COMPREHENSIVE LOSS:
For United States GAAP purposes, Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," establishes standards for reporting
and disclosure of comprehensive income and its components. The Company's
comprehensive income consists of net income (loss), premium on redemption of
shares, and its foreign currency translation adjustment as follows:
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED YEAR ENDED APRIL 30,
DECEMBER 31, -------------------------------------
1998 1998 1997 1996
------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net loss under United States GAAP............ $(59,834) $(2,934,922) $(1,048,051) $(602,956)
Foreign currency translation account......... (1,613) (96,951) 142 104,367
-------- ----------- ----------- ---------
Comprehensive loss........................... $(61,447) $(3,031,873) $(1,047,909) $(498,589)
======== =========== =========== =========
</TABLE>
F-77
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All of the
amounts shown are estimates, except for the SEC registration fee, the NASD
filing fee and the Nasdaq National Market application fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
-------
<S> <C>
Registration fee............................................ $18,480
NASD filing fee.............................................
Nasdaq Stock Market Listing Application fee.................
Blue sky qualification fees and expenses....................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Transfer agent and registrar fees...........................
Miscellaneous...............................................
Total...................................................
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its Directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant's Certificate of Incorporation and Bylaws include provisions
to (i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by
Section 102(b)(7) of the General Corporation Law of Delaware (the "Delaware
Law") and (ii) require the Registrant to indemnify its Directors and officers to
the fullest extent permitted by Section 145 of the Delaware Law, including
circumstances in which indemnification is otherwise discretionary. Pursuant to
Section 145 of the Delaware Law, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are,
or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as Directors and officers.
These provisions do not eliminate the Directors' duty of care, and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each Director will continue to be subject to liability for breach of the
Director's duty of loyalty to the Registrant, for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
acts or omissions that the Director believes to be contrary to the best
interests of the Registrant or its stockholders, for any transaction from which
the Director derived an improper personal benefit, for acts or omissions
involving a reckless disregard for the Director's duty to the Registrant or its
stockholders when the Director was aware or should have been aware of a risk of
serious injury to the Registrant or its stockholders, for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the Director's duty to the Registrant or its stockholders, for improper
transactions between the Director and the Registrant and for improper
distributions to stockholders and loans to
II-1
<PAGE>
Directors and officers. The provision also does not affect a Director's
responsibilities under any other law, such as the federal securities law or
state or federal environmental laws.
The Registrant has entered into indemnity agreements with each of its
Directors and executive officers that require the Registrant to indemnify such
persons against expenses, judgments, fines, settlements and other amounts
incurred (including expenses of a derivative action) in connection with any
proceeding, whether actual or threatened, to which any such person may be made a
party by reason of the fact that such person is or was a Director or an
executive officer of the Registrant or any of its affiliated enterprises,
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful. The indemnification agreements also set
forth certain procedures that will apply in the event of a claim for
indemnification thereunder.
The Registrant has entered into employment agreements with David P. Porreca
and Gregory R. Smith that provide for the indemnification of Mr. Porreca and
Mr. Smith to the maximum extent permitted by law for any acts made in good faith
while performing services in the ordinary and regular course of business for
Cayenta. To the same extent, Cayenta will pay and subject to any legal
limitations, advance all expenses, including reasonable attorneys' fees and
costs of court approved settlements, actually and necessarily incurred by
Mr. Porreca or Mr. Smith in connection with the defense of any action, suit or
proceeding and in connection with any appeal, which has been brought against
Mr. Porreca or Mr. Smith by reason of his service as an officer or agent of
Cayenta.
At present, there is no pending litigation or proceeding involving a
Director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or Director.
The Registrant has an insurance policy covering the officers and Directors
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception in September 1997, the Registrant has sold and issued
the following unregistered securities:
(a) In January 1999, the Registrant acquired substantially all of the assets
of Transnational Partners II, LLC, an enterprise application integration
consulting company. The Registrant acquired Transnational Partners II for
$7 million in cash and 2,345,000 shares of Series A preferred stock. The
Registrant expects to pay an additional $2.8 million in January 2000 based on
the performance of Transnational Partner II's business following the
acquisition. The Registrant issued such shares in reliance upon the exemption
from securities registration afforded by Rule 506 of Regulation D under the
Securities Act.
(b) In December 1999, the Registrant acquired Assist Cornerstone
Technologies, Inc., an e-commerce solutions and software company. The Registrant
acquired Assist Cornerstone for 516,458 shares of Class A common stock which
were issued to the former equity holders of Assist Cornerstone. In addition, the
Registrant paid $12.9 million in cash, of which $9.9 million was paid at the
closing, with the balance withheld to satisfy possible working capital
adjustments or indemnification obligations. The Registrant issued such shares in
reliance upon the exemption from securities registration afforded by Rule 506 of
Regulation D under the Securities Act.
II-2
<PAGE>
(c) In connection with the Registrant's reorganization with Titan in
December 1999, the Registrant issued 10,000,000 shares of Class B common stock
to Titan. The Registrant issued such shares in reliance on the exemption
provided in Section 4(2) of the Securities Act.
(d) In December 1999, the Registrant issued to Batchelder & Partners
warrants to purchase up to 495,800 shares of its Class A common stock at a
weighted average exercise price of $13.11 per share. The Registrant issued such
warrants in reliance upon the exemption from securities registration afforded by
Rule 506 of Regulation D under the Securities Act.
(e) In October 1999, the Registrant issued 50,000 shares of Class A common
stock to Dr. Gene Ray upon the exercise of an option at an exercise price of
$0.36 per share. The Registrant issued such shares in reliance upon the
exemption from securities registration afforded by Rule 701 under the Securities
Act.
The recipient of the above-described securities represented its intention to
acquire the securities for investment only and not with a view to distribution
thereof. The recipient had adequate access through its relationship with the
Registrant, to information about the Registrant.
The stock amounts and per-share exercise prices in the descriptions above
reflect the for stock split of the Registrant's common stock which will take
place prior to the effectiveness of this offering. The recipients of the
above-described securities represented their intention to acquire the securities
for investment only and not with a view to distribution thereof. Appropriate
legends were affixed to the stock certificates issued in such transactions. All
recipients had adequate access, through employment or other relationships, to
information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
2.1 Asset Purchase Agreement among Transnational Partners II,
LLC, Cayenta and The Titan Corporation dated as of
January 1, 1999.(1)
2.2 Stock Purchase Agreement dated as of November 2, 1999 among
Cayenta, J.B. Systems, Inc., d.b.a. Mainsaver Corporation
and Mainsaver, JKS Separate Property Trust, The Gehl
Living Trust, JBS Acquisition Company, LLC, Epicor
Software Corporation, Mark Stevens and The Titan
Corporation.
2.3 Stock Exchange and Stock Purchase Agreement dated as of
December 7, 1999 among Cayenta, Cayenta Operating Company,
The Titan Corporation, Assist Cornerstone Technologies,
Inc. and Selling Shareholders.
2.4 Stock Purchase Agreement dated as of December 23, 1999 among
Cayenta, SFG Technologies, Inc., the Common Selling
Shareholders, the Preferred Selling Shareholders and the
Option Holders.(1)(2)
2.5 Contribution Agreement dated December 7, 1999 among The
Titan Corporation, Cayenta, Gene W. Ray and Transnational
Partners II, LLC.
2.6 Limited Liability Company Agreement of Soliance, LLC dated
August 25, 1999 among Sempra Energy Information Solutions,
Modis, Inc. and Cayenta.(1)(2)
3.1 Certificate of Incorporation.
3.2 Certificate of Amendment to Certificate of Incorporation.
3.3 Bylaws.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- -----------------------
<C> <S>
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2 Specimen Stock Certificate.(1)
5.1 Opinion of Cooley Godward LLP.(1)
10.1 Cayenta Investor Rights Agreement.
10.2 Cayenta 1997 Stock Option Plan.
10.3 Titan 1995 Employee Stock Purchase Plan.
10.4 Titan Supplemental Retirement Plan for Executives dated
December 17, 1993, as amended May 18, 1995.
10.5 Form of Nonstatutory Stock Option Agreement under 1997 Stock
Option Plan.
10.6 Form of Incentive Stock Option Agreement under 1997 Stock
Option Plan.
10.7 Employment Agreement dated January 1, 1999 between David P.
Porreca and Cayenta.
10.8 Employment Agreement dated January 1, 1999 between Gregory
R. Smith and Cayenta.
10.9 Letter Agreement dated November 1, 1999 between Cayenta and
William G. Atkinson.
10.10 Letter Agreement dated December 18, 1999 between Cayenta and
Edward M. Lake.
10.11 Form of Indemnity Agreement.
10.12 Contract between the Federal Aviation Administration and
Cayenta dated as of July 24, 1995.(1)(2)
10.13 Agreement for Consulting Services dated as of January 1,
1999 between Sempra Energy Information Solutions, LLC and
Transnational Partners II, LLC.(1)(2)
10.14 Management Services Agreement dated August 25, 1999 between
Cayenta and Soliance, LLC.(1)(2)
10.15 Contract for Professional Services dated as of September 8,
1999 between Cayenta and Waste Management, Inc.(1)(2)
10.16 Software License Agreement dated September 23, 1998 between
Assist Cornerstone Technologies, Inc. and 800.com,
Inc.(1)(2)
10.17 Purchase Notification dated February 10, 1999 between Titan
and the Government of the District of Columbia.(1)(2)
10.18 Subcontract Agreement dated March 23, 1999 between Cap
Gemini America LLC and Cayenta.(1)(2)
10.19 Tax Allocation Agreement.(1)
10.20 Corporate Services Agreement.(1)
10.21 Facilities Agreement.(1)
10.22 Office Space Lease dated March 9, 1999 between San Diego 225
RPF III, LLC and Titan.
10.23 Subordinated Promissory Note dated December 27, 1999 between
Cayenta Operating Company, Inc. and Titan.
10.24 Technical Services Agreement dated January 1, 1997 between
Enova Corporation and Transnational Partners II, LLC, as
amended. (1)(2)
11.1 Computation of Net Income per Share.
21.1 Subsidiaries of the Registrant.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- -----------------------
<C> <S>
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of KPMG LLP.
23.5 Consent of Ernst & Young LLP.
23.6 Consent of Cooley Godward LLP. Reference is made to
Exhibit 5.1.(1)
24.1 Power of Attorney. Reference is made to page II-6.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
(1) To be filed by amendment.
(2) We will request confidential treatment for these documents.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(b) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made on terms differing from those set
forth on the cover page of the prospectus, a post effective amendment will be
filed to set forth the terms of such offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
County of San Diego, State of California, on December 29, 1999.
<TABLE>
<S> <C> <C>
Registrant
By: /s/ DAVID P. PORRECA
-----------------------------------------
David P. Porreca
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David P. Porreca and Edward M. Lake and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments, exhibits thereto and other documents in connection therewith) to
this Registration Statement and any subsequent registration statement filed by
the registrant pursuant to Rule 462(b) of the Securities Act of 1933, as
amended, which relates to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President, Chief Executive
/s/ DAVID P. PORRECA Officer and Director
------------------------------------------- (PRINCIPAL EXECUTIVE December 29, 1999
David P. Porreca OFFICER)
Senior Vice President and
/s/ EDWARD M. LAKE Chief Financial Officer
------------------------------------------- (PRINCIPAL FINANCIAL AND December 29, 1999
Edward M. Lake ACCOUNTING OFFICER)
/s/ NICHOLAS J. COSTANZA Senior Vice President,
------------------------------------------- General Counsel and December 29, 1999
Nicholas J. Costanza Secretary
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GENE W. RAY
------------------------------------------- Chairman of the Board and December 29, 1999
Gene W. Ray Director
/s/ ROBERT E. LA BLANC
------------------------------------------- Director December 29, 1999
Robert E. La Blanc
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
2.1 Asset Purchase Agreement among Transnational Partners II,
LLC, Cayenta and The Titan Corporation dated as of
January 1, 1999.(1)
2.2 Stock Purchase Agreement dated as of November 2, 1999 among
Cayenta, J.B. Systems, Inc., d.b.a. Mainsaver Corporation
and Mainsaver, JKS Separate Property Trust, The Gehl
Living Trust, JBS Acquisition Company, LLC, Epicor
Software Corporation, Mark Stevens and The Titan
Corporation.
2.3 Stock Exchange and Stock Purchase Agreement dated as of
December 7, 1999 among Cayenta, Cayenta Operating Company,
The Titan Corporation, Assist Cornerstone Technologies,
Inc. and Selling Shareholders.
2.4 Stock Purchase Agreement dated as of December 23, 1999 among
Cayenta, SFG Technologies, Inc., the Common Selling
Shareholders, the Preferred Selling Shareholders and the
Option Holders.(1)(2)
2.5 Contribution Agreement dated December 7, 1999 among The
Titan Corporation, Cayenta, Gene W. Ray and Transnational
Partners II, LLC.
2.6 Limited Liability Company Agreement of Soliance, LLC dated
August 25, 1999 among Sempra Energy Information Solutions,
Modis, Inc. and Cayenta.(1)(2)
3.1 Certificate of Incorporation.
3.2 Certificate of Amendment to Certificate of Incorporation.
3.3 Bylaws.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2 Specimen Stock Certificate.(1)
5.1 Opinion of Cooley Godward LLP.(1)
10.1 Cayenta Investor Rights Agreement.
10.2 Cayenta 1997 Stock Option Plan.
10.3 Titan 1995 Employee Stock Purchase Plan.
10.4 Titan Supplemental Retirement Plan for Executives dated
December 17, 1993, as amended May 18, 1995.
10.5 Form of Nonstatutory Stock Option Agreement under 1997 Stock
Option Plan.
10.6 Form of Incentive Stock Option Agreement under 1997 Stock
Option Plan.
10.7 Employment Agreement dated January 1, 1999 between David P.
Porreca and Cayenta.
10.8 Employment Agreement dated January 1, 1999 between Gregory
R. Smith and Cayenta.
10.9 Letter Agreement dated November 1, 1999 between Cayenta and
William G. Atkinson.
10.10 Letter Agreement dated December 18, 1999 between Cayenta and
Edward M. Lake.
10.11 Form of Indemnity Agreement.
10.12 Contract between the Federal Aviation Administration and
Cayenta dated as of July 24, 1995.(1)(2)
10.13 Agreement for Consulting Services dated as of January 1,
1999 between Sempra Energy Information Solutions, LLC and
Transnational Partners II, LLC.(1)(2)
10.14 Management Services Agreement dated August 25, 1999 between
Cayenta and Soliance, LLC.(1)(2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
10.15 Contract for Professional Services dated as of September 8,
1999 between Cayenta and Waste Management, Inc.(1)(2)
10.16 Software License Agreement dated September 23, 1998 between
Assist Cornerstone Technologies, Inc. and 800.com,
Inc.(1)(2)
10.17 Purchase Notification dated February 10, 1999 between Titan
and the Government of the District of Columbia.(1)(2)
10.18 Subcontract Agreement dated March 23, 1999 between Cap
Gemini America LLC and Cayenta.(1)(2)
10.19 Tax Allocation Agreement.(1)
10.20 Corporate Services Agreement.(1)
10.21 Facilities Agreement.(1)
10.22 Office Space Lease dated March 9, 1999 between San Diego 225
RPF III, LLC and Titan.
10.23 Subordinated Promissory Note dated December 27, 1999 between
Cayenta Operating Company, Inc. and Titan.
10.24 Technical Services Agreement dated January 1, 1999 between
Enova Corporation and Transnational Partners II, LLC, as
amended. (1)(2)
11.1 Computation of Net Income per Share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of KPMG LLP.
23.5 Consent of Ernst & Young LLP.
23.6 Consent of Cooley Godward LLP. Reference is made to
Exhibit 5.1.(1)
24.1 Power of Attorney. Reference is made to page II-6.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
(1) To be filed by amendment.
(2) We will request confidential treatment for these documents.
<PAGE>
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into as of November 2, 1999,
by and among CAYENTA.COM, INC., a Delaware corporation (the "PURCHASER"), THE
TITAN CORPORATION, a Delaware corporation ("TITAN"), JB SYSTEMS, Inc., doing
business as J.B. SYSTEMS, INC. D.B.A. MAINSAVER and MAINSAVER CORPORATION, a
California corporation ("MS"), and the following parties (the "SELLING
SHAREHOLDERS"): JKS SEPARATE PROPERTY TRUST, THE GEHL LIVING TRUST, JBS
ACQUISITION COMPANY, LLC, EPICOR SOFTWARE CORPORATION and MARK STEVENS
("STEVENS"). Certain capitalized terms used in this Agreement are defined on
Exhibit A.
RECITALS
A. The Selling Shareholders own 1,173,543 shares of the Class A Common
Stock and 58,677 shares of the Class B Common Stock of MS (the "SHARES"), which
constitute all of the outstanding capital stock of MS.
B. The Selling Shareholders wish to sell the Shares to the Purchaser on
the terms set forth in this Agreement.
AGREEMENT
The Purchaser, MS and the Selling Shareholders, intending to be legally
bound, agree as follows:
1. SALE AND PURCHASE OF SHARES; RELATED TRANSACTIONS
1.1 SALE AND PURCHASE OF SHARES. At the Closing, the Selling
Shareholders shall sell, assign, transfer and deliver the Shares to the
Purchaser, and the Purchaser shall purchase the Shares from the Selling
Shareholders, on the terms and subject to the conditions set forth in this
Agreement.
1.2 PURCHASE PRICE.
(a) The aggregate purchase price payable by the Purchaser for
the Shares and for the cash-out of the Options and Warrants pursuant to Section
1.2(d) (the "PURCHASE PRICE") shall be $12,900,000, subject to the Working
Capital adjustment. The Purchase Price shall be increased on a dollar for dollar
basis to the extent MS' estimated Working Capital on the Closing Date (the
"ESTIMATED WORKING CAPITAL") is positive or decreased on a dollar for dollar
basis to the extent that Estimated Working Capital is negative. The Purchase
Price shall be paid by the Purchaser to the Agent in two installments as set
forth in Sections 1.2(b) and 1.2(c) subject to post-closing Purchase Price
adjustments, if any, as set forth in Section 1.3. The Agent shall be responsible
for distributing such payments (net of any fee payable to Parker Mulcahy &
Associates pursuant to Section 7.23) to the Selling Shareholders and to the
holders of the cashed out Options and Warrants pursuant to Section 1.2(d).
Neither the Purchaser nor MS shall be liable to any Selling Shareholder or to
the holders of the cashed out Options or Warrants for any of such Selling
Shareholder's or such holder's share of the Purchase Price lawfully and properly
1.
<PAGE>
delivered to the Agent in accordance with the terms of this Agreement.
Notwithstanding anything herein to the contrary, the Agent may allocate the
Purchase Price to Stevens on a different per share basis and different
installment basis than the other Selling Shareholders and Stevens shall not be
included as a Selling Shareholder for purposes of the indemnification
obligations in Section 6 and Section 7.1.
(b) At the Closing, the Purchaser shall pay to the Agent in
immediately available funds the Purchase Price (as adjusted for Estimated
Working Capital) less (a) $3,000,000 (the "SECOND INSTALLMENT") and less (b) a
$500,000 holdback (the "HOLDBACK AMOUNT").
(c) The Purchaser shall, and Titan shall cause the Purchaser
to, pay the Second Installment of the Purchase Price on the first business day
after the 18th month anniversary of the Closing Date (or on such earlier date as
the Purchaser may elect). The aggregate amount of the Second Installment shall
be $3,000,000 less any setoffs or deductions made pursuant to this Agreement.
The Purchaser shall, and Titan shall also cause the Purchaser, to pay with the
Second Installment, simple interest on the amount of such installment actually
paid at the rate of 7.5% per annum over the period from the Closing Date through
the date on which the Second Installment is paid. The Purchaser's obligation to
make the payment contemplated by this Section 1.2(c) shall be subject to any
right of setoff that the Purchaser may be entitled to exercise (pursuant to
Section 6.7). In addition, if the Purchaser shall have made in good faith any
claim for indemnification against any of the Selling Shareholders pursuant to
this Agreement, including the Damages or Losses in connection with any claim
against Gehl pursuant to Section 6.11 and such claim shall not have been setoff
in accordance with Section 6.7, then the Purchaser may withhold a good faith
estimate of such claim (and the associated interest) from the Second Installment
and pay the remaining portion of the Second Installment with interest on the
portion paid.
(d) Prior to the Closing, MS shall have obtained agreements
from each of the holders of vested Options set forth in Part 1.2(a) of the
Disclosure Schedule, to terminate the Options in exchange for the right to
receive concurrent with the Closing a cash payment on the terms set forth in the
Agreement To Terminate Options attached as Part 1.2(d) of the Disclosure
Schedule. In addition, prior to the Closing, MS shall have obtained agreements
from each of the holders of the Notes under the Convertible Subordinated Loan
Agreement dated August 13, 1999 (the "CONVERTIBLE LOAN AGREEMENT") to terminate
the right to receive warrants in accordance with Section 4.10 of the Convertible
Loan Agreement (the "WARRANTS") in exchange for the right to receive concurrent
with the Closing a cash payment on the terms set forth in the Agreement to
Terminate Warrants attached as Part 1.2(d) of the Disclosure Schedule. The
amounts payable to the holders of the cashed out Options and Warrants
(collectively, the "CASH-OUT AMOUNT") shall not be subject to reduction for any
offsets made against the Second Installment or any claims for indemnity made
against the Selling Shareholders or Gehl pursuant to this Agreement..
(e) Attached hereto as Part 1.2 of the Disclosure Schedule is
a schedule allocating the Purchase Price among the Selling Shareholders,
including Stevens, and among the holders of the cashed out Options and Warrants,
assuming there is no Working Capital adjustment to the Purchase Price pursuant
to Section 1.3.
2.
<PAGE>
1.3 POST-CLOSING PURCHASE PRICE ADJUSTMENT.
(a) The Purchase Price payable pursuant to Section 1.2(a)
shall be subject to post-closing adjustment as follows:
(i) the Purchase Price shall be increased dollar for
dollar for each dollar of Working Capital that exceeds Estimated Working
Capital, if any, provided that the maximum aggregate Purchase Price shall be
$14,500,000; or
(ii) the Purchase Price shall be reduced dollar for
dollar to the extent the Working Capital (either positive Working Capital or
negative Working Capital) is less than Estimated Working Capital, if any.
(b) Following completion of the audit in accordance with
Section 1.3(c), the Purchase Price shall be adjusted pursuant to Section 1.3(a).
If the Purchase Price is reduced in accordance with Section 1.3(a), such amount
shall be deducted from the Holdback Amount and the remainder of the Holdback
Amount, if any, shall be paid to the Agent including simple interest thereon at
the rate of 7.5% per annum over the period from the Closing Date through the
date on which such amount is paid. If the reduction in the Purchase Price
exceeds the Holdback Amount, any excess reduction shall be deducted from the
Second Installment of the Purchase Price and the interest accrual on such
installment shall also be adjusted so that interest accrues on the reduced
Second Installment amount of the Purchase Price from the Closing Date. To the
extent that the Purchase Price is increased, the Purchaser shall pay to the
Agent: (i) the full Holdback Amount, (ii) any additional amounts owing as a
result of an increase in the Purchase Price pursuant to Section 1.3(a), and
(iii) simple interest on the Holdback Amount and the additional Purchase Price
at the rate of 7.5% per annum over the period from the Closing Date through the
date on which such amount is paid. In no event, however, shall the aggregate
Purchase Price paid by the Purchaser exceed $14,500,000.
(c) Within 90 days following the Closing, Arthur Andersen LLP
("ARTHUR ANDERSEN") shall audit MS' balance sheet as of October 31, 1999 (the
"CLOSING BALANCE SHEET") for conformity to GAAP and issue a draft report
thereon. Purchaser shall provide to Agent a copy of the draft report. Any
adjustment to the Closing Balance Sheet proposed by Arthur Andersen, including
adjustments to Working Capital, shall be subject to review by auditors retained
by the Selling Shareholders (the "MS AUDITORS") which review shall be completed
no later than 30 days after the Agent receives the report from Arthur Andersen.
If the opinions of Arthur Andersen and the MS Auditors differ as to the
necessity of the adjustment, a third auditing firm mutually agreeable to the
parties shall be selected to review the disputed adjustments. The decision of
the third independent auditing firm regarding any such adjustment shall be
binding on the parties. The final determination of the amounts payable hereunder
shall be based on the final determination of the Working Capital as set forth in
the final audited Closing Balance Sheet (the "AUDITED BALANCE SHEET") and each
component in the calculation of such amounts shall be made using the Audited
Balance Sheet. Each party shall be responsible for any fees and expenses
incurred by such party's auditors. Notwithstanding anything in this Agreement to
the contrary, if the services of a third independent auditing firm are required
pursuant to this Section, the Purchaser and the Selling Shareholders shall each
bear and pay 50% of all fees and expenses of such auditing firm.
3.
<PAGE>
(d) At the Closing:
(i) the Selling Shareholders shall deliver to the
Purchaser the stock certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers) and the Purchaser shall pay the first
installment of the Purchase Price to the Agent as contemplated by Section 1.2;
(ii) Mark Stevens, Patrick Gehl and Parker Mulcahy &
Associates shall execute and deliver to the Purchaser and MS a Noncompetition
Agreement in the form of Exhibit B;
(iii) MS and Mark Stevens shall execute and deliver
an Employment Agreement in the form of Exhibit C;
(iv) the Selling Shareholders shall execute and
deliver to the Purchaser and MS a General Release in the form of Exhibit D;
(v) the Purchaser shall have received from the
Selling Shareholders' counsel for MS and JBS Acquisition Company, LLC an opinion
of such counsel in the form of Exhibit E;
(vi) the Selling Shareholders shall execute and
deliver to the Purchaser and MS a certificate (the "CLOSING CERTIFICATE")
setting forth the Estimated Working Capital and each of the conditions set forth
in Sections 4.3(b), 4.4 and 4.7 has been satisfied in all respects; and
(vii) the directors and officers of MS shall resign
from their respective positions as directors and officers of MS.
2. REPRESENTATIONS AND WARRANTIES OF MS AND SELLING SHAREHOLDERS
Except as set forth in the disclosure schedules attached hereto (each a
"SCHEDULE," and collectively, the "DISCLOSURE SCHEDULE"), as of the date of this
Agreement and as of the Closing, MS and the Selling Shareholders jointly and
severally represent and warrant, to and for the benefit of the Indemnitees, as
follows:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) MS is a corporation duly organized, validly existing and
in good standing under the laws of the State of California and has all necessary
power and authority:
(i) to conduct its business in the manner in which
its business is currently being conducted and in the manner in which its
business is currently proposed to be conducted;
(ii) to own and use its assets in the manner in which
its assets are currently owned and used and in the manner in which its assets
are currently proposed to be owned and used; and
4.
<PAGE>
(iii) to perform its obligations under all MS
Contracts.
(b) MS has never conducted any business under or otherwise
used, for any purpose or in any jurisdiction, any fictitious name, assumed name,
trade name or other name, other than the names "J.B. SYSTEMS, INC.," "MAINSAVER
CORPORATION" and "MAINSAVER."
(c) MS is not, and has never been, required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Part 2.1 of the
Disclosure Schedule. Except as set forth in Part 2.1 of the Disclosure Schedule,
MS is in good standing as a foreign corporation in each of the jurisdictions
identified in Part 2.1 of the Disclosure Schedule.
(d) Part 2.1 of the Disclosure Schedule accurately sets forth
(i) the names of the members of MS's board of directors, (ii) the names of the
members of each committee of MS's board of directors, and (iii) the names and
titles of MS's officers.
(e) Neither MS nor any of its shareholders has ever approved,
or commenced any proceeding or made any election contemplating, the dissolution
or liquidation of MS or the winding up or cessation of MS's business or affairs.
(f) MS has no subsidiaries, and except as set forth in Part
2.1 of the Disclosure Schedule MS has never owned, beneficially or otherwise,
any shares or other securities of, or any direct or indirect interest of any
nature in, any Entity. MS has not agreed and is not obligated to make any future
investment in or capital contribution to any other Entity.
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS.
(a) MS has delivered to the Purchaser accurate and complete
copies of:
(i) MS's articles of incorporation and bylaws,
including all amendments thereto;
(ii) the stock records of MS; and
(iii) the minutes and other records of the
meetings and other proceedings (including any actions taken by written
consent or otherwise without a meeting) of the shareholders of MS, the board
of directors of MS and all committees of the board of directors of MS.
Except as set forth in Part 2.2 of the Disclosure Schedule, there have
been no meetings or other proceedings of the shareholders of MS, the board of
directors of MS or any committee of the board of directors of MS that are not
fully reflected in such minutes or other records.
(b) There has not been any violation of any of the provisions
of MS's articles of incorporation or bylaws or of any resolution adopted by MS's
shareholders, MS's board of directors or any committee of MS's board of
directors; and no event has occurred, and no condition or circumstance exists,
that might (with or without notice or lapse of time) constitute or result
directly or indirectly in such a violation.
5.
<PAGE>
(c) Except as set forth in Part 2.2 of the Disclosure
Schedule, the books of account, stock records, minute books and other records of
MS are accurate, up-to-date and complete, and have been maintained in accordance
with sound and prudent business practices. All of the records of MS are in the
actual possession and direct control of MS. MS has in place, and has at all
times had in place, an adequate and appropriate system of internal controls
which is at least as comprehensive and effective as the systems of internal
controls customarily maintained by Comparable Entities.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of MS consists of:
(i) 2,500,000 shares of Class A Common Stock having
no par value and 250,000 shares of Class B Common Stock having no par value, of
which 1,173,543 shares of the Class A Common Stock and 58,677 of the Class B
Common Stock (the aggregate of such shares constituting all of the Shares) have
been issued and are outstanding; and
(ii) The Selling Shareholders have, and the Purchaser
will acquire at the Closing, good and valid title to the Shares free and clear
of any Encumbrances. All of such Shares are owned by the Selling Shareholders in
the amounts indicated on the Schedule of Shareholders and are being sold to the
Purchaser hereunder.
(b) All of the Shares (i) have been duly authorized and
validly issued, (ii) are fully paid and non-assessable, (iii) were issued in
compliance with any applicable preemptive or similar rights and (iv) have been
issued in full compliance with all applicable securities laws and other
applicable Legal Requirements and in compliance with all applicable Contracts.
The Selling Shareholders have delivered to the Purchaser accurate and complete
copies of the stock certificates evidencing the Shares.
(c) Except as set forth in Part 2.3 of the Disclosure
Schedule, there is no:
(i) outstanding subscription, option, call, warrant
or right (whether or not currently exercisable) to acquire any shares of the
capital stock or other securities of MS;
(ii) outstanding security, instrument or obligation
that is or may become convertible into or exchangeable for any shares of the
capital stock or other securities of MS;
(iii) Contract under which MS is or may become
obligated to sell or otherwise issue any shares of its capital stock or any
other securities; or
(iv) condition or circumstance that may directly or
indirectly give rise to or provide a basis for the assertion of a claim by any
Person to the effect that such Person is entitled to acquire or receive any
shares of capital stock or other securities of MS.
(d) Except as set forth in Part 2.3 of the Disclosure
Schedule, MS has never repurchased, redeemed or otherwise reacquired any shares
of capital stock or other securities. All securities so reacquired by MS were
reacquired in full compliance with the applicable
6.
<PAGE>
provisions of the California General Corporation Law and with all other
applicable Legal Requirements.
2.4 FINANCIAL STATEMENTS.
(a) MS has delivered to the Purchaser the following financial
statements and notes (collectively, the "MS FINANCIAL STATEMENTS"):
(i) the audited balance sheet of MS as of December
31, 1998, and the related audited statements of operations, changes in
shareholders' equity and cash flows of MS for the year then ended, together with
the notes thereto and the unqualified report and certification of Deloitte and
Touche LLP relating thereto;
(ii) the unaudited balance sheet of MS as of
December 31, 1997, and the related unaudited statements of operations,
changes in shareholders' equity and cash flows of MS for the year then ended,
together with the notes thereto;
(iii) the unaudited balance sheet of MS as of
August 31, 1999 (the "UNAUDITED INTERIM BALANCE SHEET"), and the related
unaudited statements of operations, changes in shareholders' equity and cash
flows of MS for the eight months then ended, together with the notes thereto;
and
(iv) the unaudited balance sheet of MS as of
September 30, 1999, and the related unaudited statements of operations,
changes in shareholders' equity and cash flows of MS for the nine months then
ended, together with the notes thereto (collectively, the "SEPTEMBER
FINANCIAL STATEMENTS") .
(b) All of the MS Financial Statements are accurate and
complete in all respects except that the September Financial Statements are
accurate and complete in all material respects. The financial statements and
notes referred to in Section 2.4(a)(i) present fairly the financial position of
MS as of December 31, 1998 and the results of operations, changes in
shareholders' equity and cash flows of MS for the year then ended. The financial
statements and notes referred to in Sections 2.4(a)(ii) and 2.4(a)(iii) present
fairly the financial position of MS as of the respective dates thereof and the
results of operations, changes in shareholders' equity and cash flows of MS for
the periods covered thereby. The MS Financial Statements have been prepared in
accordance with GAAP, applied on a consistent basis throughout the periods
covered, subject in the case of interim financial statements to normal recurring
year-end adjustments and the absence of footnotes.
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the
Disclosure Schedule, since December 31, 1998:
(a) there has not been any adverse change in MS's business,
condition, assets, liabilities, operations, financial performance, net income or
prospects (or in any aspect or portion thereof), and no event has occurred that
might have an adverse effect on MS's business, condition, assets, liabilities,
operations, financial performance, net income or prospects (or on any aspect or
portion thereof);
7.
<PAGE>
(b) there has not been any loss, damage or destruction to, or
any interruption in the use of, any of MS's assets (whether or not covered by
insurance);
(c) MS has not (i) declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, or (ii) repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) MS has not sold or otherwise issued any shares of capital
stock or any other securities;
(e) MS has not amended its articles of incorporation or bylaws
and has not effected or been a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(f) MS has not purchased or otherwise acquired any asset from
any other Person, except for supplies acquired by MS in the Ordinary Course of
Business;
(g) MS has not leased or licensed any asset from any other
Person;
(h) MS has not made any capital expenditure;
(i) MS has not sold or otherwise transferred, and has not
leased or licensed, any asset to any other Person except for products sold by MS
from its inventory in the Ordinary Course of Business;
(j) MS has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness;
(k) MS has not pledged or hypothecated any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance;
(l) MS has not made any loan or advance to any other Person;
(m) MS has not (i) established or adopted any Employee Benefit
Plan, or (ii) paid any bonus or made any profit-sharing or similar payment to,
or increased the amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to, any of its directors, officers or
employees;
(n) MS has not entered into, and neither MS nor any of the
assets owned or used by MS has become bound by, any Contract that is not an
Excluded Contract;
(o) no Contract by which MS or any of the assets owned or used
by MS is or was bound, or under which MS has or had any rights or interest, has
been amended or terminated other than Excluded Contracts;
(p) MS has not incurred, assumed or otherwise become subject
to any Liability, other than accounts payable (of the type required to be
reflected as current liabilities in
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the "LIABILITIES" column of a balance sheet prepared in accordance with GAAP)
incurred by MS in the Ordinary Course of Business;
(q) MS has not discharged any Encumbrance or discharged or
paid any indebtedness or other Liability, except for accounts payable that (i)
are reflected as current liabilities in the "LIABILITIES" column of the
Unaudited Interim Balance Sheet or have been incurred by MS since December 31,
1998 in the Ordinary Course of Business, and (ii) have been discharged or paid
in the Ordinary Course of Business;
(r) MS has not forgiven any debt or otherwise released or
waived any right or claim;
(s) MS has not changed any of its methods of accounting or
accounting practices in any respect;
(t) MS has not entered into any transaction or taken any other
action outside the Ordinary Course of Business; and
(u) MS has not agreed, committed or offered (in writing or
otherwise), and has not attempted, to take any of the actions referred to in
clauses "(c)" through "(t)" above.
2.6 TITLE TO ASSETS.
(a) MS owns, and has good, valid and marketable title to, all
assets purported to be owned by it, including:
(i) all assets reflected on the Unaudited Interim
Balance Sheet (except for inventory sold by MS since August 31, 1999 in the
Ordinary Course of Business);
(ii) all assets acquired by MS since August 31, 1999
(except for inventory sold by MS since August 31, 1999 in the Ordinary Course of
Business);
(iii) all assets referred to in Parts 2.8, 2.9, 2.10
and 2.12 of the Disclosure Schedule and all of MS's rights under MS Contracts;
and
(iv) all other assets reflected in MS's books and
records as being owned by MS.
Except as set forth in Part 2.6 of the Disclosure Schedule, all of said
assets are owned by MS free and clear of any Encumbrances.
(b) Part 2.6 of the Disclosure Schedule identifies all assets
that are being leased or licensed to MS.
2.7 BANK ACCOUNTS. Part 2.7 of the Disclosure Schedule accurately sets
forth, with respect to each account maintained by or for the benefit of MS at
any bank or other financial institution:
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(a) the name and location of the institution at which such
account is maintained;
(b) the name in which such account is maintained and the
account number of such account;
(c) a description of such account and the purpose for which
such account is used;
(d) the current balance in such account;
(e) the rate of interest being earned on the funds in such
account; and
(f) the names of all individuals authorized to draw on or make
withdrawals from such account.
There are no safe deposit boxes or similar arrangements maintained by
or for the benefit of MS.
2.8 RECEIVABLES; MAJOR CUSTOMERS.
(a) Part 2.8 of the Disclosure Schedule provides an accurate
and complete breakdown and aging of all accounts receivable, notes receivable
and other receivables of MS as of August 31, 1999.
(b) Except as set forth in Part 2.8 of the Disclosure
Schedule, all existing accounts receivable of MS (including those accounts
receivable reflected on the Unaudited Interim Balance Sheet that have not yet
been collected and those accounts receivable that have arisen since August 31,
1999 and have not yet been collected):
(i) represent valid obligations of customers of MS
arising from bona fide transactions entered into in the Ordinary Course of
Business; and
(ii) are current and will be collected in full
(without any counterclaim or setoff) on or before October 31, 2000.
(c) Part 2.8 of the Disclosure Schedule accurately identifies,
and provides an accurate and complete breakdown of the revenues received from,
each customer or other Person that accounted for (i) more than $250,000 of the
gross revenues of MS in 1998, or (ii) more than $250,000 of MS's gross revenues
in the first three quarters of 1999. MS has not received any notice or other
communication (in writing or otherwise), and has not received any other
information, indicating that any customer or other Person identified in Part 2.8
of the Disclosure Schedule may cease dealing with MS or may otherwise reduce in
any material respect the volume of support services provided by MS to such
Person below historical levels.
2.9 INVENTORY. Part 2.9 of the Disclosure Schedule provides an accurate
and complete breakdown of all inventory (including raw materials, work in
process and finished goods) of MS as of August 31, 1999. All of MS's existing
inventory (including all inventory
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that is reflected on the Unaudited Interim Balance Sheet and that has not
been disposed of by MS since August 31, 1999):
(a) is of such quality and quantity as to be usable and
saleable by MS in the Ordinary Course of Business;
(b) has been priced at the lower of cost or market value using
the "first-in, first-out" method; and
(c) is free of any defect or deficiency.
The inventory levels maintained by MS (i) are not excessive in light of
MS's normal operating requirements, and (ii) are adequate for the conduct of
MS's operations in the Ordinary Course of Business.
2.10 EQUIPMENT, ETC.
(a) Part 2.10 of the Disclosure Schedule accurately identifies
all equipment, furniture, fixtures, improvements and other tangible assets
(other than inventory) owned by MS with an original cost of $2,000 or more, and
accurately sets forth the date of acquisition, original cost and book value of
each of said assets. Part 2.10 also accurately identifies all tangible assets
leased to MS.
(b) Each asset identified or required to be identified in Part
2.10 of the Disclosure Schedule:
(i) is structurally sound, free of defects and
deficiencies and in good condition and repair (ordinary wear and tear excepted);
(ii) complies in all respects with, and is being
operated and otherwise used in full compliance with, all applicable Legal
Requirements; and
(iii) is adequate for the uses to which it is being
put.
The assets identified in Part 2.10 of the Disclosure Schedule are
adequate for the conduct of MS's business in the manner in which such business
is currently being conducted and in the manner in which such business is
currently proposed to be conducted.
2.11 REAL PROPERTY. MS does not own any real property or any interest
in real property, except for the leaseholds created under the real property
leases identified in 2.13 of the Disclosure Schedule. Part 2.11 of the
Disclosure Schedule provides an accurate and complete description of the
premises covered by said leases and the facilities located on such premises. MS
enjoys peaceful and undisturbed possession of such premises.
2.12 PROPRIETARY ASSETS.
(a) Part 2.12(a) of the Disclosure Schedule sets forth, with
respect to each Company Proprietary Asset registered with any Governmental Body
or for which an application
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has been filed with any Governmental Body, (i) a brief description of such
Proprietary Asset, and (ii) the names of the jurisdictions covered by the
applicable registration or application. Part 2.12(a) of the Disclosure
Schedule identifies and provides a brief description of all other material
Company Proprietary Assets owned by MS. Part 2.12(a) of the Disclosure
Schedule identifies and provides a brief description of each Proprietary
Asset licensed to MS by any Person (except for any Proprietary Asset that is
licensed to MS under any third party software license generally available to
the public at a cost of less than $1,000 per copy), and identifies the
license agreement under which such Proprietary Asset is being licensed to MS.
Except as set forth in Part 2.12(a) of the Disclosure Schedule, MS has good,
valid and marketable title to all of the Company Proprietary Assets free and
clear of all liens and other Encumbrances, and has a valid right (contractual
or otherwise) to use all Proprietary Assets identified in Part 2.12(a) of the
Disclosure Schedule. Except as set forth in Part 2.12(a) of the Disclosure
Schedule, MS is not obligated to make any payment to any Person for the use
of any Company Proprietary Asset. Except as set forth in Part 2.12(a) of the
Disclosure Schedule, MS has not developed jointly with any other Person any
Company Proprietary Asset with respect to which such other Person has any
rights.
(b) MS has taken commercially reasonable measures and
precautions to protect and maintain the confidentiality and secrecy of all
Company Proprietary Assets (except Company Proprietary Assets whose value would
be unimpaired by public disclosure) and otherwise to maintain and protect the
value of all Company Proprietary Assets. Except as set forth in Part 2.12(b) of
the Disclosure Schedule, MS has not disclosed or delivered to any Person, or
permitted the disclosure or delivery to any Person of, (i) the source code, or
any portion or aspect of the source code, of any Company Proprietary Asset, or
(ii) the object code, or any portion or aspect of the object code, of any
Company Proprietary Asset.
(c) None of the Company Proprietary Assets infringes or
conflicts with any Proprietary Asset owned or used by any other Person. MS is
not infringing, misappropriating or making any unlawful use of, and has not at
any time infringed, misappropriated or made any unlawful use of, or received any
notice or other communication (in writing or otherwise) of any actual, alleged,
possible or potential infringement, misappropriation or unlawful use of, any
Proprietary Asset owned or used by any other Person. To Knowledge of MS, no
other Person is infringing, misappropriating or making any unlawful use of, and
no Proprietary Asset owned or used by any other Person infringes or conflicts
with, any Company Proprietary Asset.
(d) Except as set forth in Part 2.12(d) of the Disclosure
Schedule: (i) each Company Proprietary Asset conforms in all material respects
with any specification, documentation, performance standard, representation or
statement made or provided with respect thereto by or on behalf of MS; and (ii)
there has not been any material claim by any customer or other Person alleging
that any Company Proprietary Asset (including each version thereof that has ever
been licensed or otherwise made available by MS to any Person) does not conform
in all material respects with any specification, documentation, performance
standard, representation or statement made or provided by or on behalf of MS,
and, to the Knowledge of MS, there is no basis for any such claim. To the extent
required by GAAP, MS has established adequate reserves on the Unaudited Interim
Balance Sheet to cover all costs associated with any obligations that MS may
have with respect to the correction or repair of programming errors or other
defects in the Company Proprietary Assets.
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(e) The Company Proprietary Assets constitute all the
Proprietary Assets necessary to enable MS to conduct its business in the manner
in which such business has been and is currently being conducted. Except as set
forth in Part 2.12(e) of the Disclosure Schedule, (i) MS has not licensed any of
the Company Proprietary Assets to any Person on an exclusive basis, and (ii) MS
has not entered into any covenant not to compete or Contract limiting its
ability to exploit fully any of its Proprietary Assets or to transact business
in any market or geographical area or with any Person.
(f) Except as set forth in Part 2.12(f) of the Disclosure
Schedule: (i) all current employees of MS and all former employees who were
hired on or after August 11, 1998, have executed and delivered to MS an
agreement (containing no exceptions to or exclusions from the scope of its
coverage except for prior inventions that do not conflict with the operations of
MS' businesses or the use of MS' assets) that is substantially identical to the
standard form of Employee Proprietary Information and Invention Agreement
previously delivered to Purchaser, and (ii) all current consultants and
independent contractors of MS and all former consultants and independent
contractors of MS engaged on or after August 11, 1998 (excluding bankers,
accountants, lawyers and other non-technical consultants and independent
contractors) have executed and delivered to MS an agreement (containing no
exceptions to or exclusions from the scope of its coverage as it relates to the
specific project for which the consultant or independent contractor was hired)
that is substantially identical to the form of consultant confidential
information and invention assignment agreement previously delivered to the
Purchaser.
(g) All Company Proprietary Assets do not and will not contain
any viruses, which shall mean any computer code designed to disrupt, disable,
harm, or otherwise impede in any manner, the operation of the computer program,
or any other associated software, firmware, hardware, or network (including
local area or wide-area networks), in a manner not intended by the creator(s) of
such software, firmware, hardware, or network.
2.13 CONTRACTS.
(a) Part 2.13 of the Disclosure Schedule identifies and
provides an accurate and complete description of each MS Contract, except for
any Excluded Contract. MS has made available to the Purchaser accurate and
complete copies of all MS Contracts identified in Part 2.13 of the Disclosure
Schedule, including all amendments thereto.
(b) Each MS Contract is valid and in full force and effect,
and is enforceable by MS in accordance with its terms. No MS Contract contains
any term or provision that is extraordinary or that is otherwise not customarily
found in Contracts entered into by Comparable Entities.
(c) Except as set forth in Part 2.13 of the Disclosure
Schedule:
(i) no Person has violated or breached, or declared
or committed any default under, any MS Contract;
(ii) no event has occurred, and no circumstance or
condition exists, that might (with or without notice or lapse of time) (A)
result in a violation or breach of any of the provisions of any MS Contract, (B)
give any Person the right to declare a default or exercise
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any remedy under any MS Contract, (C) give any Person the right to accelerate
the maturity or performance of any MS Contract, or (D) give any Person the
right to cancel, terminate or modify any MS Contract;
(iii) MS has not received any notice or other
communication (in writing or otherwise) regarding any actual, alleged, possible
or potential violation or breach of, or default under, any MS Contract; and
(iv) MS has not waived any of its rights under any MS
Contract.
(d) To the best of the Knowledge of MS, each Person against
which MS has or may acquire any rights under any MS Contract is solvent and is
able to satisfy all of such Person's current and future monetary obligations and
other obligations and Liabilities to MS.
(e) Except as set forth in Part 2.13 of the Disclosure
Schedule:
(i) MS has never guaranteed or otherwise agreed to
cause, insure or become liable for, and MS has never pledged any of its assets
to secure, the performance or payment of any obligation or other Liability of
any other Person;
(ii) MS has never been a party to or bound by (A) any
joint venture agreement, partnership agreement, profit-sharing agreement,
cost-sharing agreement, loss-sharing agreement or similar Contract, or (B) any
Contract that creates or grants to any Person, or provides for the creation or
grant of, any stock appreciation right, phantom stock right or similar right or
interest;
(iii) MS has not had any determination of
noncompliance, entered into any consent order or undertaken any internal
investigation relating directly or indirectly to any Government Contract or
Government Bid;
(iv) MS has complied in all material respects with
all Legal Requirements with respect to all Government Contracts and Government
Bids;
(v) MS has not, in obtaining or performing any
Government Contract, violated (A) the Truth in Negotiations Act of 1962, as
amended, (B) the Service Contract Act of 1963, as amended, (C) the Contract
Disputes Act of 1978, as amended, (D) the Office of Federal Procurement Policy
Act, as amended, (E) the Federal Acquisition Regulations (the "FAR") or any
applicable agency supplement thereto, (F) the Cost Accounting Standards, (G) the
Defense Industrial Security Manual (DOD 5220.22-M), (H) the Defense Industrial
Security Regulation (DOD 5220.22-R) or any related security regulations, or (I)
any other applicable procurement law or regulation or other Legal Requirement;
(vi) all facts set forth in or acknowledged by MS in
any certification, representation or disclosure statement submitted by MS with
respect to any Government Contract or Government Bid were current, accurate and
complete as of the date of submission;
(vii) neither MS nor any of its employees has been
debarred or suspended from doing business with any Governmental Body, and, to
the best of the knowledge
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of MS, no circumstances exist that would warrant the institution of debarment
or suspension proceedings against MS or any of its employees;
(viii) no negative determinations of
responsibility have been issued against MS in connection with any Government
Contract or Government Bid;
(ix) no direct or indirect costs incurred by MS
have been questioned or disallowed as a result of a finding or determination
of any kind by any Governmental Body;
(x) no Governmental Body, and no prime contractor or
higher-tier subcontractor of any Governmental Body, has withheld or set off, or
threatened to withhold or set off, any amount due to MS under any Government
Contract other than routine retentions that are not in dispute;
(xi) there are not and have not been any
irregularities, misstatements or omissions relating to any Government Contract
or Government Bid that have led to or could reasonably be expected to lead to
(A) any administrative, civil, criminal or other investigation, legal proceeding
or indictment involving MS or any of its employees, (B) the questioning or
disallowance of any costs submitted for payment by MS, (C) the recoupment of any
payments previously made to MS, (D) a finding or claim of fraud, defective
pricing or improper payments on the part of MS, or (E) the assessment of any
penalties or damages of any kind against MS;
(xii) there is not and has not been any (A)
outstanding claim against MS by, or dispute involving MS with, any prime
contractor, subcontractor, vendor or other person arising under or relating to
the award or performance of any Government Contract, (B) fact known by MS upon
which any such claim could reasonably be expected to be based or which may give
rise to any such dispute, or (C) final decision of any Governmental Body against
MS;
(xiii) MS is not undergoing and has not undergone any
audit, and MS has no knowledge of any basis for any impending audit, arising
under or relating to any Government Contract (other than normal routine audits
conducted in the ordinary course of business);
(xiv) MS has not entered into any financing
arrangement or assignment of proceeds with respect to the performance of any
Government Contract;
(xv) no payment has been made by MS or by any person
acting on its behalf to any person (other than to any bona fide employee or
agent (as defined in subpart 3.4 of the FAR) of MS) which is or was contingent
upon the award of any Government Contract or which would otherwise be in
violation of any applicable procurement law or regulation or any other Legal
Requirement;
(xvi) MS's cost accounting system is in compliance
with applicable regulations and other applicable Legal Requirements, and has not
been determined by any Governmental Body not to be in compliance with any Legal
Requirement;
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(xvii) MS has complied with all applicable
regulations and other Legal Requirements and with all applicable contractual
requirements relating to the placement of legends or restrictive markings on
technical data, computer software and other proprietary assets;
(xviii) in each case in which MS has delivered or
otherwise provided any technical data, computer software or Company Proprietary
Assets to any Governmental Body in connection with any Government Contract, MS
has marked such technical data, computer software or Company Proprietary Assets
with all markings and legends (including any "restricted rights" legend and any
"government purpose license rights" legend) necessary (under the FAR or other
applicable Legal Requirements) to ensure that no Governmental Body or other
person or entity is able to acquire any unlimited rights with respect to such
technical data, computer software or Company Proprietary Assets;
(xix) MS has not made any disclosure to any
Governmental Body pursuant to any voluntary disclosure agreement;
(xx) MS has not entered into any cost type Government
Contract;
(xxi) MS is not and will not be required to make any
filing with or give any notice to, or to obtain any consent from, any
Governmental Body under or in connection with any Government Contract or
Government Bid as a result of or by virtue of the execution, delivery of
performance of this Agreement or any of the other agreements referred to in this
Agreement; and
(xxii) Neither MS, nor any director, officer, agent,
employee or other person acting on behalf of MS has used any corporate or other
funds for unlawful contributions, payments, gifts or entertainment, or made any
unlawful expenditures relating to political activity to government officials or
others or established or maintained any unlawful or unrecorded funds. Neither
MS, nor any director, officer, agent, employee or other person acting on behalf
of MS has accepted or received any unlawful contributions, payments, gifts or
expenditures.
(f) The performance of the MS Contracts will not result in any
violation of or failure to comply with any Legal Requirement.
(g) No Person is renegotiating, or has the right to
renegotiate, any amount paid or payable to MS under any MS Contract or any other
term or provision of any MS Contract.
(h) The Contracts identified in Part 2.13 of the Disclosure
Schedule and the Excluded Contracts collectively constitute all of the Contracts
necessary to enable MS to conduct its business in the manner in which its
business is currently being conducted and in the manner in which its business is
proposed to be conducted.
(i) Part 2.13 of the Disclosure Schedule identifies and
provides an accurate and complete description of each proposed Contract as to
which any bid, offer, award, written proposal, term sheet or similar document
has been submitted or received by MS that is currently open.
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(j) Part 2.13 of the Disclosure Schedule provides an accurate
description and breakdown of MS's backlog as of October 1, 1999 under the MS
Contracts.
2.14 SECURITY MATTERS. MS is in compliance with all security and
related requirements on its Government Contracts.
2.15 LIABILITIES; MAJOR SUPPLIERS.
(a) MS has no Liabilities, except for:
(i) liabilities identified as such in the
"liabilities" column of the Unaudited Interim Balance Sheet;
(ii) accounts payable (of the type required to be
reflected as current liabilities in the "liabilities" column of a balance sheet
prepared in accordance with GAAP) incurred by MS in the Ordinary Course of
Business since August 31, 1999;
(iii) MS's obligations under the Contracts listed in
Part 2.13 of the Disclosure Schedule and under Excluded Contracts, to the extent
that the existence of such obligations is ascertainable solely by reference to
such Contracts; and
(iv) liabilities set forth in Part 2.15 of the
Disclosure Schedule.
(b) Part 2.15 of the Disclosure Schedule:
(i) provides an accurate and complete breakdown and
aging of MS's accounts payable as of August 31, 1999;
(ii) provides an accurate and complete breakdown of
all customer deposits, deferred revenue and other deposits held by MS in excess
of $1,000 (with any unlisted deposits, deferred revenue and other deposits not
exceeding $15,000 in the aggregate) as of the date of this Agreement; and
(iii) provides an accurate and complete breakdown
of MS's long-term debt as of the date of this Agreement.
(c) MS has not paid, and MS is not and will not become liable
for the payment of, any fees (including brokers, finders or advisory fees),
costs or expenses of the type referred to in Section 7.4(a).
(d) Part 2.15 of the Disclosure Schedule accurately
identifies, and provides an accurate and complete breakdown of the amounts paid
to, each supplier or other Person that received (i) more than $200,000 from MS
in 1997, (ii) more than $200,000 from MS in 1998, or (iii) more than $200,000
from MS in the first three quarters of 1999.
2.16 COMPLIANCE WITH LEGAL REQUIREMENTS.
(a) Except as set forth in Part 2.16 of the Disclosure
Schedule:
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(i) MS is in full compliance with each Legal
Requirement that is applicable to it or to the conduct of its business or the
ownership or use of any of its assets;
(ii) MS has at all times been in full compliance with
each Legal Requirement that is or was applicable to it or to the conduct of its
business or the ownership or use of any of its assets;
(iii) no event has occurred, and no condition or
circumstance exists, that might (with or without notice or lapse of time)
constitute or result directly or indirectly in a violation by MS of, or a
failure on the part of MS to comply with, any Legal Requirement; and
(iv) MS has not received, at any time, any notice or
other communication (in writing or otherwise) from any Governmental Body or any
other Person regarding (i) any actual, alleged, possible or potential violation
of, or failure to comply with, any Legal Requirement, or (ii) any actual,
alleged, possible or potential obligation on the part of MS to undertake, or to
bear all or any portion of the cost of, any cleanup or any remedial, corrective
or response action of any nature.
(b) MS does not have any report, study, survey or other
document that addresses or otherwise relates to the compliance of MS with, or
the applicability to MS of, any Legal Requirement.
(c) To the best of the Knowledge of MS and the Selling
Shareholders, no Governmental Body has proposed or is considering any Legal
Requirement that, if adopted or otherwise put into effect, (i) may have an
adverse effect on MS's business, condition, assets, liabilities, operations,
financial performance, net income or prospects or on the ability of MS or any of
the Selling Shareholders to comply with or perform any covenant or obligation
under any of the Transactional Agreements, or (ii) may have the effect of
preventing, delaying, making illegal or otherwise interfering with any of the
Transactions.
2.17 GOVERNMENTAL AUTHORIZATIONS.
(a) Part 2.17 of the Disclosure Schedule identifies:
(i) each Governmental Authorization that is held by
MS; and
(ii) each other Governmental Authorization that, to
the best of the Knowledge of MS and the Selling Shareholders, is held by any of
MS's employees and relates to or is useful in connection with MS's business.
MS has delivered to the Purchaser accurate and complete copies of all
of the Governmental Authorizations identified in Part 2.17 of the Disclosure
Schedule, including all renewals thereof and all amendments thereto. Each
Governmental Authorization identified or required to be identified in Part 2.17
of the Disclosure Schedule is valid and in full force and effect.
(b) Except as set forth in Part 2.17 of the Disclosure
Schedule:
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(i) MS and its employees are, and MS and its
respective employees have at all times been, in full compliance with all of the
terms and requirements of each Governmental Authorization identified or required
to be identified in Part 2.17 of the Disclosure Schedule;
(ii) no event has occurred, and no condition or
circumstance exists, that might (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a violation of or a failure to
comply with any term or requirement of any Governmental Authorization identified
or required to be identified in Part 2.17 of the Disclosure Schedule, or (B)
result directly or indirectly in the revocation, withdrawal, suspension,
cancellation, termination or modification of any Governmental Authorization
identified or required to be identified in Part 2.17 of the Disclosure Schedule;
(iii) MS has never received, and, to the best of the
Knowledge of MS and the Selling Shareholders, no employee of MS has ever
received, any notice or other communication (in writing or otherwise) from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible or potential violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (B) any actual, proposed,
possible or potential revocation, withdrawal, suspension, cancellation,
termination or modification of any Governmental Authorization; and
(iv) all applications required to have been filed for
the renewal of the Governmental Authorizations required to be identified in Part
2.17 of the Disclosure Schedule have been duly filed on a timely basis with the
appropriate Governmental Bodies, and each other notice or filing required to
have been given or made with respect to such Governmental Authorizations has
been duly given or made on a timely basis with the appropriate Governmental
Body.
(c) The Governmental Authorizations identified in Part 2.17 of
the Disclosure Schedule constitute all of the Governmental Authorizations
necessary (i) to enable MS to conduct its business in the manner in which its
business is currently being conducted and in the manner in which its business is
currently proposed to be conducted, and (ii) to permit MS to own and use its
assets in the manner in which they are currently owned and used and in the
manner in which they are currently proposed to be owned and used.
2.18 TAX MATTERS.
(a) Each Tax required to have been paid, or claimed by any
Governmental Body to be payable, by MS (whether pursuant to any Tax Return or
otherwise) has been duly paid in full or on a timely basis. Any Tax required to
have been withheld or collected by MS has been duly withheld and collected; and
(to the extent required) each such Tax has been paid to the appropriate
Governmental Body.
(b) Part 2.18 of the Disclosure Schedule accurately identifies
all Tax Returns required to be filed by or on behalf of any of MS with any
Governmental Body with respect to any taxable period ending on or before the
Closing Date ("MS RETURNS"). Except as set forth in Part 2.18 of the Disclosure
Schedule, all MS Returns (i) have been filed when due, and (ii) have
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been filed accurately and completely and prepared in full compliance with all
applicable Legal Requirements. All amounts shown on the MS Returns to be due
on or before the Closing Date, and all amounts otherwise payable in
connection with the MS Returns on or before the Closing Date, have been or
will be paid on or before the Closing Date. MS has delivered to the Purchaser
accurate and complete copies of all MS Returns filed since December 31, 1995.
(c) The MS Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with GAAP. MS has established, in the Ordinary Course of
Business, reserves adequate for the payment of all Taxes for the period from
September 30, 1995 through the Closing Date, and MS will disclose the dollar
amount of such reserves to the Purchaser on or prior to the Closing Date.
(d) Each MS Return relating to income Taxes that has been
filed with respect to any period ended on or prior to December 31, 1995 has
either (i) been examined and audited by all relevant Governmental Bodies, or
(ii) by virtue of the expiration of the limitation period under applicable Legal
Requirements, is no longer subject to examination or audit by any Governmental
Body. Part 2.18 of the Disclosure Schedule accurately identifies each
examination or audit, if any, of any MS Return that has been conducted since
December 31, 1986. MS has made available to the Purchaser accurate and complete
copies of all audit reports and similar documents (to which MS has access)
relating to MS Returns. Except as set forth in Part 2.18 of the Disclosure
Schedule, no extension or waiver of the limitation period applicable to any of
the MS Returns has been granted (by MS or any other Person), and no such
extension or waiver has been requested from MS.
(e) Except as set forth in Part 2.18 of the Disclosure
Schedule, no claim or other Proceeding is pending or has been threatened against
or with respect to MS in respect of any Tax. There are no unsatisfied
Liabilities for Taxes (including liabilities for interest, additions to tax and
penalties thereon and related expenses) with respect to any notice of deficiency
or similar document received by MS. MS has not entered into and has not become
bound by any agreement or consent pursuant to Section 341(f) of the Code. MS has
not been, and MS will not be, required to include any adjustment in taxable
income for any tax period (or portion thereof) pursuant to Section 481 or 263A
of the Code or any comparable provision under state or foreign Tax laws as a
result of transactions or events occurring, or accounting methods employed,
prior to the Closing.
(f) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of MS that, individually or collectively, could give rise
directly or indirectly to the payment of any amount that would not be deductible
pursuant to Section 280G or Section 162 of the Code. MS is not, and MS has never
been, a party to or bound by any tax indemnity agreement, tax sharing agreement,
tax allocation agreement or similar Contract.
2.19 EMPLOYEE AND LABOR MATTERS.
(a) Part 2.19 of the Disclosure Schedule accurately sets
forth, with respect to each employee of MS earning an annual base salary of
$40,000 or greater (including any employee of MS who is on a leave of absence or
on layoff status):
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(i) the name of such employee and the date as of
which such employee was originally hired by MS;
(ii) such employee's title, and a description of
such employee's duties and responsibilities;
(iii) the aggregate dollar amount of the
compensation (including wages, salary, commissions, director's fees, fringe
benefits, bonuses, profit-sharing payments and other payments or benefits of
any type) received by such employee from MS with respect to services
performed in 1998;
(iv) such employee's annualized compensation as of
the date of this Agreement;
(v) each Current Benefit Plan in which such
employee participates or is eligible to participate; and
(vi) any Governmental Authorization that is held
by such employee and that relates to or is useful in connection with MS's
business.
(b) Part 2.19 of the Disclosure Schedule accurately
identifies each former employee of MS who is receiving or is scheduled to
receive (or whose spouse or other dependent is receiving or is scheduled to
receive) any benefits (whether from MS or otherwise) relating to such former
employee's employment with MS; and Part 2.19 of the Disclosure Schedule
accurately describes such benefits.
(c) Except as set forth in Part 2.19 of the Disclosure
Schedule, MS is not a party to or bound by, and MS has never been a party to
or bound by, any employment agreement or any union contract, collective
bargaining agreement or similar Contract.
(d) The employment of each of MS's employees is terminable
by MS at will. MS has delivered to the Purchaser accurate and complete copies
of all employee manuals and handbooks, disclosure materials, policy
statements and other materials relating to the employment of the current and
former employees of MS.
(e) To the best of the Knowledge of MS and the Selling
Shareholders:
(i) no employee of MS intends to terminate his
employment with MS;
(ii) no employee of MS has received an offer to
join a business that may be competitive with MS's business; and
(iii) no employee of MS is a party to or is bound
by any confidentiality agreement, noncompetition agreement or other Contract
(with any Person) that may have an adverse effect on (A) the performance by
such employee of any of his duties or responsibilities as an employee of MS,
or (B) MS's business or operations.
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(f) MS is not engaged, and has never been engaged, in any
unfair labor practice of any nature. There has never been any slowdown, work
stoppage, labor dispute or union organizing activity, or any similar activity
or dispute, affecting MS or any of its employees. There is not now pending,
and no Person has threatened to commence, any such slowdown, work stoppage,
labor dispute or union organizing activity or any similar activity or
dispute. No event has occurred, and no condition or circumstance exists, that
might directly or indirectly give rise to or provide a basis for the
commencement of any such slowdown, work stoppage, labor dispute or union
organizing activity or any similar activity or dispute.
2.20 BENEFIT PLANS; ERISA.
(a) Part 2.20 of the Disclosure Schedule identifies and
provides an accurate and complete description of each Current Benefit Plan
and each Past Benefit Plan. MS has never established, adopted, maintained,
sponsored, contributed to, participated in or incurred any Liability with
respect to any Employee Benefit Plan, except for the Company Plans identified
in Part 2.20 of the Disclosure Schedule; and MS has never provided or made
available any fringe benefit or other benefit of any nature to any of its
employees, except as set forth in Part 2.20 of the Disclosure Schedule.
(b) No Company Plan:
(i) provides or provided any benefit guaranteed by
the Pension Benefit Guaranty Corporation;
(ii) is or was a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA; or
(iii) is or was subject to the minimum funding
standards of Section 412 of the Code or Section 302 of ERISA.
There is no Person that (by reason of common control or otherwise)
is or has at any time been treated together with MS as a single employer
within the meaning of Section 414 of the Code.
(c) MS has delivered to the Purchaser, with respect to each
Company Plan:
(i) an accurate and complete copy of such Company
Plan and all amendments thereto (including any amendment that is scheduled to
take effect in the future);
(ii) an accurate and complete copy of each
Contract (including any trust agreement, funding agreement, service provider
agreement, insurance agreement, investment management agreement or
recordkeeping agreement) relating to such Company Plan;
(iii) an accurate and complete copy of any
description, summary, notification, report or other document that has been
furnished to any employee of MS with respect to such Company Plan;
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(iv) an accurate and complete copy of any form,
report, registration statement or other document that has been filed with or
submitted to any Governmental Body with respect to such Company Plan; and
(v) an accurate and complete copy of any
determination letter, notice or other document that has been issued by, or
that has been received by MS from, any Governmental Body with respect to such
Company Plan.
(d) Each Current Benefit Plan is being operated and
administered in full compliance with the provisions thereof, and each Company
Plan has at all times been operated and administered in full compliance with
the provisions thereof. Each contribution or other payment that is required
to have been accrued or made under or with respect to any Company Plan has
been duly accrued and made on a timely basis.
(e) Each Current Benefit Plan complies and is being
operated and administered in full compliance with, and each Company Plan has
at all times complied and been operated and administered in full compliance
with, all applicable reporting, disclosure and other requirements of ERISA
and the Code and all other applicable Legal Requirements. MS has never
incurred any Liability to the Internal Revenue Service or any other
Governmental Body with respect to any Company Plan; and no event has
occurred, and no condition or circumstance exists, that might (with or
without notice or lapse of time) give rise directly or indirectly to any such
Liability. Neither MS, nor any Person that is or was an administrator or
fiduciary of any Company Plan (or that acts or has acted as an agent of MS or
any such administrator or fiduciary), has engaged in any transaction or has
otherwise acted or failed to act in a manner that has subjected or may
subject MS to any Liability for breach of any fiduciary duty or any other
duty. No Company Plan, and no Person that is or was an administrator or
fiduciary of any Company Plan (or that acts or has acted as an agent of any
such administrator or fiduciary):
(i) has engaged in a "prohibited transaction"
within the meaning of Section 406 of ERISA or Section 4975 of the Code;
(ii) has failed to perform any of the
responsibilities or obligations imposed upon fiduciaries under Title I of
ERISA; or
(iii) has taken any action that (A) may subject
such Company Plan or such Person to any Tax, penalty or Liability relating to
any "prohibited transaction," or (B) may directly or indirectly give rise to
or serve as a basis for the assertion (by any employee or by any other
Person) of any claim under, on behalf of or with respect to such Company Plan.
(f) No inaccurate or misleading representation, statement
or other communication has been made or directed (in writing or otherwise) to
any current or former employee of MS (i) with respect to such employee's
participation, eligibility for benefits, vesting, benefit accrual or coverage
under any Company Plan or with respect to any other matter relating to any
Company Plan, or (ii) with respect to any proposal or intention on the part
of MS to establish or sponsor any Employee Benefit Plan or to provide or make
available any fringe benefit or other benefit of any nature.
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(g) Except as set forth in Part 2.20 of the Disclosure
Schedule, MS has not advised any of its employees (in writing or otherwise)
that it intends or expects to establish or sponsor any Employee Benefit Plan
or to provide or make available any fringe benefit or other benefit of any
nature in the future.
2.21 ENVIRONMENTAL MATTERS.
(a) MS is not liable or potentially liable for any response
cost or natural resource damages under Section 107(a) of CERCLA, or under any
other so-called "superfund" or "superlien" law or similar Legal Requirement,
at or with respect to any site.
(b) MS has never received any notice or other communication
(in writing or otherwise) from any Governmental Body or other Person
regarding any actual, alleged, possible or potential Liability arising from
or relating to the presence, generation, manufacture, production,
transportation, importation, use, treatment, refinement, processing,
handling, storage, discharge, release, emission or disposal of any Hazardous
Material. No Person has ever commenced or threatened to commence any
contribution action or other Proceeding against MS in connection with any
such actual, alleged, possible or potential Liability; and no event has
occurred, and no condition or circumstance exists, that may directly or
indirectly give rise to, or result in MS becoming subject to, any such
Liability.
(c) Except as set forth in Part 2.21 of the Disclosure
Schedule, MS has never generated, manufactured, produced, transported,
imported, used, treated, refined, processed, handled, stored, discharged,
released or disposed of any Hazardous Material (whether lawfully or
unlawfully). Except as set forth in Part 2.21 of the Disclosure Schedule, MS
has never permitted (knowingly or otherwise) any Hazardous Material to be
generated, manufactured, produced, used, treated, refined, processed,
handled, stored, discharged, released or disposed of (whether lawfully or
unlawfully):
(i) on or beneath the surface of any real property
that is, or that has at any time been, owned by, leased to, controlled by or
used by MS;
(ii) in or into any surface water, groundwater,
soil or air associated with or adjacent to any such real property; or
(iii) in or into any well, pit, pond, lagoon,
impoundment, ditch, landfill, building, structure, facility, improvement,
installation, equipment, pipe, pipeline, vehicle or storage container that is
or was located on or beneath the surface of any such real property or that is
or has at any time been owned by, leased to, controlled by or used by MS.
(d) All property that is owned by, leased to, controlled by
or used by MS, and all surface water, groundwater, soil and air associated
with or adjacent to such property:
(i) is in clean and healthful condition;
(ii) except as set forth in Part 2.21 of the
Disclosure Schedule is free of any Hazardous Material and any harmful
chemical or physical conditions; and
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(iii) is free of any environmental contamination
of any nature.
(e) Each storage tank or other storage container that is or
has been owned by, leased to, controlled by or used by MS, or that is located
on or beneath the surface of any real property owned by, leased to,
controlled by or used by MS:
(i) is in sound condition; and
(ii) has been demonstrated by accepted testing
methodologies to be free of any corrosion or leaks.
2.22 SALE OF PRODUCTS; PERFORMANCE OF SERVICES.
(a) Each product that has been sold by MS to any Person:
(i) conformed and complied in all respects with
the terms and requirements of any applicable warranty or other Contract and
with all applicable Legal Requirements; and
(ii) was free of any design defects, programming
errors, construction defects or other defects or deficiencies at the time of
sale. All repair services, technical, maintenance and other services that
have been performed by MS were performed properly and in full conformity with
the terms and requirements of all applicable warranties and other Contracts
and with all applicable Legal Requirements.
(b) MS will not incur or otherwise become subject to any
Liability arising directly or indirectly from any product manufactured or
sold, or any repair services or other services performed by, MS on or at any
time prior to the Closing Date.
(c) No product manufactured or sold by MS has been the
subject of any recall or other similar action; and no event has occurred, and
no condition or circumstance exists, that might (with or without notice or
lapse of time) directly or indirectly give rise to or serve as a basis for
any such recall or other similar action relating to any such product.
(d) Except as set forth in Part 2.22 of the Disclosure
Schedule, no customer or other Person has ever asserted or threatened to
assert any claim against MS (i) under or based upon any warranty provided by
or on behalf of MS, or (ii) under or based upon any other warranty relating
to any product sold by MS or any services performed by MS. To the best of the
Knowledge of MS and the Selling Shareholders, no event has occurred, and no
condition or circumstance exists, that might (with or without notice or lapse
of time) directly or indirectly give rise to or serve as a basis for the
assertion of any such claim.
(e) MS has in place, and has at all times had in place, an
adequate and appropriate quality control system that is at least as
comprehensive and effective as the quality control systems customarily
maintained by Comparable Entities.
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2.23 INSURANCE.
(a) Part 2.23 of the Disclosure Schedule accurately sets
forth, with respect to each insurance policy maintained by or at the expense
of, or for the direct or indirect benefit of, MS:
(i) the name of the insurance carrier that issued
such policy and the policy number of such policy;
(ii) whether such policy is a "claims made" or an
"occurrences" policy;
(iii) a description of the coverage provided by
such policy and the material terms and provisions of such policy (including
all applicable coverage limits, deductible amounts and co-insurance
arrangements and any non-customary exclusions from coverage);
(iv) the annual premium payable with respect to
such policy, and the cash value (if any) of such policy; and
(v) a description of any claims pending, and any
claims that have been asserted in the past, with respect to such policy.
Part 2.23 also identifies (1) each pending application for insurance
that has been submitted by or on behalf of MS, and (2) each self-insurance or
risk-sharing arrangement affecting MS or any of its assets. MS has delivered
to the Purchaser accurate and complete copies of all of the insurance
policies identified in Part 2.23 of the Disclosure Schedule (including all
renewals thereof and endorsements thereto) and all of the pending
applications identified in Part 2.23 of the Disclosure Schedule.
(b) Each of the policies identified in Part 2.23 of the
Disclosure Schedule is valid, enforceable and in full force and effect, and
has been issued by an insurance carrier that, to the best of the Knowledge of
MS and the Selling Shareholders, is solvent, financially sound and reputable.
All of the information contained in the applications submitted in connection
with said policies was (at the times said applications were submitted)
accurate and complete, and all premiums and other amounts owing with respect
to said policies have been paid in full on a timely basis. The nature, scope
and dollar amounts of the insurance coverage provided by said policies are
sufficient to adequately insure MS's business, assets, operations, key
employees, services and potential liabilities; and said insurance coverage is
at least as comprehensive as the insurance coverage customarily maintained by
Comparable Entities.
(c) Except as set forth in Part 2.23 of the Disclosure
Schedule, there is no pending claim under or based upon any of the policies
identified in Part 2.23 of the Disclosure Schedule; and no event has
occurred, and no condition or circumstance exists, that might (with or
without notice or lapse of time) directly or indirectly give rise to or serve
as a basis for any such claim.
(d) MS has not received:
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(i) any notice or other communication (in writing
or otherwise) regarding the actual or possible cancellation or invalidation
of any of the policies identified in Part 2.23 of the Disclosure Schedule or
regarding any actual or possible adjustment in the amount of the premiums
payable with respect to any of said policies;
(ii) any notice or other communication (in writing
or otherwise) regarding any actual or possible refusal of coverage under, or
any actual or possible rejection of any claim under, any of the policies
identified in Part 2.23 of the Disclosure Schedule; or
(iii) any indication that the issuer of any of the
policies identified in Part 2.23 of the Disclosure Schedule may be unwilling
or unable to perform any of its obligations thereunder.
2.24 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.24 of
the Disclosure Schedule:
(a) no Related Party has, and no Related Party has at any
time since December 31, 1995 had, any direct or indirect interest of any
nature in any asset used in or otherwise relating to the business of MS;
(b) no Related Party is, or has at any time since December
31, 1995 been, indebted to MS;
(c) since December 31, 1995, no Related Party has entered
into, or has had any direct or indirect financial interest in, any Contract,
transaction or business dealing of any nature involving MS;
(d) no Related Party is competing, or has at any time since
December 31, 1995 competed, directly or indirectly, with MS in any market
served by MS;
(e) no Related Party has any claim or right against MS; and
(f) no event has occurred, and no condition or circumstance
exists, that might (with or without notice or lapse of time) directly or
indirectly give rise to or serve as a basis for any claim or right in favor
of any Related Party against MS.
2.25 CERTAIN PAYMENTS, ETC. Neither MS nor any officer, employee,
agent or other Person associated with or acting for or on behalf of MS, has
at any time, directly or indirectly:
(a) used any corporate funds (i) to make any unlawful
political contribution or gift or for any other unlawful purpose relating to
any political activity, (ii) to make any unlawful payment to any governmental
official or employee, or (iii) to establish or maintain any unlawful or
unrecorded fund or account of any nature;
(b) made any false or fictitious entry, or failed to make
any entry that should have been made, in any of the books of account or other
records of MS;
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(c) made any payoff, influence payment, bribe, rebate,
kickback or unlawful payment to any Person;
(d) performed any favor or given any gift which was not
deductible for federal income tax purposes;
(e) made any payment (whether or not lawful) to any Person,
or provided (whether lawfully or unlawfully) any favor or anything of value
(whether in the form of property or services, or in any other form) to any
Person, for the purpose of obtaining or paying for (i) favorable treatment in
securing business, or (ii) any other special concession; or
(f) agreed, committed, offered or attempted to take any of
the actions described in clauses "(a)" through "(e)" above.
2.26 PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.26 of the Disclosure
Schedule, there is no pending Proceeding, and no Person has threatened to
commence any Proceeding:
(i) that involves MS or that otherwise relates to
or might affect MS's business or any of the assets owned or used by MS
(whether or not MS is named as a party thereto); or
(ii) that challenges, or that may have the effect
of preventing, delaying, making illegal or otherwise interfering with, any of
the Transactions.
Except as set forth in Part 2.26 of the Disclosure Schedule, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that might directly or indirectly give rise to or serve as a basis
for the commencement of any such Proceeding.
(b) Except as set forth in Part 2.26 of the Disclosure
Schedule, no Proceeding has ever been commenced by or against MS; and no
Proceeding otherwise involving or relating to MS has been pending or
threatened at any time.
(c) MS has delivered to the Purchaser accurate and complete
copies of all pleadings, correspondence and other written materials to which
MS has access that relate to the Proceedings identified in Part 2.26 of the
Disclosure Schedule.
(d) There is no Order to which MS, or any of the assets
owned or used by MS, is subject; and none of the Selling Shareholders is
subject to any Order that relates to MS's business or to any of the assets
owned or used by MS.
(e) To the best of the Knowledge of MS and the Selling
Shareholders, no officer or employee of MS is subject to any Order that
prohibits such officer or employee from engaging in or continuing any
conduct, activity or practice relating to MS's business.
(f) There is no proposed Order that, if issued or otherwise
put into effect, (i) may have an adverse effect on MS's business, condition,
assets, liabilities, operations,
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financial performance, net income or prospects (or on any aspect or portion
thereof) or on the ability of MS or any of the Selling Shareholders to comply
with or perform any covenant or obligation under any of the Transactional
Agreements, or (ii) may have the effect of preventing, delaying, making
illegal or otherwise interfering with any of the Transactions.
2.27 AUTHORITY; BINDING NATURE OF AGREEMENTS.
(a) MS has the absolute and unrestricted right, power and
authority to enter into and to perform its obligations under this Agreement;
and the execution, delivery and performance by MS of this Agreement have been
duly authorized by all necessary action on the part of MS and its
shareholders, board of directors and officers. This Agreement constitutes the
legal, valid and binding obligation of MS, enforceable against MS in
accordance with its terms.
(b) Each Selling Shareholder has the absolute and
unrestricted right, power and capacity to enter into and to perform such
Selling Shareholder's obligations under each of the Transactional Agreements
to which such Selling Shareholder is or may become a party. This Agreement
constitutes the legal, valid and binding obligation of each of the Selling
Shareholders, enforceable against each of the Selling Shareholders in
accordance with its terms. Upon the execution of each of the other
Transactional Agreements at the Closing, each of such other Transactional
Agreements will constitute the legal, valid and binding obligation of each
Selling Shareholder who is a party thereto, and will be enforceable against
such Selling Shareholder in accordance with its terms.
(c) The respective spouses of the Selling Shareholders have
the absolute and unrestricted right, power and capacity to execute and
deliver and to perform their obligations under the Spousal Consents being
executed by them. Said Spousal Consents constitute their legal, valid and
binding obligations, enforceable against them in accordance with their terms.
(d) The Agent has the unrestricted right, power, authority
and capacity to act for and bind each of the Selling Shareholders with
respect to all matters relating to the Transactional Agreements and the
Transactions.
2.28 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.28
of the Disclosure Schedule, neither the execution and delivery of any of the
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of
(i) any of the provisions of MS's articles of incorporation or bylaws, or
(ii) any resolution adopted by MS's shareholders, MS's board of directors or
any committee of MS's board of directors;
(b) contravene, conflict with or result in a violation of,
or give any Governmental Body or other Person the right to challenge any of
the Transactions or to exercise any remedy or obtain any relief under, any
Legal Requirement or any Order to which MS or any of the Selling
Shareholders, or any of the assets owned or used by MS, is subject;
(c) cause MS, the Purchaser or any affiliate of the
Purchaser to become subject to, or to become liable for the payment of, any
Tax;
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(d) cause any of the assets owned or used by MS to be
reassessed or revalued by any taxing authority or other Governmental Body;
(e) contravene, conflict with or result in a violation of any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by MS or any of its employees or that otherwise
relates to MS's business or to any of the assets owned or used by MS;
(f) contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of any MS Contract other
than an Excluded Contract;
(g) give any Person the right to (i) declare a default or
exercise any remedy under any MS Contract (other than an Excluded Contract),
(ii) accelerate the maturity or performance of any MS Contract (other than an
Excluded Contract), or (iii) cancel, terminate or modify any MS Contract (other
than an Excluded Contract);
(h) contravene, conflict with or result in a violation or
breach of or a default under any provision of, or give any Person the right to
declare a default under, any Contract to which any of the Selling Shareholders
is a party or by which any of the Selling Shareholders is bound; or
(i) result in the imposition or creation of any Encumbrance
upon or with respect to any asset owned or used by MS.
Except as set forth in Part 2.28 of the Disclosure Schedule, neither MS
nor any of the Selling Shareholders was, is or will be required to make any
filing with or give any notice to, or to obtain any Consent from, any Person in
connection with the execution and delivery of any of the Transactional
Agreements or the consummation or performance of any of the Transactions.
2.29 YEAR 2000 COMPLIANCE. Except as set forth in Part 2.29 of the
Disclosure Schedule, all of MS' products (including products sold, marketed or
distributed by MS) and internal systems are designed to be used prior to, during
and after the year 2000, and are Year 2000 Compliant.
2.30 BROKERS. Neither MS nor any of the Selling Shareholders has agreed
or become obligated to pay, or has taken any action that might result in any
Person claiming to be entitled to receive, any brokerage commission, finder's
fee or similar commission or fee in connection with any of the Transactions
other than Parker Mulcahy & Associates as set forth in Section 7.23.
2.31 SELLING SHAREHOLDERS.
(a) Each Selling Shareholder has the capacity and financial
capability to comply with and perform all of such Selling Shareholder's
covenants and obligations under each of the Transactional Agreements to which
such Selling Shareholder is or may become a party.
(b) No Selling Shareholder:
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(i) has, at any time, (A) made a general assignment
for the benefit of creditors, (B) filed, or had filed against such Selling
Shareholder, any bankruptcy petition or similar filing, (C) suffered the
attachment or other judicial seizure of all or a substantial portion of such
Selling Shareholder's assets, (D) admitted in writing such Selling Shareholder's
inability to pay such Selling Shareholder's debts as they become due, (E) been
convicted of, or pleaded guilty to, any felony, or (F) taken or been the subject
of any action that may have an adverse effect on such Selling Shareholder's
ability to comply with or perform any of such Selling Shareholder's covenants or
obligations under any of the Transactional Agreements; or
(ii) is subject to any Order that may have an adverse
effect on such Selling Shareholder's ability to comply with or perform any of
such Selling Shareholder's covenants or obligations under any of the
Transactional Agreements.
(c) There is no Proceeding pending, and no Person has
threatened to commence any Proceeding, that may have an adverse effect on the
ability of any Selling Shareholder to comply with or perform any of such Selling
Shareholder's covenants or obligations under any of the Transactional
Agreements. No event has occurred, and no claim, dispute or other condition or
circumstance exists, that might directly or indirectly give rise to or serve as
a basis for the commencement of any such Proceeding.
2.32 FULL DISCLOSURE.
(a) None of the Transactional Agreements contains or will
contain any untrue statement of fact; and none of the Transactional Agreements
omits or will omit to state any fact necessary to make any of the
representations, warranties or other statements or information contained therein
not misleading.
(b) Except as set forth in Part 2.32 of the Disclosure
Schedule, there is no fact within the Knowledge of MS or any of the Selling
Shareholders (other than publicly known facts relating exclusively to political
or economic matters of general applicability that will adversely affect all
Comparable Entities) that (i) may have an adverse effect on MS's business,
condition, assets, liabilities, operations, financial performance, net income or
prospects (or on any aspect or portion thereof) or on the ability of MS or any
of the Selling Shareholders to comply with or perform any covenant or obligation
under any of the Transactional Agreements, or (ii) may have the effect of
preventing, delaying, making illegal or otherwise interfering with any of the
Transactions.
(c) All of the information set forth in the Disclosure
Schedule, and all other information regarding MS and its business, condition,
assets, liabilities, operations, financial performance and net income that has
been furnished to the Purchaser or any of its Representatives by or on behalf of
MS or any of MS's Representatives, is accurate and complete in all respects.
(d) MS and the Selling Shareholders have provided the
Purchaser and the Purchaser's Representatives with full and complete access to
all of MS's records and other documents and data.
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3. REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser represents and warrants, to and for the benefit of the
Selling Shareholders, as follows:
3.1 ACQUISITION OF SHARES. The Purchaser is not acquiring the Shares
with the current intention of making a public distribution thereof.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENT. Upon the adoption of
appropriate resolutions by the Purchaser's board of directors:
(a) the Purchaser will have the absolute and unrestricted
right, power and authority to enter into and perform its obligations under this
Agreement;
(b) the execution, delivery and performance of this Agreement
by the Purchaser will have been duly authorized by all necessary action on the
part of the Purchaser and its board of directors; and
(c) this Agreement will constitute the legal, valid and
binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms.
3.3 BROKERS. Except for fees payable to Batchelder and Partners, Inc.
pursuant to its agreement with the parent company of the Purchaser, the
Purchaser has not agreed or become obligated to pay, and has not taken any
action that might result in any Person claiming to be entitled to receive, any
brokerage commission, finder's fee or similar commission or fee in connection
with any of the Transactions.
4. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE
The Purchaser's obligation to purchase the Shares and to take the other
actions required to be taken by the Purchaser at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Purchaser, in whole or in part, in accordance
with Section 7.16):
4.1 ACCURACY OF REPRESENTATIONS. All of the other representations and
warranties made by MS and the Selling Shareholders in this Agreement (considered
collectively), and each of said representations and warranties (considered
individually), shall have been accurate in all material respects as of the date
of this Agreement.
4.2 PERFORMANCE OF OBLIGATIONS.
(a) MS and the Selling Shareholders shall have executed and
delivered each of the agreements required to be executed and delivered by MS or
the Selling Shareholders pursuant to Section 1.4(b).
(b) The Selling Shareholders shall have delivered to the
Purchaser the certificates representing the Shares as required by Section
1.4(b)(i), and each Selling Shareholder
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shall have executed and delivered each of the other documents required to be
executed and delivered by such Selling Shareholders pursuant to Section
1.4(b).
(c) All of the other covenants and obligations that MS and the
Selling Shareholders are required to comply with or to perform at or prior to
the Closing (considered collectively), and each of said covenants and
obligations (considered individually), shall have been duly complied with and
performed in all material respects.
4.3 APPROVAL OF PURCHASER'S BOARD OF DIRECTORS; CONSENTS.
(a) The Purchaser's board of directors shall have ratified the
execution of this Agreement by the Purchaser and shall have approved the
consummation of the Transactions.
(b) Each of the Consents identified in Part 2.28 of the
Disclosure Schedule shall have been obtained and shall be in full force and
effect.
4.4 NO ADVERSE CHANGE. There shall have been no adverse change in MS's
business, condition, assets, liabilities, operations, financial performance, net
income or prospects (or in any aspect or portion thereof) since August 31, 1999
other than an increase in negative Working Capital of approximately $100,000.
4.5 ADDITIONAL DOCUMENTS. Purchaser shall have received such other
documents as the Purchaser may request in good faith for the purpose of (i)
evidencing the accuracy of any representation or warranty made by MS or any of
the Selling Shareholders, (ii) evidencing the compliance by MS or any of the
Selling Shareholders with, or the performance by MS or any of the Selling
Shareholders of, any covenant or obligation set forth in this Agreement, (iii)
evidencing the satisfaction of any condition set forth in this Section 4, or
(iv) otherwise facilitating the consummation or performance of any of the
Transactions.
4.6 NO PROCEEDINGS. There shall not have been commenced or threatened
against the Purchaser, or against any Person affiliated with the Purchaser, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Transactions, or (b) that may have the effect of
preventing, delaying, making illegal or otherwise interfering with any of the
Transactions.
4.7 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS. No Person
shall have made or threatened any claim asserting that such Person (a) may be
the holder or the beneficial owner of, or may have the right to acquire or to
obtain beneficial ownership of, any capital stock or other securities of MS, or
(b) may be entitled to all or any portion of the Purchase Price.
4.8 NO PROHIBITION. Neither the consummation nor the performance of any
the Transactions will, directly or indirectly (with or without notice or lapse
of time), contravene or conflict with or result in a violation of, or cause the
Purchaser or any Person affiliated with the Purchaser to suffer any adverse
consequence under, (a) any applicable Legal Requirement or Order, or (b) any
Legal Requirement or Order that has been proposed by or before any Governmental
Body.
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4.9 TERMINATION OF WARRANT RIGHTS. All rights to receive Warrants to
purchase shares of MS' capital stock upon the payment in full of the obligations
evidenced by the Convertible Loan Agreement shall be terminated in exchange for
the right to receive cash pursuant to Section 1.2(d).
4.10 TERMINATION OF OPTIONS. All Options (other than the Options of
Mark Stevens which have all been exercised) shall have been terminated in
exchange for the right to receive cash pursuant to Section 1.2(d).
5. CONDITIONS PRECEDENT TO SELLING SHAREHOLDERS' OBLIGATION TO CLOSE
The Selling Shareholders' obligation to sell the Shares and to take the
other actions required to be taken by the Selling Shareholders at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by the Agent, in whole or in
part, in accordance with Section 7.16):
5.1 ACCURACY OF REPRESENTATIONS. All of the representations and
warranties made by the Purchaser in this Agreement (considered collectively),
and each of said representations and warranties (considered individually), shall
have been accurate in all material respects as of the date of this Agreement and
shall be accurate in all material respects as of the Scheduled Closing Time as
if made at the Scheduled Closing Time.
5.2 PURCHASER'S PERFORMANCE.
(a) The Purchaser shall have made the cash payments
contemplated by Sections 1.4(b)(i) and paid or caused to be paid the outstanding
indebtedness of MS under the Convertible Loan Agreement and under the credit
agreement with Union Bank of California, N.A.
(b) All of the other covenants and obligations that the
Purchaser is required to comply with or to perform pursuant to this Agreement at
or prior to the Closing (considered collectively), and each of said covenants
and obligations (considered individually), shall have been complied with and
performed in all material respects.
5.3 NO INJUNCTION. There shall not be in effect any injunction that
shall have been entered by a court of competent jurisdiction since the date of
this Agreement and that prohibits the sale of the Shares by the Selling
Shareholders to the Purchaser.
5.4 MODIFICATION OF GEHL NOTE. Concurrent with the Closing, Patrick P.
Gehl ("Gehl") shall have exchanged the Secured Promissory Note dated August 11,
1998 (the "Secured Note") for a new unsecured promissory note with an original
principal amount of $500,000 in the form of Exhibit F hereto (the "New Note")
and Purchaser shall have paid or shall have caused MS to have paid Gehl in cash
$900,000 in principal and any accrued interest on the Secured Note. Titan shall
cause MS to pay the New Note, less any setoffs, in accordance with its terms.
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6. INDEMNIFICATION, ETC.
6.1 SURVIVAL OF REPRESENTATIONS AND COVENANTS.
(a) The representations, warranties, covenants and obligations
of each party shall survive (without limitation):
(i) the Closing and the sale of the Shares to the
Purchaser;
(ii) any sale or other disposition of any or all of
the Shares by the Purchaser; and
(iii) any Acquisition Transaction effected by or
otherwise involving the Purchaser or MS.
All of said representations, warranties, covenants and obligations
shall remain in full force and effect and shall survive until 11:59 p.m. on the
18th month anniversary of the Closing Date.
(b) The representations, warranties, covenants and obligations
of MS and the Selling Shareholders, and the rights and remedies that may be
exercised by the Indemnitees, shall not be limited or otherwise affected by or
as a result of any information furnished to, or any investigation made by or
Knowledge of, any of the Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other
item of information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule shall be deemed to be a representation and warranty made by
MS and the Selling Shareholders in this Agreement.
6.2 INDEMNIFICATION BY SELLING SHAREHOLDERS.
(a) The Selling Shareholders, jointly and severally, shall
hold harmless and indemnify each of the Indemnitees from and against, and shall
compensate and reimburse each of the Indemnitees for, any Damages which are
directly or indirectly suffered or incurred by any of the Indemnitees or to
which any of the Indemnitees may otherwise become subject at any time
(regardless of whether or not such Damages relate to any third-party claim) and
which arise directly or indirectly from or as a direct or indirect result of, or
are directly or indirectly connected with:
(i) any Breach of any representation or warranty made
by MS or any of the Selling Shareholders in this Agreement (without giving
effect to any update to the Disclosure Schedule) or in the Closing Certificate;
(ii) any Breach of any representation, warranty,
statement, information or provision contained in the Disclosure Schedule;
(iii) any Breach of any covenant or obligation of MS
or any of the Selling Shareholders;
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(iv) any Liability to which MS or any of the other
Indemnitees may become subject and that arises directly or indirectly from or
relates directly or indirectly to (A) any product manufactured or sold, or any
service performed, by or on behalf of MS on or at any time on or prior to the
Closing Date, (B) the presence of any Hazardous Material at any site owned,
leased, occupied or controlled by MS on or at any time on or prior to the
Closing Date, or (C) the generation, manufacture, production, transportation,
importation, use, treatment, refinement, processing, handling, storage,
discharge, release or disposal of any Hazardous Material (whether lawfully or
unlawfully) by or on behalf of MS on or at any time on or prior to the Closing
Date;
(v) any matter identified or referred to in Part 2.16
or Part 2.26 of the Disclosure Schedule (including with limitation Generation
Systems, Rock Island Arsenal, Navy Public Works Center - Pearl Harbor (customer
no. 2296), Smithfield Foods, Inc. (customer no. 322), Lexington Medical
(customer no. 3266), Ivanhoe, Inc., Processing Concepts and the Espinoza
claims);
(vi) any claim by any former Option or Warrant holder
relating to the cash-out of the Options or Warrants pursuant to Section 1.2(d)
of this Agreement;
(vii) any Liability (on a dollar for dollar basis)
arising from MS' ownership of an equity interest in Cima Computacion &
Informatica, S.A. de C.V.;
(viii) any Liability (as measured by the loss of tax
benefit resulting from a reduction in the net operating loss) or cash expense
(on a dollar for dollar basis) incurred by MS or the Purchaser as a result of
MS' adjustment to taxable income resulting from the change from the cash method
of accounting to the accrual method of accounting;
(ix) any Liability not to exceed $50,000 incurred on
or before December 31, 1999 to make the accounting system Year 2000 Compliant;
(x) any Proceeding relating directly or indirectly to
any Breach, alleged Breach, Liability or matter of the type referred to in
clause "(i)," "(ii)," "(iii)," "(iv)," "(v)," "(vi)," "(vii)," "(viii)" or "(x)"
above (including any Proceeding commenced by any Indemnitee for the purpose of
enforcing any of its rights under this Section 6).
(b) The Selling Shareholders acknowledge and agree that, if
there is any Breach of any representation, warranty or other provision relating
to MS or MS's business, condition, assets, liabilities, operations, financial
performance or net income (or any aspect or portion thereof), or if MS becomes
subject to any Liability of the type referred to in clauses "(iv)" "(vii)" or
(viii) of Section 6.2(a) or becomes subject to a claim referred to in clauses
"(v)," "(vi)" or "(vii)", then the Purchaser itself shall be deemed, by virtue
of its ownership of common stock of MS, to have incurred Damages, if any, as a
result of such Breach, Liability, claim or matter. Nothing contained in this
Section 6.2(b) shall have the effect of (i) limiting the circumstances under
which the Purchaser may otherwise be deemed to have incurred Damages for
purposes of this Agreement, (ii) limiting the other types of Damages that the
Purchaser may be deemed to have incurred (whether in connection with any such
Breach or Liability or
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otherwise), or (iii) limiting the rights of MS or any of the other
Indemnitees under this Section 6.2.
6.3 THRESHOLD/LIMITATION.
(a) Subject to Section 6.3(c), the Selling Shareholders shall
not be required to make any indemnification payment pursuant to Section 6.2 for
any Breach of any of their representations and warranties until such time as the
total amount of all Damages (including the Damages arising from such Breach and
all other Damages arising from any other Breaches of any representations or
warranties) that have been directly or indirectly suffered or incurred by any
one or more of the Indemnitees, or to which any one or more of the Indemnitees
has or have otherwise become subject, exceeds $150,000 in the aggregate,
provided that this limitation shall not apply with respect to any claim for
indemnity made with respect to any claim subject to Section 6.11. At such time
as the total amount of such Damages exceeds $150,000 in the aggregate, the
Indemnitees shall be entitled to be indemnified against all Damages arising from
any Breach of any representations and warranties in excess of the first $50,000
in Damages, which shall be a deductible.
(b) Subject to Section 6.3(c), the Selling Shareholders shall
have no liability with respect to the matters described in Section 6.2 (whether
arising from a third party claim or otherwise) to the extent total payments made
by the Selling Shareholders with respect to such matters (excluding any Damages
or Losses paid by Gehl pursuant to Section 6.11) exceed $3,000,000.
(c) The limitation on the Selling Shareholders' obligations
that is set forth in Section 6.3(a) or 6.3(b) shall not apply to (i) any Breach
of any of the Specified Representations, or (ii) any Breach arising directly or
indirectly as a result of reckless or willful misconduct on the part of any
director, officer, management employee, or other Representative of MS or any of
the Selling Shareholders on or prior to the Closing Date.
6.4 RIGHT TO REQUIRE CURE OF BREACH. Without limiting the generality of
anything contained in Section 6.2, subject to the threshold and deductible in
Section 6.3(a) and the limitation in 6.3(b), if there is any Breach of any
representation or warranty made by MS or any of the Selling Shareholders, then
the Selling Shareholders, jointly and severally, shall be obligated to pay such
amounts to MS and take such other actions as the Purchaser may in good faith
request for the purpose of causing such Breach to be corrected, cured and
eliminated in all respects (at no cost to MS or the Purchaser).
6.5 NO CONTRIBUTION. Each Selling Shareholder waives, and acknowledges
and agrees that such Selling Shareholder shall not have and shall not exercise
or assert or attempt to exercise or assert, any right of contribution or right
of indemnity or any other right or remedy against MS in connection with any
indemnification obligation or any other Liability to which such Selling
Shareholder may become subject under any of the Transactional Agreements or
otherwise in connection with any of the Transactions.
6.6 INTEREST. Except with respect to Damages set off against the Second
Installment on which the Purchaser pays no interest, any party that is required
to indemnify any other Person
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pursuant to this Section 6 with respect to any Damages shall also be required
to pay such other Person interest on the amount of such Damages (for the
period commencing as of the date on which such other Person first incurred or
otherwise became subject to such Damages and ending on the date on which the
applicable indemnification payment is made by such party) at a floating rate
three percentage points above the rate of interest publicly announced by Bank
of America, N.T. & S.A. from time to time as its prime, base or reference
rate.
6.7 SETOFF. In addition to any rights of setoff or other rights that
the Purchaser or any of the other Indemnitees may have at common law or
otherwise, the Purchaser shall have the right to set off any amount that may be
owed to any Indemnitee under this Section 6 against the Second Installment;
provided that Purchaser complies with the following procedure:
(a) Prior to any setoff, the Purchaser shall deliver to the
Agent a claim notice (a "CLAIM NOTICE") that shall state in reasonable detail:
(i) the nature of the Breach (or Loss), Liability or other matter for which
indemnification is sought under Section 6, (ii) the estimated amount of such
Damages (or Losses), Liability or matter and the date on which such Damages (or
Losses), Liability or matter were suffered or incurred or are expected in good
faith to be suffered or incurred.
(b) Upon the request of the Agent, the Purchaser shall
reasonably provide non-privileged documents, records and other information
relating to each claim in the Claim Notice.
(c) If the Agent agrees with the Claim Notice or fails to
respond within 30 calendar days commencing on the date of delivery of the Claim
Notice, then Buyer may set off the claims set forth in the Claims Notice against
the Second Installment.
(d) If, during the 30 day period commencing on the date of
delivery of a Claim Notice, Purchaser shall have received a written notice from
or on behalf of the Agent stating that Agent in good faith disputes the claim
asserted in such Claim Notice, then the Purchaser shall not make any set off
against the Second Installment for a period of 45 days during which the
Purchaser and Agent shall engage in discussions about a potential resolution of
the disputed claims in accordance with Section 7.22. If the Purchaser and the
Agent fail to resolve any dispute in accordance with Section 7.22, then the
Purchaser may set off the full amount of claim set forth in the disputed Claim
Notice, without prejudice to the right of the Agent (on behalf of the Selling
Shareholders) to seek recovery of the setoff amount through an arbitration
proceeding under Section 7.24 of this Agreement.
6.8 NONEXCLUSIVITY OF INDEMNIFICATION REMEDIES. The indemnification
remedies and other remedies provided in this Section 6 shall not be deemed to be
exclusive. Accordingly, the exercise by any Person of any of its rights under
this Section 6 shall not be deemed to be an election of remedies and shall not
be deemed to prejudice, or to constitute or operate as a waiver of, any other
right or remedy that such Person may be entitled to exercise (whether under this
Agreement, under any other Contract, under any statute, rule or other Legal
Requirement, at common law, in equity or otherwise); PROVIDED, HOWEVER, that any
right or remedy that such Person may be entitled to exercise shall be subject to
the liability limits in Section 6.3.
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6.9 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Proceeding (whether against MS,
against any other Indemnitee or against any other Person) with respect to which
any of the Selling Shareholders may become obligated to indemnify, hold
harmless, compensate or reimburse any Indemnitee pursuant to this Section 6, the
Purchaser shall have the right, at its election, to designate the Agent to
assume the defense of such claim or Proceeding at the sole expense of the
Selling Shareholders. If the Purchaser so elects to designate the Agent to
assume the defense of any such claim or Proceeding:
(a) the Agent shall proceed to defend such claim or Proceeding
in a diligent manner with counsel satisfactory to the Purchaser;
(b) the Purchaser shall make available to the Agent any
non-privileged documents and materials in the possession of the Purchaser that
may be necessary to the defense of such claim or Proceeding;
(c) the Agent shall keep the Purchaser informed of all
material developments and events relating to such claim or Proceeding;
(d) the Purchaser, at its own expense, shall have the right to
participate in the defense of such claim or Proceeding;
(e) the Agent shall not settle, adjust or compromise such
claim or Proceeding without the prior written consent of the Purchaser (which
consent shall not be unreasonably withheld if the settlement includes a general
release of MS and the Purchaser, involves no prohibition or restriction on the
use of any asset of MS or Purchaser or the conduct of any business by MS or
Purchaser and requires no payment from the Purchaser or MS); and
(f) the Purchaser may at any time (notwithstanding the prior
designation of the Agent to assume the defense of such claim or Proceeding)
assume the defense of such claim or Proceeding.
If the Purchaser does not elect to designate the Agent to assume the
defense of any such claim or Proceeding (or if, after initially designating the
Agent to assume such defense, the Purchaser elects to assume such defense), the
Purchaser may proceed with the defense of such claim or Proceeding on its own.
If the Purchaser so proceeds with the defense of any such claim or Proceeding on
its own:
(i) all reasonable expenses relating to the defense
of such claim or Proceeding (whether or not incurred by the Purchaser) shall be
borne and paid exclusively by the Selling Shareholders;
(ii) the Selling Shareholders shall make available to
the Purchaser any non-privileged documents and materials in the possession or
control of any of the Selling Shareholders that may be necessary to the defense
of such claim or Proceeding;
(iii) the Purchaser shall keep the Agent informed of
all material developments and events relating to such claim or Proceeding;
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(iv) the Agent, at its own expense, shall have the
right to participate in the defense of such claim or proceeding; and
(v) the Purchaser shall have the right to settle,
adjust or compromise such claim or Proceeding with the prior written consent of
the Agent; PROVIDED, HOWEVER, that the Agent shall not unreasonably withhold
such consent.
6.10 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PURCHASER. No
Indemnitee (other than the Purchaser or any successor thereto or assign thereof)
shall be permitted to assert any indemnification claim or exercise any other
remedy under this Agreement unless the Purchaser (or any successor thereto or
assign thereof) shall have consented to the assertion of such indemnification
claim or the exercise of such other remedy.
6.11 SURVIVAL OF INDEMNITY IN FAVOR OF MS. In addition to any other
rights of indemnification granted hereunder, any and all rights to indemnity
granted by Gehl pursuant to that certain Agreement and Plan of Merger dated
August 11, 1998 among JBS Acquisition, Inc., MS and Gehl as modified by that
certain Settlement Agreement and Release dated April 30, 1999 among MS and the
parties thereto (collectively, the "INDEMNITY AGREEMENT"), shall remain in full
force and effect and shall survive the Closing of the transactions contemplated
by this Agreement. The Purchaser or MS shall collect any Losses (as defined in
the Indemnity Agreement) first from Gehl through an offset against the New Note
and relate to a matter for which the Selling Shareholders are obligated to
provide indemnity under this Agreement in accordance with the Indemnity
Agreement. To the extent Damages attributable to the Losses exceed the New Note,
then the Purchaser may recover any shortfall against the Selling Shareholders
(with such right to collect the balance surviving the termination of the
representations and warranties) without regard to whether any deductible or
threshold has been satisfied. If both the Rock Island Arsenal claim and the
Generation Systems claim disclosed on Part 2.26 of the Disclosure Schedule are
finally settled or resolved by final non-appealable judgment prior to the
maturity of the New Note for less than an aggregate of $300,000 in Damages or
Losses to MS (that have not otherwise been paid or reimbursed by Gehl), then the
Purchaser will cause MS to prepay principal on the New Note in an amount equal
to the difference between $300,000 and the aggregate Losses or Damages to MS
from such claims (that have not otherwise been paid or reimbursed by Gehl)
within five (5) business days of the final resolution of both the claims. To the
extent that the Selling Shareholders (other than Gehl) indemnify any Indemnitee
pursuant to Section 6.11 with respect to any Loss other than one attributable to
Rock Island Arsenal or Generation Systems, then the Selling Shareholders
(excluding Gehl) shall be subrogated to MS' rights under the Indemnity Agreement
with respect to such Loss; provided however, that if Gehl joins MS, Purchaser or
any Indemnitee as parties to any claim brought by the Selling Shareholders under
the Indemnity Agreement or cross-claims against MS, Purchaser or any Indemnitee,
then the Selling Shareholders shall indemnify and hold the Purchaser and the
Indemnitee harmless for any Damages, including legal fees incurred.
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7. MISCELLANEOUS PROVISIONS
7.1 JOINT AND SEVERAL LIABILITY. Subject to Section 6.5:
(a) the Selling Shareholders jointly and severally agree that
they shall be jointly and severally liable with MS for the due and timely
compliance with and performance of each of the covenants and obligations of MS
set forth in this Agreement and that is to be performed prior to the Closing;
and
(b) each Selling Shareholder agrees that such Selling
Shareholder shall be jointly and severally liable with each of the other Selling
Shareholders for the due and timely compliance with and performance of each of
the covenants and obligations of such other Selling Shareholders set forth in
this Agreement.
7.2 SELLING SHAREHOLDERS' AGENT.
(a) The Selling Shareholders hereby irrevocably nominate,
constitute and appoint JBS Acquisition Company, LLC as the agent and true and
lawful attorney-in-fact of the Selling Shareholders (the "AGENT"), with full
power of substitution, to act in the name, place and stead of the Selling
Shareholders for purposes of executing any documents and taking any actions that
the Agent may, in its sole discretion, determine to be necessary, desirable or
appropriate in connection with any of the Transactional Agreements or any of the
Transactions. JBS Acquisition Company, LLC hereby accepts its appointment as
Agent.
(b) The Selling Shareholders hereby grant to the Agent full
authority to execute, deliver, acknowledge, certify and file on behalf of the
Selling Shareholders (in the name of any or all of the Selling Shareholders or
otherwise) any and all documents that the Agent may, in its sole discretion,
determine to be necessary, desirable or appropriate, in such forms and
containing such provisions as the Agent may, in its sole discretion, determine
to be appropriate (including the General Release referred to in Section
1.4(b)(iv), the Closing Certificate and any amendment to or waiver of rights
under any of the Transactional Agreements). Notwithstanding anything to the
contrary contained in any of the Transactional Agreements:
(i) the Purchaser shall be entitled to deal
exclusively with the Agent on all matters relating to the this Agreement and the
Transaction (including all matters relating to any notice to, or any Consent to
be given or action to be taken by, any Selling Shareholder); and
(ii) each Indemnitee shall be entitled to rely
conclusively (without further evidence of any kind whatsoever) on any document
executed or purported to be executed on behalf of any Selling Shareholder by the
Agent, and on any other action taken or purported to be taken on behalf of any
Selling Shareholder by the Agent, as fully binding upon such Selling
Shareholder.
(c) The Selling Shareholders recognize and intend that the
power of attorney granted in Section 7.4(a):
(i) is coupled with an interest and is irrevocable;
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(ii) may be delegated by the Agent; and
(iii) shall survive the death or incapacity of each
of the Selling Shareholders.
(d) The Agent shall be entitled to treat as genuine, and as
the document it purports to be, any letter, facsimile, telex or other document
that is believed by its to be genuine and to have been telexed, telegraphed,
faxed or cabled by a Selling Shareholder or to have been signed and presented by
a Selling Shareholder.
(e) If for any reason there is no Agent at any time, all
references herein to the Agent shall be deemed to refer to the Selling
Shareholders.
(f) All expenses incurred by the Agent in connection with the
performance of her duties as Agent shall be borne and paid by the Selling
Shareholders.
7.3 FURTHER ASSURANCES. Each party hereto shall execute and/or cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the Transactions.
7.4 FEES AND EXPENSES.
(a) Without limiting the generality of anything contained in
Section 7.4(b), the Selling Shareholders shall bear and pay all fees, costs and
expenses (including all legal fees and expenses payable to counsel for MS) that
have been incurred or that are in the future incurred by, on behalf of or for
the benefit of MS or any of the Selling Shareholders in connection with:
(i) the negotiation, preparation and review of any
term sheet or similar document relating to any of the Transactions;
(ii) the investigation and review conducted by the
Purchaser and its Representatives with respect to MS's business (and the
furnishing of information to the Purchaser and its Representatives in connection
with such investigation and review);
(iii) the negotiation, preparation and review of this
Agreement (including the Disclosure Schedule), the other Transactional
Agreements and all certificates, opinions and other instruments and documents
delivered or to be delivered in connection with the Transactions;
(iv) the preparation and submission of any filing or
notice required to be made or given in connection with any of the Transactions,
and the obtaining of any Consent required to be obtained in connection with any
of the Transactions; and
(v) the consummation and performance of the
Transactions.
42.
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MS shall not bear or pay, and the Selling Shareholders shall not permit
MS to bear or pay, any such fees, costs or expenses.
(b) Subject to the provisions of Section 6 (including the
indemnification and other obligations of the Selling Shareholders thereunder),
the Purchaser shall bear and pay all fees, costs and expenses (including all
legal fees and expenses payable to Cooley Godward LLP) that have been incurred
or that are in the future incurred by or on behalf of the Purchaser in
connection with:
(i) the negotiation, preparation and review of any
term sheet or similar document relating to any of the Transactions;
(ii) the investigation and review conducted by the
Purchaser and its Representatives with respect to MS's business;
(iii) the negotiation, preparation and review of this
Agreement, the other Transactional Agreements and all certificates, opinions and
other instruments and documents delivered or to be delivered in connection with
the Transactions; and
(iv) the consummation and performance of the
Transactions.
7.5 ATTORNEYS' FEES. If any legal action or other legal proceeding
relating to any of the Transactional Agreements or the enforcement of any
provision of any of the Transactional Agreements is brought against any party
hereto, the prevailing party shall be entitled to recover reasonable attorneys'
fees, costs and disbursements (in addition to any other relief to which the
prevailing party may be entitled).
7.6 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile number set forth beneath the name of such party below (or
to such other address or facsimile number as such party shall have specified in
a written notice given to the other parties hereto):
if to MS:
J.B. Systems, Inc.
21800 Oxnard Street, Suite 1000
Woodland Hills, CA 91367
Attention: President
Facsimile: (818) 716-4168
if to JKS Separate Property Trust or Mark Stevens
Mark Stevens
4540 Falconridge
San Diego, CA 92130
Facsimile: (619) 755-4527
43.
<PAGE>
if to Gehl Living Trust:
Patrick P. Gehl
79-055 Calle Brisa
La Quinta, CA 92253
Facsimile: (760) 771-2239
if to JBS Acquisition Company, LLC:
JBS Acquisition Company, LLC
333 South Grand Avenue, Suite 1560
Los Angeles, CA 90071
Attention: Ronald S. Parker
Facsimile: (213) 617-1190
if to Epicor Software Corporation:
Epicor Software Corporation
195 Technology Drive
Irvine, CA 92614
Attention: General Counsel
Facsimile: (949) 585-4447
if to the Purchaser:
David Porreca
Cayenta.com, Inc.
c/o The Titan Corporation
3033 Science Park Road
San Diego, CA 92121-1199
Facsimile: (858) 552-9759
if to The Titan Corporation:
Nicholas J. Costanza
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121-1199
Facsimile: (858) 552-9759
WITH A COPY TO:
Barbara L. Borden
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
Facsimile: (858) 453-3555
7.7 PUBLICITY. Without limiting the generality of anything contained in
this Agreement, on and at all times after the Closing Date:
44.
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(a) no press release or other publicity concerning any of the
Transactions shall be issued or otherwise disseminated by or on behalf of any of
the Selling Shareholders, and the Selling Shareholders shall continue to keep
the existence and terms of this Agreement and the other Transactional Agreements
strictly confidential; and
(b) each Selling Shareholder shall keep strictly confidential,
and shall not use or disclose to any other Person, any non-public document or
other information in such Selling Shareholder's possession that relates directly
or indirectly to the business of MS, the Purchaser or any affiliate of the
Purchaser.
7.8 WAIVER AND TERMINATION OF EPICOR OPTION RIGHTS. Upon the execution
of this Agreement, Epicor Software Corporation ("EPICOR") hereby waives any and
all rights or options it may have under that certain Purchase Option Agreement
dated as of August 11, 1998 (the "PURCHASE OPTION AGREEMENT") by and among MS,
Epicor (as successor to DataWorks Corporation ("DATAWORKS")), Mark W. Stevens,
JBS Acquisition Company, LLC ("JBSAC"), JKS Separate Property Trust ("JKS") and
Patrick P. Gehl, or otherwise to purchase outstanding shares of MS capital stock
and each Shareholder (on behalf of itself and its Affiliates) agrees that as of
the Closing Date, such rights and the Purchase Option Agreement will terminate
without the payment of any additional consideration therefor.
7.9 WAIVER AND TERMINATION OF SHAREHOLDER RIGHTS. Upon the execution of
this Agreement, each Shareholder (on behalf of such Shareholder and its
Affiliates) and MS hereby waive any and all rights such party or its Affiliates
may have under that certain Shareholders Agreement dated as of August 11, 1998
by and among MS, JBSAC, Epicor (as successor to DataWorks), JKS and Patrick P.
Gehl and agree that as of the Closing Date, such rights and the Shareholders
Agreement will terminate without the payment of any additional consideration
therefor.
7.10 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
7.11 HEADINGS. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
7.12 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
7.13 GOVERNING LAW; VENUE.
(a) This Agreement shall be construed in accordance with, and
governed in all respects by, the internal laws of the State of California
(without giving effect to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating to
this Agreement or the enforcement of any provision of this Agreement may be
brought or otherwise commenced in
45.
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any state or federal court located in the County of San Diego, California.
Each party to this Agreement:
(i) expressly and irrevocably consents and submits to
the jurisdiction of each state and federal court located in the County of San
Diego, California (and each appellate court located in the State of California)
in connection with any such legal proceeding;
(ii) agrees that each state and federal court located
in the County of San Diego, California shall be deemed to be a convenient forum;
and
(iii) agrees not to assert (by way of motion, as a
defense or otherwise), in any such legal proceeding commenced in any state or
federal court located in the County of San Diego, California, any claim that
such party is not subject personally to the jurisdiction of such court, that
such legal proceeding has been brought in an inconvenient forum, that the venue
of such proceeding is improper or that this Agreement or the subject matter of
this Agreement may not be enforced in or by such court.
(c) Each Selling Shareholder agrees that, if any Proceeding is
commenced against any Indemnitee by any Person in or before any court or other
tribunal anywhere in the world, then such Indemnitee may proceed against such
Selling Shareholder in such court or other tribunal with respect to any
indemnification claim or other claim arising directly or indirectly from or
relating directly or indirectly to such Proceeding or any of the matters alleged
therein or any of the circumstances giving rise thereto.
(d) Nothing contained in Section 7.13(b) or 7.13(c) shall be
deemed to limit or otherwise affect the right of any Indemnitee to commence any
legal proceeding or otherwise proceed against MS or any of the Selling
Shareholders in any other forum or jurisdiction.
(e) The Selling Shareholders irrevocably constitute and
appoint the Agent as their agent to receive service of process in connection
with any legal proceeding relating to this Agreement or the enforcement of any
provision of this Agreement.
(f) The Selling Shareholders and the Purchaser (for itself and
the Indemnitees) irrevocably waive the right to a jury trial in connection with
any legal proceeding relating to this Agreement or the enforcement of any
provision of this Agreement.
7.14 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: MS
and its successors and assigns (if any); the Selling Shareholders and their
respective personal representatives, executors, administrators, estates, heirs,
successors and assigns (if any); and the Purchaser and its successors and
assigns (if any). This Agreement shall inure to the benefit of: MS; the Selling
Shareholders; the Purchaser; the other Indemnitees (subject to Section 6.10);
and the respective successors and assigns (if any) of the foregoing. The
Purchaser may freely assign any or all of its rights under this Agreement
(including its indemnification rights under Section 6), in whole or in part, to
any other Person without obtaining the consent or approval of any other party
hereto or of any other Person.
7.15 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies
of the parties hereto shall be cumulative (and not alternative).
46.
<PAGE>
(a) Each Selling Shareholder agrees that:
(i) in the event of any Breach or threatened Breach
by such Selling Shareholder of any covenant, obligation or other provision set
forth in this Agreement, the Purchaser shall be entitled (in addition to any
other remedy that may be available to it) to (i) a decree or order of specific
performance or mandamus to enforce the observance and performance of such
covenant, obligation or other provision, and (ii) an injunction restraining such
Breach or threatened Breach; and
(ii) neither the Purchaser nor any other Indemnitee
shall be required to provide any bond or other security in connection with any
such decree, order or injunction or in connection with any related action or
Proceeding.
(b) The Purchaser agrees that in the event of any Breach or
threatened Breach by such Purchaser of any covenant, obligation or other
provision set forth in this Agreement, the Selling Shareholders shall be
entitled (in addition to any other remedy that may be available to it) to (i) a
decree or order of specific performance or mandamus to enforce the observance
and performance of such covenant, obligation or other provision, and (ii) an
injunction restraining such Breach or threatened Breach. The Selling
Shareholders shall not be required to provide any bond or other security in
connection with any such decree, order or injunction or in connection with any
related action or Proceeding.
7.16 WAIVER.
(a) No failure on the part of any Person to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of any Person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
7.17 AMENDMENTS. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of the Purchaser and the Agent.
7.18 SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
47.
<PAGE>
7.19 PARTIES IN INTEREST. Except for the provisions of Section 6
hereof, none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).
7.20 ENTIRE AGREEMENT. The Transactional Agreements set forth the
entire understanding of the parties relating to the subject matter thereof and
supersede all prior agreements and understandings among or between any of the
parties relating to the subject matter thereof.
7.21 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
7.22 NEGOTIATION OF DISPUTES. If a dispute arises between the parties
relating to the interpretation or performance of this Agreement, including any
right of setoff, and the parties cannot resolve the dispute within thirty days
of a written request by either party to the other, such dispute shall be
referred to the Chief Executive Officer, Chief Financial Officer or General
Counsel of the Purchaser and the Agent for resolution. Such persons shall hold a
meeting to attempt in good faith to negotiate a resolution of the dispute prior
to pursuing other available remedies. If within 10 business days after such
meeting, the Chief Executive Officer, Chief Financial Officer or General Counsel
of the Purchaser and the Agent have not succeeded in negotiating a resolution of
the dispute, such dispute may be resolved through arbitration pursuant to
Section 7.24.
7.23 TRANSACTION FEE. The Selling Shareholders agree to pay to Parker
Mulcahy & Associates from the first installment of the Purchase Price, a fee in
the amount of $35,000.
7.24 ARBITRATION. Disputes that have not been successfully resolved
pursuant to Section 7.22 may be submitted to final and binding arbitration under
the then current commercial rules and regulations of JAMS Endispute ("JAMS")
relating to voluntary arbitration in San Diego, California. The arbitration
shall be conducted by three arbitrators, one selected by each party to the
arbitration and one selected by arbitrators appointed by the parties. If the
arbitrators cannot agree on a third arbitrator, the third arbitrator shall be
selected in accordance with the
48.
<PAGE>
JAMS rules. If a party fails to designate an arbitrator within the time
limits set by the JAMS rules, the arbitrator selected by the other party
shall be the sole arbitrator. All arbitrators must be knowledgeable in the
subject matter at issue in the dispute. Each party shall initially bear its
own costs and legal fees associated with such arbitration and the parties
shall split the cost of the arbitrators. The prevailing party in any such
arbitration shall be entitled to recover from the other party the reasonable
attorneys' fees, costs and expenses incurred by such prevailing party in
connection with such arbitration including cost of the arbitrators. The
decision of the arbitrator(s) shall be final and may be sued on or enforced
by the party in whose favor it runs in any court of competent jurisdiction at
the option of the successful party. The rights and obligations of the parties
to arbitrate any dispute relating to the interpretation or performance of
this Agreement, shall survive the expiration or termination of this Agreement
for any reason. The arbitrator(s) shall be empowered to award specific
performance, injunctive relief and other equitable remedies as well as
damages, but shall not be empowered to award punitive or exemplary damages or
award any damages in excess of any limitations set forth in this Agreement.
7.25 DELOITTE & TOUCHE CONSENT. The Agent shall use its best efforts to
obtain any consent of Deloitte & Touche LLP required by the Purchaser in
connection with the filing of any consolidated financial statements of the
Purchaser in any registration statement, report or other filing made by the
Purchaser or the parent of the Purchaser with the Securities and Exchange
Commission, or any blue sky securities authority or any securities exchange or
market.
7.26 TITAN AS SIGNING PARTY. Titan is signing this Agreement solely as
a party to Sections 1.2(c) and 5.4 and Titan does not guarantee performance of
any of the Purchaser's obligations under this Agreement.
49.
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The parties hereto have caused this Agreement to be executed and
delivered as of the date first written above.
PURCHASER: CAYENTA.COM, INC.,
a Delaware corporation
By:
-----------------------
Its:
-----------------------
MS: J.B. SYSTEMS, INC.,
a California corporation
By:
---------------------
Ronald S. Parker
Chairman of the Board
By:
---------------------
Chris S. Jacobsen
Secretary
SELLING SHAREHOLDERS: JKS SEPARATE PROPERTY TRUST
By:
---------------------
Jan Karen Stevens
Trustee
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE>
THE GEHL LIVING TRUST
By:
---------------------
Patrick P. Gehl
Co-Trustee
JBS ACQUISITION COMPANY, LLC
By:
---------------------
Ronald S. Parker
Chairman
EPICOR SOFTWARE CORPORATION
By:
---------------------
Name:
---------------------
Title:
---------------------
------------------------------
MARK STEVENS
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE>
THE TITAN CORPORATION,
a Delaware corporation
By:
---------------------------
Its:
---------------------------
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale or other disposition of all or any portion of
MS's business or assets (other than in the Ordinary Course of
Business);
(b) the issuance, sale or other disposition of (i) any capital
stock of MS, (ii) any option, call, warrant or right (whether or not
immediately exercisable) to acquire any capital stock of MS, or (iii)
any security, instrument or obligation that is or may become
convertible into or exchangeable for any capital stock of MS; or
(c) any merger, consolidation, business combination, share
exchange, reorganization or similar transaction involving MS.
AGENT. "Agent" shall have the meaning specified in Section 7.2 of
the Agreement.
AGREEMENT. "Agreement" shall mean the Stock Purchase Agreement to which
this Exhibit A is attached (including the Disclosure Schedule), as it may be
amended from time to time.
BEST EFFORTS. "Best Efforts" shall mean the efforts that a prudent
Person desiring to achieve a particular result would use in order to ensure that
such result is achieved as expeditiously as possible.
BREACH. There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been (a)
any inaccuracy in or breach of, or any failure to comply with or perform, such
representation, warranty, covenant, obligation or other provision, or (b) any
claim (by any Person) or other circumstance that is inconsistent with such
representation, warranty, covenant, obligation or other provision; and the term
"Breach" shall be deemed to refer to any such inaccuracy, breach, failure, claim
or circumstance.
CERCLA. "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act.
CLOSING. "Closing" shall have the meaning specified in Section 1.4(a)
of the Agreement.
CLOSING CERTIFICATE. "Closing Certificate" shall have the meaning
specified in Section 1.4(b)(v) of the Agreement.
CLOSING DATE. "Closing Date" shall have the meaning specified in
Section 1.4(a) of the Agreement.
A-1
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CODE. "Code" shall mean the Internal Revenue Code of 1986.
COMPANY. "Company" shall mean MS.
COMPANY PLAN. "Company Plan" shall mean any Current Benefit Plan or
Past Benefit Plan.
COMPARABLE ENTITIES. "Comparable Entities" shall mean Entities (other
than MS) of comparable size to MS that are engaged in businesses similar to MS's
business.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral, implied or other
agreement, contract, understanding, arrangement, instrument, note, guaranty,
indemnity, representation, warranty, deed, assignment, power of attorney,
certificate, purchase order, work order, insurance policy, benefit plan,
commitment, covenant, assurance or undertaking of any nature.
CURRENT BENEFIT PLAN. "Current Benefit Plan" shall mean any Employee
Benefit Plan that is currently in effect and:
(a) that was established or adopted by MS or any ERISA
Affiliate or is maintained or sponsored by MS;
(b) in which MS participates;
(c) with respect to which MS or any ERISA Affiliate is or may
be required or permitted to make any contribution; or
(d) with respect to which MS or any ERISA Affiliate is or may
become subject to any Liability.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, Liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including any legal fee, expert fee, accounting fee or
advisory fee), charge, cost (including any cost of investigation) or expense of
any nature.
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule
(dated as of the date of the Agreement) delivered to the Purchaser on behalf of
MS and the Selling Shareholders, a copy of which is attached to the Agreement
and incorporated in the Agreement by reference.
EMPLOYEE BENEFIT PLAN. "Employee Benefit Plan" shall have the meaning
specified in Section 3(3) of ERISA.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, equity, trust, equitable
interest, claim, preference, right of possession, lease, tenancy, license,
encroachment, covenant, infringement, interference, Order, proxy, option, right
of first refusal, preemptive right, community property interest, legend,
A-2
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defect, impediment, exception, reservation, limitation, impairment,
imperfection of title, condition or restriction of any nature (including any
restriction on the voting of any security, any restriction on the transfer of
any security or other asset, any restriction on the receipt of any income
derived from any asset, any restriction on the use of any asset and any
restriction on the possession, exercise or transfer of any other attribute of
ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974.
ERISA AFFILIATE. "ERISA Affiliate" shall mean any Person that is, was
or would be treated as a single employer with MS under Section 414 of the Code.
EXCLUDED CONTRACT. "Excluded Contract" shall mean any MS Contract
that:
(a) MS has entered into in the Ordinary Course of Business;
(b) has a term of less than 12 months or may be terminated by
MS (without penalty) within 90 days after the delivery of a termination
notice by MS; and
(d) does not contemplate or involve the payment of cash or
other consideration in an amount or having a value in excess of
$25,000.
GAAP. "GAAP" shall mean generally accepted accounting principles,
applied on a basis consistent with the basis on which the MS Financial
Statements were prepared.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any:
(a) permit, license, certificate, franchise, concession,
approval, consent, ratification, permission, clearance, confirmation,
endorsement, waiver, certification, designation, rating, registration,
qualification or authorization that is, has been or may in the future
be issued, granted, given or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Legal
Requirement; or
(b) right under any Contract with any Governmental Body.
GOVERNMENT BID. "Government Bid" shall mean any quotation, bid or
proposal submitted to any Governmental Body or any proposed prime contractor or
higher-tier subcontractor of any Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any:
(a) nation, principality, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any
nature;
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(b) federal, state, local, municipal, foreign or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department, agency,
bureau, branch, office, commission, council, board, instrumentality,
officer, official, representative, organization, unit, body or Entity
and any court or other tribunal);
(d) multi-national organization or body; or
(e) individual, Entity or body exercising, or entitled to
exercise, any executive, legislative, judicial, administrative,
regulatory, police, military or taxing authority or power of any
nature.
GOVERNMENT CONTRACT. "Government Contract" shall mean any prime
contract, subcontract, letter contract, purchase order or delivery order
executed or submitted to or on behalf of any Governmental Body or any prime
contractor or higher-tier subcontractor, or under which any Governmental Body or
any such prime contractor otherwise has or may acquire any right or interest
other than any contract, subcontract, letter contract, purchase order or
delivery order that was fully performed by MS before the Closing Date.
HAZARDOUS MATERIAL. "Hazardous Material" shall include:
(a) any petroleum, waste oil, crude oil, asbestos, urea
formaldehyde or polychlorinated biphenyl;
(b) any waste, gas or other substance or material that is
explosive or radioactive;
(c) any "hazardous substance," "pollutant," "contaminant,"
"hazardous waste," "regulated substance," "hazardous chemical" or
"toxic chemical" as designated, listed or defined (whether expressly or
by reference) in any statute, regulation or other Legal Requirement
(including CERCLA, any other so-called "superfund" or "superlien" law,
the Resource Conservation Recovery Act, the Federal Water Pollution
Control Act, the Toxic Substances Control Act, the Emergency Planning
and Community Right-to-Know Act and the respective regulations
promulgated thereunder);
(d) any other substance or material (regardless of physical
form) or form of energy that is subject to any Legal Requirement which
regulates or establishes standards of conduct in connection with, or
which otherwise relates to, the protection of human health, plant life,
animal life, natural resources, property or the enjoyment of life or
property from the presence in the environment of any solid, liquid,
gas, odor, noise or form of energy; and
(e) any compound, mixture, solution, product or other
substance or material that contains any substance or material referred
to in clause "(a)", "(b)", "(c)" or "(d)" above.
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<PAGE>
INDEMNITEES. "Indemnitees" shall mean the following Persons:
(a) the Purchaser;
(b) the Purchaser's current and future affiliates (including
MS);
(c) the respective Representatives of the Persons referred to
in clauses "(a)" and "(b)" above; and
(d) the respective successors and assigns of the Persons
referred to in clauses "(a)", "(b)" and "(c)" above;
PROVIDED, HOWEVER, that (i) MS shall not be entitled to exercise any
rights as an Indemnitee prior to the Closing, and (ii) the Selling Shareholders
shall not be deemed to be "Indemnitees."
KNOWLEDGE. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other
matter; or
(b) a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of
conducting a reasonably diligent and comprehensive investigation
concerning the truth or existence of such fact or other matter.
MS shall be deemed to have "Knowledge" of a particular fact or other
matter if any officer, management employee or other Representative of MS has
Knowledge of such fact or other matter.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, legislation, constitution,
principle of common law, resolution, ordinance, code, edict, decree,
proclamation, treaty, convention, rule, regulation, ruling, directive,
pronouncement, requirement, specification, determination, decision, opinion or
interpretation that is, has been or may in the future be issued, enacted,
adopted, passed, approved, promulgated, made, implemented or otherwise put into
effect by or under the authority of any Governmental Body.
LIABILITY. "Liability" shall mean any debt, obligation, duty or
liability of any nature (including any unknown, undisclosed, unmatured,
unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious,
derivative, joint, several or secondary liability), regardless of whether such
debt, obligation, duty or liability would be required to be disclosed on a
balance sheet prepared in accordance with GAAP and regardless of whether such
debt, obligation, duty or liability is immediately due and payable.
MS. "MS" shall mean J.B. Systems, Inc. dba Mainsaver Corporation and
Mainsaver, a California corporation.
A-5
<PAGE>
MS CONTRACT. "MS Contract" shall mean any Contract:
(a) to which MS is a party;
(b) by which MS or any of its assets is or may become bound or
under which MS has, or may become subject to, any obligation; or
(c) under which MS has or may acquire any right or interest.
MS FINANCIAL STATEMENTS. "MS Financial Statements" shall have the
meaning specified in Section 2.4(a) of the Agreement.
MS RETURNS. "MS Returns" shall have the meaning specified in Section
2.18(a) of the Agreement.
OPTIONS. "Options" shall mean all options to acquire Class B Nonvoting
Common Stock under the 1998 Stock Option/Stock Issuance Plan and any other
options, warrants or other rights to acquire any capital stock of MS.
ORDER. "Order" shall mean any:
(a) order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence,
subpoena, writ or award that is, has been or may in the future be
issued, made, entered, rendered or otherwise put into effect by or
under the authority of any court, administrative agency or other
Governmental Body or any arbitrator or arbitration panel; or
(b) Contract with any Governmental Body that is, has been or
may in the future be entered into in connection with any Proceeding.
ORDINARY COURSE OF BUSINESS. An action taken by or on behalf of MS
shall not be deemed to have been taken in the "Ordinary Course of Business"
unless:
(a) such action is recurring in nature, is consistent with
MS's past practices and is taken in the ordinary course of MS's normal
day-to-day operations;
(b) such action is taken in accordance with sound and prudent
business practices;
(c) such action is not required to be authorized by MS's
shareholders, MS's board of directors or any committee of MS's board of
directors and does not require any other separate or special
authorization of any nature; and
(d) such action is similar in nature and magnitude to actions
customarily taken, without any separate or special authorization, in
the ordinary course of the normal day-to-day operations of other
Entities that are engaged in businesses similar to MS's business.
A-6
<PAGE>
PAST BENEFIT PLAN. "Past Benefit Plan" shall mean any Employee Benefit
Plan (other than a Current Benefit Plan):
(a) of which MS or any ERISA Affiliate has ever been a "plan
sponsor" (as defined in Section 3(16)(B) of ERISA) or that otherwise
has at any time been established, adopted, maintained or sponsored by
MS or by any ERISA Affiliate;
(b) in which MS or any ERISA Affiliate has ever participated;
(c) with respect to which MS or any ERISA Affiliate has ever
made, or has ever been required or permitted to make, any contribution;
or
(d) with respect to which MS or any ERISA Affiliate has ever
been subject to any Liability.
PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
PROCEEDING. "Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding and any informal proceeding), prosecution,
contest, hearing, inquiry, inquest, audit, examination or investigation that is,
has been or may in the future be commenced, brought, conducted or heard by or
before, or that otherwise has involved or may involve, any Governmental Body or
any arbitrator or arbitration panel.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any patent, patent
application, trademark (whether registered or unregistered and whether or not
relating to a published work), trademark application, trade name, fictitious
business name, service mark (whether registered or unregistered), service mark
application, copyright (whether registered or unregistered), copyright
application, maskwork, maskwork application, trade secret, know-how, franchise,
system, computer software, invention, design, blueprint, proprietary product,
technology, proprietary right or other intellectual property right or intangible
asset.
PURCHASE PRICE. "Purchase Price" shall have the meaning specified in
Section 1.2 of the Agreement.
PURCHASER. "Purchaser" shall mean Cayenta.com, Inc., a Delaware
corporation.
RELATED PARTY. Each of the following shall be deemed to be a "Related
Party":
(a) each of the Selling Shareholders;
(b) each individual who is, or who has at any time been, an
officer of MS;
(c) each member of the family of each of the individuals
referred to in clauses "(a)" and "(b)" above; and
(d) any Entity (other than MS) in which any one of the
individuals referred to in clauses "(a)", "(b)" and "(c)" above holds
(or in which more than one of such
A-7
<PAGE>
individuals collectively hold), beneficially or otherwise, a material
voting, proprietary or equity interest.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
management employees or agents, attorneys, accountants and other professional
advisors and representatives. The Selling Shareholders and all other Related
Parties shall be deemed to be "Representatives" of MS.
SELLING SHAREHOLDERS. "Selling Shareholders" shall have the meaning
specified in the introductory paragraph of the Agreement.
SHARES. "Shares" shall have the meaning specified in Recital "A" to the
Agreement.
SPECIFIED REPRESENTATIONS. "Specified Representations" shall mean the
representations and warranties set forth in Sections 2.1, 2.3, 2.18 and 2.21 of
the Agreement.
SPOUSAL CONSENTS. "Spousal Consents" shall mean the Spousal Consents
being executed by the respective spouses of the Selling Shareholders
contemporaneously with the execution and delivery of the Agreement.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, estimated tax, gross receipts tax, value-added tax, surtax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, occupation tax, inventory tax, occupancy tax,
withholding tax or payroll tax), levy, assessment, tariff, impost, imposition,
toll, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), that is, has been or
may in the future be (a) imposed, assessed or collected by or under the
authority of any Governmental Body, or (b) payable pursuant to any tax-sharing
agreement or similar Contract.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information that
is, has been or may in the future be filed with or submitted to, or required to
be filed with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or compliance with any
Legal Requirement relating to any Tax.
TRANSACTIONAL AGREEMENTS. "Transactional Agreements" shall mean:
(a) the Agreement;
(b) the Spousal Consents;
(c) the Noncompetition Agreement referred to in Section
1.4(b)(ii) of the Agreement;
(d) the Employment Agreement referred to in Section
1.4(b)(iii) of the Agreement;
A-8
<PAGE>
(e) the General Release referred to in Section 1.4(b)(iv) of
the Agreement; and
(f) the Closing Certificate.
TRANSACTIONS. "Transactions" shall mean (a) the execution and delivery
of the respective Transactional Agreements, and (b) all of the transactions
contemplated by the respective Transactional Agreements, including:
(i) the sale of the Shares by the Selling
Shareholders to the Purchaser in accordance with the Agreement; and
(ii) the performance by MS, the Selling Shareholders
and the Purchaser of their respective obligations under the Transactional
Agreements and the exercise by MS, the Selling Shareholders and the Purchaser of
their respective rights under the Transactional Agreements.
UNAUDITED INTERIM BALANCE SHEET. "Unaudited Interim Balance Sheet"
shall have the meaning specified in Section 2.4(a)(iii) of the Agreement.
WORKING CAPITAL. "Working Capital" shall mean as of the Closing Date
the difference between MS' current assets and MS' current liabilities as
determined under GAAP except that the calculation of Working Capital will
exclude the principal outstanding balance under MS' credit facility with Union
Bank of California, N.A. provided that the total principal balance does not
exceed $1,800,000 and exclude the current portion of capital leases.
Notwithstanding the foregoing, any cash contributions made or deemed to be made
by Purchaser at Closing to fund the cash-out of Options or Warrants or the
repayment or retirement of indebtedness, the receipt of the exercise price of
the Stevens Options and the deemed receipt of the exercise price of the cashed
out Options and Warrants shall be excluded from the calculation of Working
Capital and any indebtedness required or repaid concurrently with the Closing
shall be deemed to remain on the books of the Closing Date.
YEAR 2000 COMPLIANT. "Year 2000 Compliant" shall mean, in regard to any
product sold, marketed or distributed or internal system, that such product or
internal system can individually continue to be used normally and to operate
successfully (both in functionality and performance in all material respects)
over the transition into the twenty first century when used in accordance with
the documentation relating to such product or internal system, including being
able to, before, on and after January 1, 2000 substantially conform to the
following: (i) use logic pertaining to dates that allow users to identify and/or
use the century portion of any date fields without special processing; and (ii)
respond to all date elements and date input so as to resolve any ambiguity as to
century in a disclosed, defined and pre-determined manner and provide date
information in ways that are unambiguous as to century, either by permitting or
requiring the century to be specified or where the data element is represented
without a century, the correct century is unambiguous for all manipulations
involving that element.
A-9
<PAGE>
CONSENT OF SPOUSE
The undersigned acknowledges that the undersigned has read the Stock
Purchase Agreement, dated as of November 2, 1999, among: CAYENTA.COM, INC., a
Delaware corporation (the "PURCHASER"), JB SYSTEMS, INC., doing business as J.B.
SYSTEMS, INC. D.B.A. MAINSAVER and MAINSAVER CORPORATION, a California
corporation ("MS"), and the following parties (the "SELLING SHAREHOLDERS"): JKS
SEPARATE PROPERTY TRUST, THE GEHL LIVING TRUST, JBS ACQUISITION COMPANY, LLC,
EPICOR SOFTWARE CORPORATION and MARK STEVENS (the "AGREEMENT"). Capitalized
terms used and not otherwise defined in this Consent of Spouse have the
respective meanings given to them in the Agreement.
The undersigned, intending to be legally bound:
1. represents and warrants that the undersigned is the spouse of
_____________;
2. consents to and approves the execution, delivery and performance by
the undersigned's spouse of, and agrees to be bound by, (i) the Agreement, (ii)
the General Release to be executed and delivered by the undersigned's spouse at
the Closing, (iii) the Noncompetition Agreement to be executed and delivered by
the undersigned's spouse at the Closing, (iv) the Employment Agreement to be
executed and delivered by the undersigned's spouse at the Closing, and (v) the
Closing Certificate;
3. consents to and approves (i) the sale to the Purchaser of those of
the Shares held by the undersigned's spouse, and (ii) the consummation of the
Transactions;
4. agrees that, as of the Closing, the undersigned's entire interest
(including, without limitation, the undersigned's entire community property
interest), if any, in the Shares shall automatically be assigned and transferred
to the Purchaser (without the necessity of any further signature or action on
the part of, or any notice to, the undersigned);
5. agrees that, as of the Closing, any rights or claims that the
undersigned may have against or with respect to MS or any of the Shares shall
automatically be fully, irrevocably and unconditionally waived, released and
discharged (without the necessity of any further signature or action on the part
of, or any notice to, the undersigned);
6. represents and warrants that the undersigned has never assigned or
transferred (and has never purported or agreed to assign or transfer), to any
Person, any interest in, or any right or claim against or with respect to, MS or
any of the Shares or to be released or transferred by the undersigned's spouse;
8. agrees to execute and deliver any document, and to take any other
action, that the Purchaser may reasonably request for the purpose of (i) vesting
in the Purchaser good and valid title to the Shares, free of any Encumbrances,
or (ii) facilitating, consummating or evidencing any of the Transactions;
9. irrevocably appoints the undersigned's spouse (with full power of
substitution) as the undersigned's agent and attorney-in-fact for the purpose of
executing and delivering (on
1.
<PAGE>
behalf of the undersigned) any Contract, Consent or other document, and for
the purpose of taking any other action, relating directly or indirectly to MS
or any of the Shares; and
10. represents and warrants that the undersigned has had the
opportunity to obtain legal advice, from counsel of the undersigned's own
choosing, as to the undersigned's legal rights and as to the legal effect of
this Consent of Spouse.
The representations, warranties, covenants, obligations and other
provisions set forth in this Consent of Spouse shall survive the Closing,
notwithstanding any investigation conducted with respect thereto or any
Knowledge of the Purchaser or any other Person.
Dated: , 1999
------------------------------
[NAME]
2.
<PAGE>
===============================================================================
STOCK PURCHASE AGREEMENT
among:
CAYENTA.COM, INC.
a Delaware corporation;
J.B. SYSTEMS, INC.
D.B.A.
MAINSAVER CORPORATION AND MAINSAVER,
a California corporation;
and
JKS SEPARATE PROPERTY TRUST, THE GEHL LIVING TRUST,
JBS ACQUISITION COMPANY, LLC,
EPICOR SOFTWARE CORPORATION AND
MARK STEVENS
and
THE TITAN CORPORATION
a Delaware corporation
--------------
Dated as of November 2, 1999
--------------
===============================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
1. SALE AND PURCHASE OF SHARES; RELATED TRANSACTIONS..............................1
1.1 Sale and Purchase of Shares...........................................1
1.2 Purchase Price........................................................1
1.3 Post-Closing Purchase Price Adjustment................................3
1.4 Closing...............................................................4
2. REPRESENTATIONS AND WARRANTIES OF MS AND SELLING SHAREHOLDERS..................4
2.1 Due Organization; No Subsidiaries; Etc................................4
2.2 Articles of Incorporation and Bylaws; Records.........................5
2.3 Capitalization, Etc...................................................6
2.4 Financial Statements..................................................7
2.5 Absence of Changes....................................................8
2.6 Title to Assets.......................................................9
2.7 Bank Accounts........................................................10
2.8 Receivables; Major Customers.........................................10
2.9 Inventory............................................................11
2.10 Equipment, Etc.......................................................11
2.11 Real Property........................................................12
2.12 Proprietary Assets...................................................12
2.13 Contracts............................................................13
2.14 Security Matters.....................................................17
2.15 Liabilities; Major Suppliers.........................................17
2.16 Compliance With Legal Requirements...................................18
2.17 Governmental Authorizations..........................................18
2.18 Tax Matters..........................................................20
2.19 Employee and Labor Matters...........................................21
2.20 Benefit Plans; ERISA.................................................22
2.21 Environmental Matters................................................24
2.22 Sale of Products; Performance of Services............................25
2.23 Insurance............................................................26
2.24 Related Party Transactions...........................................27
</TABLE>
i
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CONTINUED
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
2.25 Certain Payments, Etc................................................27
2.26 Proceedings; Orders..................................................28
2.27 Authority; Binding Nature of Agreements..............................29
2.28 Non-Contravention; Consents..........................................29
2.29 Year 2000 Compliance.................................................30
2.30 Brokers..............................................................30
2.31 Selling Shareholders.................................................31
2.32 Full Disclosure......................................................31
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER...................................32
3.1 Acquisition of Shares................................................32
3.2 Authority; Binding Nature of Agreement...............................32
3.3 Brokers..............................................................32
4. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE.......................32
4.1 Accuracy of Representations..........................................33
4.2 Performance of Obligations...........................................33
4.3 Approval of Purchaser's Board of Directors; Consents.................33
4.4 No Adverse Change....................................................33
4.5 Additional Documents.................................................33
4.6 No Proceedings.......................................................33
4.7 No Claim Regarding Stock Ownership or Sale Proceeds..................34
4.8 No Prohibition.......................................................34
4.9 Termination of Warrant Rights........................................34
4.10 Termination of Options...............................................34
5. CONDITIONS PRECEDENT TO SELLING SHAREHOLDERS' OBLIGATION TO CLOSE.............34
5.1 Accuracy of Representations..........................................34
5.2 Purchaser's Performance..............................................34
5.3 No Injunction........................................................35
5.4 Modification of Gehl Note............................................35
6. INDEMNIFICATION, ETC..........................................................35
6.1 Survival of Representations and Covenants............................35
</TABLE>
ii.
<PAGE>
TABLE OF CONTENTS
CONTINUED
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
6.2 Indemnification by Selling Shareholders..............................35
6.3 Threshold/Limitation.................................................37
6.4 Right to Require Cure of Breach......................................37
6.5 No Contribution......................................................38
6.6 Interest.............................................................38
6.7 Setoff...............................................................38
6.8 Nonexclusivity of Indemnification Remedies...........................39
6.9 Defense of Third Party Claims........................................39
6.10 Exercise of Remedies by Indemnitees Other Than Purchaser.............40
6.11 Survival of Indemnity in favor of MS.................................40
7. MISCELLANEOUS PROVISIONS......................................................41
7.1 Joint and Several Liability..........................................41
7.2 Selling Shareholders' Agent..........................................41
7.3 Further Assurances...................................................42
7.4 Fees and Expenses....................................................42
7.5 Attorneys' Fees......................................................43
7.6 Notices..............................................................43
7.7 Publicity............................................................45
7.8 Waiver and Termination of Epicor Option Rights.......................45
7.9 Waiver and Termination of Shareholder Rights.........................45
7.10 Time of the Essence..................................................46
7.11 Headings.............................................................46
7.12 Counterparts.........................................................46
7.13 Governing Law; Venue.................................................46
7.14 Successors and Assigns...............................................47
7.15 Remedies Cumulative; Specific Performance............................47
7.16 Waiver...............................................................47
7.17 Amendments...........................................................48
7.18 Severability.........................................................48
7.19 Parties in Interest..................................................48
</TABLE>
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TABLE OF CONTENTS
CONTINUED
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
7.20 Entire Agreement.....................................................48
7.21 Construction.........................................................48
7.22 Negotiation of Disputes..............................................49
7.23 Transaction Fee......................................................49
7.24 Arbitration..........................................................49
7.25 Deloitte & Touche Consent............................................49
7.26 Titan as Signing Party...............................................49
</TABLE>
EXHIBITS
Exhibit A: Certain Definitions
Exhibit B: Form of Noncompetition Agreement
Exhibit C: Form of Employment Agreement
Exhibit D: Form of General Release
Exhibit E: Form of opinion letter from Chris Jacobsen
Exhibit F: Form of Patrick P. Gehl's New Note
DISCLOSURE SCHEDULES
Part 2.1(c): Foreign Qualifications
Part 2.1(d): Directors & Officers
Part 2.3(d): Repurchase of Capital Stock or Other Securities
Part 2.5: Absence of Changes
Part 2.6(b): Leased or Licensed Assets
Part 2.7: Bank Accounts
Part 2.8(a): Receivables - Breakdown & Aging
Part 2.8(b): Receivables - Not Collected
Part 2.8(c): Revenues - Breakdown
Part 2.9: Inventory
Part 2.10(a): Tangible Assets
Part 2.10(b): Tangible Assets - Compliance/Condition
Part 2.11: Real Property Leases - Description
Part 2.12(a): Company Proprietary Assets
Part 2.12(b): Disclosure of Company Proprietary Assets
Part 2.12(d): Exceptions
Part 2.12(e): Licenses/Covenants
Part 2.12(f): Company Employees Confidential Information Agreement
iv.
<PAGE>
TABLE OF CONTENTS
CONTINUED
PAGE
Part 2.13(a): Contracts
Part 2.13(c): Contracts - Breach/Violation
Part 2.13(e): Contracts - Guarantee/Compliance/Warranties
Part 2.13(i): Contracts - Bids/Offers
Part 2.13(j): Contracts - Backlog
Part 2.15(a): Liabilities
Part 2.15(b)(i): Accounts Payable - Breakdown/Aging
Part 2.15(b)(ii): Customer Deposits
Part 2.15(b)(iii): Long Term Debt
Part 2.15(d): Large Suppliers
Part 2.16(a): Exceptions to Compliance with Legal Requirements
Part 2.17(a): Governmental Authorizations
Part 2.17(b): Exceptions
Part 2.18(b): List of Tax Returns
Part 2.18(d) Tax Examinations/Audits
Part 2.18(e) Tax Liabilities
Part 2.19(a) Employee Information
Part 2.19(a) Benefits Payable to Former Employees
Part 2.20(a) Current & Past Employee Benefit Plans
Part 2.20(g) New Benefit Plan
Part 2.21(c) Exceptions Regarding Hazardous Material
Part 2.22(d) Claims
Part 2.23(a) Schedule of Insurance Policies
Part 2.23(b) Pending Claims
Part 2.24 Related Party Transactions
Part 2.26(a) Pending Proceedings/Threats
Part 2.26(b) Past Proceedings
Part 2.28 Consents
Part 2.32(b) Exceptions to Full Disclosure
v.
<PAGE>
EXHIBIT 2.3
STOCK EXCHANGE AND STOCK PURCHASE AGREEMENT
THIS STOCK EXCHANGE AND STOCK PURCHASE AGREEMENT (the "AGREEMENT")
is made and entered into as of December 7, 1999, by and among CAYENTA.COM,
INC., a Delaware corporation ("CAYENTA"), CAYENTA OPERATING COMPANY, a
Delaware corporation ("CAYENTA SUB"), THE TITAN CORPORATION, a Delaware
corporation ("TITAN"), ASSIST CORNERSTONE TECHNOLOGIES, INC., a Utah
corporation ("ASSIST" or the "COMPANY"), and the following parties (the
"SELLING SHAREHOLDERS"): SCOTT E. PYNES, JERRY L. MCMILLAN, KENNETH R.
SAWYER, ANDREAS SEEMULLER, HENRY J. EYRING, VERN R. CHRISTENSEN, GREGORY C.
ESTY, BATCHELDER & PARTNERS, INC., E. SCOTT ANDERSON, GUY M. CAMERON, MARNIE
NUTTALL-MARTINEZ, RANDALL CROCKER, PAUL SCHWEET, STUART CLIFTON, MARK S.
HOWLETT, C. BURTON STOHL, MARLON R. BERRETT AND PACIFIC MEZZANINE FUND, LP.
Certain capitalized terms used in this Agreement are defined on Exhibit A.
RECITALS
A. The Selling Shareholders own or will own as of the Closing 9,723,455
shares of the Common Stock of Assist (the "SHARES"), which will constitute
all of the outstanding common stock of Assist as of the Closing.
B. The Selling Shareholders wish to exchange with Cayenta a total of
2,015,838 of the Shares for a total of 516,458 shares of Class A common stock
of Cayenta (the "EXCHANGE") pursuant to Cayenta's plan adopted pursuant to
Section 351 of the Code (the "351 PLAN") and pursuant to the terms set forth
in this Agreement (which are a part of the 351 Plan).
C. Concurrently with the Closing of the Exchange, Titan and the other
stockholders of Cayenta Sub will exchange all of the outstanding shares of
capital stock of Cayenta Sub for shares of capital stock of Cayenta in
accordance with the 351 Plan.
D. Concurrently with the Closing of the Exchange, the Selling
Shareholders wish to sell to Cayenta Sub a total of 7,707,617 of the Shares
pursuant to the terms set forth in this Agreement.
AGREEMENT
The parties to this Agreement agree as follows:
1. EXCHANGE OF SHARES TRANSACTION
1.1 EXCHANGE OF SHARES. At the Closing, the Selling Shareholders
shall exchange, assign, transfer and deliver to Cayenta a total of 2,015,838
of the Shares (the "EXCHANGED SHARES") to Cayenta, and Cayenta shall exchange
and deliver to the Selling Shareholders a total of 516,458 shares of Class A
common stock, $.001 par value, of Cayenta (the "CAYENTA SHARES"), on the
terms and subject to the conditions set forth in this Agreement. Each of the
1.
<PAGE>
Selling Shareholders will exchange with Cayenta 20.7% of the total Shares
owned by such Selling Shareholder.
1.2 NO FRACTIONAL SHARES. No fractional shares of Cayenta common
stock shall be issued in the exchange with Cayenta, and no certificates for
any such fractional shares shall be issued. In lieu of such fractional
shares, any Selling Shareholder who would otherwise be entitled to receive a
fraction of a share of Cayenta common stock (after aggregating all fractional
shares of Cayenta Shares issuable to such holder) shall be paid in cash the
dollar amount (rounded to the nearest whole cent), without interest,
determined by multiplying such fraction by $6.58.
1.3 CAYENTA SHARES. The Cayenta Shares shall have the voting and
other rights set forth in the form of Amended and Restated Certificate of
Incorporation attached as Exhibit B. Each Cayenta Share shall be entitled to
the appraisal rights set forth in Section 1.4 and the co-sale, participation
and registration rights set forth in the Investor Rights Agreement attached
as Exhibit C hereto. In addition, each Cayenta Share shall be subject to the
restrictions on transfer and right of first refusal set forth in the Investor
Rights Agreement.
1.4 APPRAISAL RIGHTS. In the event that the Class A common stock of
Cayenta (or any class of common stock of Cayenta for which the Class A common
stock held by the Selling Shareholders are exchanged) is not traded on a
national securities exchange or Nasdaq Stock Market within four years from
the Closing Date, then the Selling Shareholders holding at least 50% of the
Cayenta Shares may require Cayenta to engage a nationally recognized
investment banking firm to determine the Fair Market Value of the Cayenta
Class A Common Stock upon terms usual for engagements of this type. The "FAIR
MARKET VALUE" shall mean the fair market value of the business of Cayenta as
determined by such investment banking firm utilizing and weighing in its sole
discretion applicable generally accepted enterprise valuation methodologies
which may include the market multiple approach, earnings approach, net asset
value approach and discounted cash flow approach based upon the financial
statements of Cayenta and projections prepared by Cayenta using reasonable
assumptions and without reflecting any minority or restricted stock
discounts. To the extent consistent with generally accepted enterprise
valuation methodologies, the investment banking firm may consider the
consideration that Cayenta would receive upon the exercise of outstanding
options or warrants included in the fully diluted capitalization of Cayenta
(on a discounted or other appropriate basis). The "FAIR MARKET VALUE PER
SHARE" shall be determined based upon the fully diluted capitalization of
Cayenta. If the Agent does not agree with the investment banking firm's
determination of the Fair Market Value per Share, then the Agent may engage,
at the Selling Shareholders' expense, a second nationally recognized
investment banking firm to determine the Fair Market Value per Share of the
Class A common stock of Cayenta upon terms usual for engagements of this
type. If the two investment banking firms cannot agree upon a Fair Market
Value per Share within 45 days after the engagement of the second investment
banking firm, then the two investment banking firms shall designate a third
investment banking firm to determine a Fair Market Value per Share within the
range of the Fair Market Value per Share determinations of the other two
investment banking firms. The third investment banking firm's determination
shall be final and binding on Cayenta and the Selling Shareholders. For a
period of 90 days after the final determination of the Fair Market Value per
Share (the "PUT PERIOD"), each of the Selling Shareholders who continue to
hold Cayenta Shares shall have a right to put the Cayenta Shares to
2.
<PAGE>
Titan for purchase at the Fair Market Value per Share (the "PUT RIGHT"). If
the Put Right is not exercised within the Put Period, then Titan shall have
the right for a period of 90 days following the final day of the Put Period
to call the Cayenta Shares from any or all of the Selling Shareholders (the
"CALL RIGHT") at the Fair Market Value per Share. The closing of each
exercise of Put Right or the Call Right shall occur within 30 days after the
exercise of the applicable Put Right by each Selling Shareholder or the Call
Right by Titan. Titan may pay the purchase price in cash or in freely
tradable shares of common stock of Titan so long as Titan common stock is
then traded on the New York Stock Exchange or the Nasdaq Stock Market. If
Titan elects to use common stock of Titan, the number of shares of Titan
common stock given for each share of the Cayenta Shares sold will be
determined by dividing the Fair Market Value per Share by the average closing
price of a share of Titan common stock on the New York Stock Exchange (or its
principal exchange or market, if not the New York Stock Exchange) for the 20
trading days ending immediately prior to the closing date for the put or the
call transaction as reported in the WALL STREET JOURNAL.
1.5 CLOSING. The closing of the Exchange and the closing of the
purchase and sale of the Purchased Shares (as defined in Section 2.1) in
accordance with Section 1.5 (the "CLOSING") shall take place at the offices
of Cooley Godward, LLP, 4365 Executive Drive, Suite 1100, San Diego, CA 92121
at 10:00 a.m. (California time) on the later of December 13, 1999 or the date
two business days following the satisfaction of all conditions to the Closing
(or at such other place or time as Cayenta and the Agent may jointly
designate). For purposes of this Agreement: "SCHEDULED CLOSING TIME" shall
mean the time and date as of which the Closing is required to take place
pursuant to this Section 1.5; and "CLOSING DATE" shall mean to the time and
date as of which the Closing actually takes place. At the Closing, the
Selling Shareholders shall deliver to Cayenta the stock certificates
representing the Exchanged Shares, duly endorsed (or accompanied by duly
executed stock powers) and Cayenta shall deliver to each Selling Shareholder
stock certificates for the Cayenta Shares issuable to each such Selling
Shareholder.
2. SALE AND PURCHASE OF SHARES.
2.1 SALE AND PURCHASE OF SHARES. At the Closing, the Selling
Shareholders shall sell, assign, transfer and deliver a total of 7,707,617
Shares (the "PURCHASED SHARES") to Cayenta Sub, and Cayenta Sub shall
purchase the Purchased Shares from the Selling Shareholders, on the terms and
subject to the conditions set forth in this Agreement. Each of the Selling
Shareholders will sell to Cayenta Sub 79.3% of the total Shares owned by such
Selling Shareholder. At the Closing, the Selling Shareholders shall deliver
to Cayenta the stock certificates representing the Purchased Shares, duly
endorsed (or accompanied by duly executed stock powers), and Cayenta shall
deliver the First Installment of the Purchase Price to the Agent.
2.2 PURCHASE PRICE.
(a) For purposes of this Agreement:
(i) The "APPLICABLE FRACTION" shall mean the fraction
determined by dividing one by 7,707,617, which is the total number of
Purchased Shares.
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(ii) "DEBT" means all debt of Assist, including without
limitation, bank indebtedness, related party debt, redeemable nonconvertible
preferred stock, subordinated debt, intercompany debt, the redemption price
of the Series A preferred stock, including accrued but unpaid dividends on
Series A preferred stock and the redemption price of the Series B preferred
stock, and capital leases, but excluding trade payables and other current
liabilities incurred or made in the ordinary course of business and
consistent with past practices (E.G. payroll and commissions). The current
portion of any principal or interest on any indebtedness shall constitute
Debt regardless of whether it is classified as a current liability under
GAAP. "NET DEBT" means Debt as of the Closing Date minus $3,100,000.00.
(iii) The "FIRST INSTALLMENT" shall be the Purchase Price
less $3,000,000.00.
(iv) The "SECOND INSTALLMENT" shall be the Purchase Price
less (a) the First Installment, (b) $1,300,000.00 and (c) any setoffs made in
accordance with Section 11.7 of this Agreement, with interest on the Second
Installment at the rate of 8% per annum accruing from the Closing Date to the
payment date of the Second Installment.
(v) The "THIRD INSTALLMENT" shall be the Purchase Price
less (a) the First Installment, (b) the Second Installment and (c) any
setoffs made in accordance with Section 11.7 of this Agreement, with interest
on the Third Installment at the rate of 8% per annum accruing from the
Closing Date to the payment date of the Third Installment.
(vi) The "PURCHASE PRICE" shall be $13,000,000.00 less
(without duplication) (a) each dollar of Net Debt as of the Closing Date, (b)
each dollar of negative Working Capital as of the Closing Date, (c) each
dollar of Transaction Expenses as defined in Section 12.5 and (d) each dollar
paid by Assist for the termination of outstanding options or warrants to
acquire Assist common stock. The Purchase Price shall be increased by an
amount equal to (x) the aggregate cash received by Assist in connection with
the exercise of vested options or warrants to acquire Assist common stock and
(y) the aggregate amount of any Debt (excluding any Net Debt) cancelled in
connection with the exercise of any warrants to acquire Assist capital stock.
The Purchase Price shall be calculated at the Closing using an estimate of
the Working Capital as of the Closing Date. The final determination of the
Purchase Price shall be determined based upon the post-closing audit
conducted in accordance with Section 2.3.
(b) The Purchase Price shall be payable by Cayenta Sub as
follows:
(i) The First Installment shall be deliverable as of the
Closing against delivery of the stock certificates at the Closing in
accordance with Section 2.3. The First Installment shall be paid to the Agent
for distribution to the Selling Shareholders. Each Selling Shareholder will
receive the Applicable Fraction of the First Installment for each of the
Purchased Shares owned by such Selling Shareholder.
(ii) The Second Installment shall be paid on the second
business day following the completion of the audit and the determination of
any adjustments to the Purchase Price pursuant to Section 2.3. Each Selling
Shareholder will receive the Applicable Fraction of the Second Installment
for each of the Purchased Shares owned by such Selling Shareholder.
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The Second Installment shall be paid to the Agent for distribution to the
Selling Shareholders. Cayenta Sub's obligation to make the payment
contemplated by this Section 2.2(b)(ii) shall be subject to any right of
setoff that Cayenta Sub may be entitled to exercise (pursuant to Section
11.7). In addition, if Cayenta Sub shall have made in good faith any claim
for indemnification against any of the Selling Shareholders pursuant to this
Agreement and such claim shall not have been setoff in accordance with
Section 11.7, then Cayenta Sub may withhold a good faith estimate of such
claim (and the associated interest) from the Second Installment and pay the
remaining portion of the Second Installment with interest on the portion paid.
(iii) The Third Installment shall be payable on the first
business day after the eighteen-month anniversary of the Closing Date (or on
such earlier date as Cayenta Sub may elect). Each Selling Shareholder will
receive the Applicable Fraction of the Third Installment for each of the
Purchased Shares owned by such Selling Shareholder. The Third Installment
shall be paid to the Agent for the distribution to the Selling Shareholders.
Cayenta Sub's obligation to make the payment contemplated by this Section
2.2(b)(iii) shall be subject to any right of setoff that Cayenta Sub may be
entitled to exercise (pursuant to Section 11.7). In addition, if Cayenta Sub
shall have made in good faith any claim for indemnification against any of
the Selling Shareholders pursuant to this Agreement and such claim shall not
have been setoff in accordance with Section 11.7, then Cayenta Sub may
withhold a good faith estimate of such claim (and the associated interest)
from the Third Installment and pay the remaining portion of the Third
Installment with interest on the portion paid.
(c) Cayenta Sub shall be entitled to deduct and withhold from
any consideration payable or otherwise deliverable to any holder or former
holder of capital stock of Assist pursuant to this Agreement such amounts as
Cayenta Sub or Assist may be required to deduct or withhold therefrom under
the Code or under any provision of state, local or foreign tax law (or, in
the alternative, Cayenta Sub at its option may request tax information and
other documentation so no withholding is necessary). To the extent such
amounts are so deducted or withheld, such amounts shall be treated for all
purposes under this Agreement as having been paid to the Person to whom such
amounts would otherwise have been paid.
2.3 POST-CLOSING ADJUSTMENT.
(a) The Purchase Price shall be subject to post-closing
adjustment as follows: the Purchase Price shall be reduced dollar for dollar
to the extent of any negative Working Capital as of the Closing Date as shown
on the Audited Balance Sheet that was not deducted in determining the
Purchase Price on the Closing Date and shall be reduced by any Net Debt, as
shown on the Audited Balance Sheet, that was not deducted in determining the
Purchase Price on the Closing Date. The foregoing adjustments shall be made
without double counting any single item of debt in both the calculation of
Working Capital and the determination of Debt.
(b) Within 90 days following the Closing, Arthur Andersen LLP
("ARTHUR ANDERSEN") shall audit Assist's balance sheet as of the Closing Date
(the "CLOSING BALANCE SHEET") and Assist's statements of operations, changes
in shareholders' equity and cash flows for the period from January 1, 1999 to
and including the Closing Date for conformity to GAAP and issue a draft
report thereon. Cayenta Sub shall provide to Agent a copy of the draft
report. Any
5.
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adjustment to the Closing Balance Sheet proposed by Arthur Andersen,
including adjustments to Working Capital, shall be subject to review by
auditors retained by the Selling Shareholders (the "ASSIST AUDITORS") which
review shall be completed no later than 30 days after the Agent receives the
report from Arthur Andersen. If the opinions of Arthur Andersen and the
Assist Auditors differ as to the necessity of the adjustment, a third
auditing firm mutually agreeable to Cayenta Sub and the Agent shall be
selected to review the disputed adjustments. The decision of the third
independent auditing firm shall be made no later than 30 days after the
selection and engagement of such firm. The decision of the third independent
auditing firm regarding any such adjustment shall be binding on the parties.
The final determination of the amounts payable hereunder shall be based on
the final determination of the Working Capital as set forth in the final
audited Closing Balance Sheet (the "AUDITED BALANCE SHEET") and each
component in the calculation of such amounts shall be made using the Audited
Balance Sheet. Cayenta Sub shall be responsible for the fees and expenses of
Arthur Andersen and the Selling Shareholders shall be responsible for the
fees and expenses of the Assist Auditors. Notwithstanding anything in this
Agreement to the contrary, if the services of a third independent auditing
firm are required pursuant to this Section, Cayenta Sub and the Agent (on
behalf of the Selling Shareholders) shall each bear and pay 50% of all fees
and expenses of such auditing firm.
3. REPRESENTATIONS AND WARRANTIES OF ASSIST AND SELLING SHAREHOLDERS
Except as set forth in the disclosure schedules attached hereto
(each a "SCHEDULE," and collectively, the "DISCLOSURE SCHEDULE"), as of the
date of this Agreement and as of the Closing, Assist and each of the Selling
Shareholders jointly but not severally represents and warrants, to and for
the benefit of the Indemnitees, as follows:
3.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) Assist is a corporation duly organized, validly existing
and in good standing under the laws of the State of Utah and has all
necessary power and authority:
(i) to conduct its business in the manner in which its
business is currently being conducted;
(ii) to own and use its assets in the manner in which its
assets are currently owned and used; and
(iii) to perform its obligations under all Assist Contracts.
(b) Assist has never conducted any business under or otherwise
used, for any purpose or in any jurisdiction, any fictitious name, assumed
name, trade name or other name, other than the names "Assist International
Inc.", "Interactive Systems, Inc.", "McMillan, Schow and Pynes, Inc."
(c) Assist is not required to be qualified, authorized,
registered or licensed to do business as a foreign corporation in any
jurisdiction other than the jurisdictions identified in Part 3.1 of the
Disclosure Schedule. Assist is in good standing as a foreign corporation in
each of the jurisdictions identified in Part 3.1 of the Disclosure Schedule.
6.
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(d) Part 3.1 of the Disclosure Schedule accurately sets forth
(i) the names of the members of Assist's board of directors, (ii) the names
of the members of each committee of Assist's board of directors, and (iii)
the names and titles of Assist's officers.
(e) Neither Assist nor any of its shareholders has ever
approved, or commenced any proceeding or made any election contemplating, the
dissolution or liquidation of Assist or the winding up or cessation of
Assist's business or affairs.
(f) Assist has no subsidiaries, and Assist has never owned,
beneficially or otherwise, any shares or other securities of, or any direct
or indirect interest of any nature in, any Entity other than a shell
subsidiary that was dissolved. Assist has not agreed and is not obligated to
make any future investment in or capital contribution to any other Entity.
3.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS.
(a) Assist has delivered to Cayenta accurate and complete
copies of:
(i) Assist's certificate of incorporation and bylaws,
including all amendments thereto;
(ii) the stock records of Assist; and
(iii) the minutes and other records of the meetings and
other proceedings (including any actions taken by written consent or
otherwise without a meeting) of the shareholders of Assist, the board of
directors of Assist and all committees of the board of directors of Assist.
There have been no officially called and noticed meetings or other
proceedings of the shareholders of Assist, the board of directors of Assist
or any committee of the board of directors of any of Assist that are not
fully reflected in such minutes or other records.
(b) There has not been any violation of any of the provisions
of Assist's certificate of incorporation or bylaws or of any resolution
adopted by Assist's shareholders, Assist's board of directors or any
committee of Assist's board of directors; and no event has occurred, and no
condition or circumstance exists, that might (with or without notice or lapse
of time) constitute or result directly or indirectly in such a violation.
(c) The books of account, stock records, minute books and other
records of Assist are accurate, up-to-date and complete in all material
respects, and have been maintained in accordance with sound and prudent
business practices. All of the records of Assist are in the actual possession
and direct control of Assist. Assist has in place an adequate and appropriate
system of internal controls which is at least as comprehensive and effective
as the systems of internal controls customarily maintained by Comparable
Entities.
3.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of Assist consists of:
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(i) 20,000,000 shares of common stock having a par value of
$.001 per share, of which 4,661,645 shares have been issued and are
outstanding as of the date of this Agreement and of which 9,723,455 shares
shall have been issued and shall be outstanding as of the Closing Date
following the exercise of all then outstanding options and warrants to
acquire common stock of Assist;
(ii) 12,800 shares of preferred stock having a par value of
$.001 per share, of which 6,200 have been designated Series A preferred stock
and 6,600 have been designated Series B preferred stock. 6,200 shares of
Series A preferred are issued and outstanding and are convertible into
413,333 shares of common stock of Assist. 5000 shares of Series B preferred
stock are issued and outstanding, none of which is convertible into common
stock of Assist; and
(iii) Cayenta will acquire at the Closing, good and valid
title to the Exchanged Shares free and clear of any Encumbrances. Cayenta Sub
will acquire at the Closing, good and valid title to the Purchased Shares
free and clear of any Encumbrances. All of such Shares are owned by the
Selling Shareholders in the amounts indicated on the Schedule of Shareholders
attached as Part 3.3(a) and are being sold to Cayenta hereunder.
(b) All of the Exchanged Shares and all of the Purchased Shares
(i) have been duly authorized and validly issued, (ii) are fully paid and
non-assessable, (iii) were issued in compliance with any applicable
preemptive or similar rights and (iv) have been issued in full compliance
with all applicable securities laws and other applicable Legal Requirements
and in compliance with all applicable Contracts. The Selling Shareholders
have delivered or, at the Closing shall deliver, to Cayenta and Cayenta Sub,
respectively, accurate and complete copies of the stock certificates
evidencing the Exchanged Shares and the Cayenta Shares.
(c) Except as set forth in Part 3.3 of the Disclosure Schedule,
there is no:
(i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any shares of the
capital stock or other securities of Assist;
(ii) outstanding security, instrument or obligation that is
or may become convertible into or exchangeable for any shares of the capital
stock or other securities of Assist;
(iii) Contracts under which Assist is or may become
obligated to sell or otherwise issue any shares of its capital stock or any
other securities; or
(iv) condition or circumstance that may directly or
indirectly give rise to or provide a basis for the assertion of a claim by
any Person to the effect that such Person is entitled to acquire or receive
any shares of capital stock or other securities of Assist.
(d) Except as set forth in Part 3.3 of the Disclosure
Schedule, Assist has never repurchased, redeemed or otherwise reacquired any
shares of capital stock or other securities. All securities so reacquired by
Assist were reacquired in full compliance with the applicable provisions of
the Utah Revised Business Corporations Act and with all other applicable
Legal Requirements.
8.
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3.4 FINANCIAL STATEMENTS.
(a) Assist has delivered to Cayenta the following financial
statements and notes (collectively, the "ASSIST FINANCIAL STATEMENTS"):
(i) the audited balance sheet of Assist as of December 31,
1998, and the related audited consolidated statements of operations, changes
in shareholders' equity and cash flows of Assist for the year then ended,
together with the notes thereto and the unqualified report and certification
of Ernst & Young LLP relating thereto;
(ii) the audited balance sheet of Assist as of December 31,
1997, and the related audited statements of operations, changes in
shareholders' equity and cash flows of Assist for the year then ended,
together with the notes thereto and the unqualified report and certification
of Ernst & Young LLP relating thereto; and
(iii) the unaudited balance sheet of Assist as of September
30, 1999 (the "UNAUDITED INTERIM BALANCE SHEET"), and the related unaudited
statements of operations, changes in shareholders' equity and cash flows of
Assist for the nine months then ended.
(b) All of the Assist Financial Statements are accurate and
complete in all material respects The financial statements and notes referred
to in Section 3.4(a)(i) present fairly the financial position of Assist as of
December 31, 1998 and the results of operations, changes in shareholders'
equity and cash flows of Assist for the year then ended. The financial
statements and notes referred to in Sections 3.4(a)(ii) and 3.4(a)(iii)
present fairly the financial position of Assist as of the respective dates
thereof and the results of operations, changes in shareholders' equity and
cash flows of Assist for the periods covered thereby. The Assist Financial
Statements have been prepared in accordance with generally accepted
accounting principles, applied on a consistent basis throughout the periods
covered, except that the financial statements referred to in Section
3.4(a)(iii) do not contain footnotes and are subject to normal recurring
year-end audit adjustment consistent with Assist past practices.
3.5 ABSENCE OF CHANGES. Except as set forth in Part 3.5 of the
Disclosure Schedule, since December 31, 1998
(a) there has not been any material adverse change in Assist's
business, condition, assets, liabilities, operations, financial performance
or net income (or in any aspect or portion thereof), and no event has
occurred that might have a material adverse effect on Assist's business,
condition, assets, liabilities, operations, financial performance or net
income (or on any aspect or portion thereof);
(b) there has not been any material loss, damage or destruction
to, or any material interruption in the use of, any of Assist's assets
(whether or not covered by insurance);
(c) Assist has not (i) declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, or (ii) repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
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(d) Assist has not sold or otherwise issued any shares of
capital stock or any other securities;
(e) Assist has not amended its certificate of incorporation or
bylaws and has not effected or been a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock
split or similar transaction;
(f) Assist has not purchased or otherwise acquired any asset
from any other Person, except for supplies and equipment acquired by Assist
in the Ordinary Course of Business;
(g) Assist has not leased or licensed any asset from any other
Person that is either incorporated in any product or service sold by Assist
or that had lease or license payments that exceeded $25,000 since December
31, 1998;
(h) Assist has not made any capital expenditure in excess of
$20,000 per item and $200,000 in the aggregate;
(i) Assist has not sold or otherwise transferred, and has not
leased or licensed, any asset to any other Person except for products sold or
licensed by Assist from its inventory in the Ordinary Course of Business;
(j) Assist has not written off as uncollectible, or established
any extraordinary reserve with respect to, any individual account receivable
in an amount of more than $20,000 or other indebtedness owing to Assist or
collectively in an amount of more than $200,000;
(k) Assist has not pledged or hypothecated any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance;
(l) Assist has not made any loan or advance to any other Person;
(m) Assist has not (i) established or adopted any Employee
Benefit Plan, or (ii) paid any bonus or made any profit-sharing or similar
payment to any directors, officers or employees other than pursuant to
Employee Benefit Plans that were established or adopted prior to December 31,
1998 and that were not amended since December 31, 1998, in amounts consistent
with prior bonus or profit-sharing amounts, or increased the amount of the
wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees;
(n) Assist has not entered into, and neither Assist nor any of
the assets owned or used by Assist has become bound by, any Contract that is
not an Excluded Contract;
(o) no Contract by which Assist or any of the assets owned or
used by Assist is or was bound, or under which Assist has or had any rights
or interest (other than an Excluded Contract), has been amended or terminated;
(p) Assist has not incurred, assumed or otherwise become
subject to any Liability, other than accounts payable (of the type required
to be reflected as current liabilities in
10.
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the "liabilities" column of a balance sheet prepared in accordance with GAAP)
incurred by Assist in the Ordinary Course of Business;
(q) Assist has not discharged any Encumbrance or discharged or
paid any indebtedness or other Liability, except for accounts payable that
(i) are reflected as current liabilities in the "liabilities" column of the
Unaudited Interim Balance Sheet or have been incurred by Assist since
September 30, 1999 in the Ordinary Course of Business, and (ii) have been
discharged or paid in the Ordinary Course of Business;
(r) Assist has not forgiven any debt or otherwise released or
waived any material right or claim;
(s) Assist has not changed any of its methods of accounting or
accounting practices in any respect;
(t) Assist has not entered into any transactions or taken any
other action outside the Ordinary Course of Business; and
(u) Assist has not agreed, committed or offered (in writing or
otherwise) to take any of the actions referred to in clauses "(c)" through
"(t)" above.
3.6 TITLE TO ASSETS.
(a) Assist owns, and has good, valid and marketable title to,
all assets purported to be owned by it, including:
(i) all assets reflected on the Unaudited Interim Balance
Sheet (except for inventory sold by Assist since September 30, 1999 in the
Ordinary Course of Business);
(ii) all assets acquired by Assist since September 30, 1999
(except for inventory sold by Assist since September 30, 1999 in the Ordinary
Course of Business);
(iii) all assets referred to in Parts 3.8, 3.10 and 3.12 of
the Disclosure Schedule and all of Assist's rights under Assist Contracts; and
(iv) all other assets reflected in Assist's books and
records as being owned by Assist.
Except as set forth in Part 3.6 of the Disclosure Schedule, all of
said assets are owned by Assist free and clear of any Encumbrances except for
any lien for Taxes that are not yet due and payable.
(b) Part 3.6 of the Disclosure Schedule identifies all assets
that are being leased or licensed to Assist (except for any Proprietary Asset
that is licensed to Assist under any third party software license generally
available to the public at a cost of less than $1,000 per copy).
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3.7 BANK ACCOUNTS. Part 3.7 of the Disclosure Schedule accurately
sets forth, with respect to each account maintained by or for the benefit of
Assist at any bank or other financial institution:
(a) the name and location of the institution at which such
account is maintained;
(b) the name in which such account is maintained and the
account number of such account;
(c) a description of such account and the purpose for which
such account is used;
(d) the current balance in such account;
(e) the rate of interest being earned on the funds in such
account; and
(f) the names of all individuals authorized to draw on or make
withdrawals from such account.
Except as provided in Part 3.7 of the Disclosure Schedule, there are
no safe deposit boxes or similar arrangements maintained by or for the
benefit of Assist.
3.8 RECEIVABLES; MAJOR CUSTOMERS.
(a) Part 3.8 of the Disclosure Schedule provides an accurate
and complete breakdown and aging of all accounts receivable, notes receivable
and other receivables of Assist as of September 30, 1999.
(b) Except as set forth in Part 3.8 of the Disclosure Schedule,
all existing accounts receivable of Assist (including those accounts
receivable reflected on the Unaudited Interim Balance Sheet that have not yet
been collected and those accounts receivable that have arisen since September
30, 1999 and have not yet been collected):
(i) represent valid obligations of customers of Assist
arising from bona fide transactions entered into in the Ordinary Course of
Business; and
(ii) are current and will be collected in full (without any
counterclaim or setoff, subject to write-offs for bad debt not to exceed the
reserve for bad debt on the Interim Balance Sheet) or in the Ordinary Course
of Business consistent with Assist's historical collection experience.
(c) No customer has accounted for more than 10% of Assist
annual revenues in each of its fiscal years ended December 31, 1997 and
December 31, 1998 and on an annualized basis during the fiscal year ending
December 31, 1999.
3.9 INVENTORY. Part 3.9 of the Disclosure Schedule provides an
accurate and complete breakdown of all inventory (including raw materials,
work in process and finished
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goods) of Assist as of September 30, 1999. All of Assist's existing inventory
(including all inventory that is reflected on the Unaudited Interim Balance
Sheet and that has not been disposed of by Assist since September 30, 1999):
(a) is of such quality and quantity as to be usable and
saleable by Assist in the Ordinary Course of Business;
(b) has been priced at the lower of cost or market value; and
(c) is free of any material defect or deficiency that is not
covered through a third party manufacturer's warranty.
The inventory levels maintained by Assist (i) are not excessive in
light of Assist's normal operating requirements, and (ii) are adequate for
the conduct of Assist's operations in the Ordinary Course of Business.
3.10 EQUIPMENT, ETC.
(a) Part 3.10 of the Disclosure Schedule accurately identifies
all equipment, furniture, fixtures, improvements and other tangible assets
(other than inventory) owned by Assist. Part 3.10 also accurately identifies
all tangible assets leased to Assist.
(b) Each asset identified or required to be identified in Part
3.10 of the Disclosure Schedule:
(i) is structurally sound, free of material defects and
deficiencies and in good condition and repair (ordinary wear and tear
excepted);
(ii) complies in all respects with, and is being operated
and otherwise used in full compliance with, all applicable Legal
Requirements; and
(iii) is adequate for the uses to which it is being put.
The assets identified in Part 3.10 of the Disclosure Schedule are
adequate for the conduct of Assist's business in the manner in which such
business is currently being conducted.
3.11 REAL PROPERTY. Assist does not own any real property or any
interest in real property, except for the leaseholds created under the real
property leases identified in Part 3.13 of the Disclosure Schedule. Part 3.11
of the Disclosure Schedule provides an accurate description of the premises
covered by said leases and the facilities located on such premises. Assist
enjoys peaceful and undisturbed possession of such premises.
3.12 PROPRIETARY ASSETS.
(a) Part 3.12(a) of the Disclosure Schedule sets forth, with
respect to each Proprietary Asset of Assist registered with any Governmental
Body or for which an application has been filed with any Governmental Body,
(i) a brief description of such Assist Proprietary Asset, and (ii) the names
of the jurisdictions covered by the applicable registration or application.
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Part 3.12(a) of the Disclosure Schedule identifies and provides a brief
description of all other material Proprietary Assets owned by Assist. Part
3.12(a) of the Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to Assist by any Person
(except for any Proprietary Asset that is licensed to Assist under any third
party software license generally available to the public at a cost of less
than $1,000 per copy), and identifies the license agreement under which such
Proprietary Asset is being licensed to Assist. Except as set forth in Part
3.12(a) of the Disclosure Schedule, Assist has good, valid and marketable
title to all of the Proprietary Assets used in its business free and clear of
all liens and other Encumbrances, and has a valid right (contractual or
otherwise) to use all Proprietary Assets identified in Part 3.12(a) of the
Disclosure Schedule. Except as set forth in Part 3.12(a) of the Disclosure
Schedule, Assist is not obligated to make any payment to any Person for the
use of any Proprietary Asset. Except as set forth in Part 3.12(a) of the
Disclosure Schedule, Assist has not developed jointly with any other Person
any Proprietary Asset with respect to which such other Person has any rights.
(b) Assist has taken all commercially reasonable measures and
precautions to protect and maintain the confidentiality and secrecy of all
Proprietary Assets (except Proprietary Assets whose value would be unimpaired
by public disclosure) and otherwise to maintain and protect the value of all
Proprietary Assets. Except as set forth in Part 3.12(a) of the Disclosure
Schedule, Assist has not disclosed or delivered to any Person, or permitted
the disclosure or delivery to any Person of, (i) the source code, or any
portion or aspect of the source code, of any Proprietary Asset, or (ii) the
object code, or any portion or aspect of the object code, of any Proprietary
Asset.
(c) None of the Proprietary Assets infringes or conflicts with
any Proprietary Asset owned or used by any other Person except for any
inadvertent infringement of which Assist is unaware that does not impose any
material liability on Assist or cause Assist to spend any material amount to
replace any Proprietary Assets. Assist is not infringing, misappropriating or
making any unlawful use of, and Assist has not at any time infringed,
misappropriated or made any unlawful use of, or received any notice or other
communication (in writing or otherwise) of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of, any Proprietary
Asset owned or used by any other Person. To the Knowledge of Assist, no other
Person is infringing, misappropriating or making any unlawful use of, and no
Proprietary Asset owned or used by any other Person infringes or conflicts
with, any Proprietary Asset.
(d) Except as set forth in Part 3.12(d) of the Disclosure
Schedule: (i) each Proprietary Asset conforms in all material respects with
any specification, documentation, performance standard, representation or
statement made or provided with respect thereto by or on behalf of Assist;
and (ii) during the last 24 months, there has not been any material claim by
any customer or other Person alleging that any Proprietary Asset (including
each version thereof that has ever been licensed or otherwise made available
by Assist to any Person) does not conform in all material respects with any
specification, documentation, performance standard, representation or
statement made or provided by or on behalf of Assist other than reports of
programming errors that (x) occur or are experienced from time to time by
customers using Assist's products in a unique or custom fashion, (y) have
been resolved or are resolvable through Assist's help desk (without the
devotion of material additional resources) and (z) are consistent
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with the experience of Comparable Entities, and, to the knowledge of Assist,
there is no basis for any such claim.
(e) Proprietary Assets constitute all the Proprietary Assets
necessary to enable Assist to conduct its business in the manner in which
such business has been and is being conducted. Except as set forth in Part
3.12(e) of the Disclosure Schedule, (i) Assist has not licensed any of its
Proprietary Assets to any Person on an exclusive basis, and (ii) Assist has
not entered into any covenant not to compete or Contract limiting its ability
to exploit fully any of its Proprietary Assets or to transact business in any
market or geographical area or with any Person.
(f) Except as disclosed in Part 3.12 of the Disclosure
Schedule, all Proprietary Assets of Assist do not and will not contain any
viruses, which shall mean any computer code designed to disrupt, disable,
harm, or otherwise impede in any manner, the operation of the computer
program, or any other associated software, firmware, hardware, or network
(including local area or wide-area networks), in a manner not intended by the
creator(s) of such software, firmware, hardware, or network.
3.13 CONTRACTS.
(a) Part 3.13 of the Disclosure Schedule identifies and
provides an accurate and complete description of each Assist Contract, except
for any Excluded Contract. Assist has delivered to Cayenta accurate and
complete copies of all Assist Contracts identified in Part 3.13 of the
Disclosure Schedule, including all amendments thereto.
(b) Each Assist Contract is valid and in full force and effect,
and is enforceable by Assist in accordance with its terms. No Assist Contract
contains any term or provision that is extraordinary for similar types of
commercial contracts or licenses.
(c) Except as set forth in Part 3.13 of the Disclosure Schedule:
(i) Assist has not violated or breached, or declared or
committed any default under, any Assist Contract and to Assist's Knowledge,
no other Person has violated, breached or committed any default under any
Assist Contract;
(ii) no event has occurred, and no circumstance or
condition exists, that reasonably might (with or without notice or lapse of
time) (A) result in a violation or breach of any of the provisions of any
Assist Contract by Assist or, to Assist's Knowledge by any Person other than
Assist, (B) give any Person (other than Assist) the right to declare a
default or exercise any remedy under any Assist Contract, (C) give any Person
(other than Assist) the right to accelerate the maturity or performance of
any Assist Contract, or (D) give any Person (other than Assist) the right to
cancel, terminate or modify any Assist Contract;
(iii) Assist has not received any notice or other
communication (in writing or otherwise) regarding any actual, alleged,
possible or potential violation or breach of, or default under, any Assist
Contract; and
(iv) Assist has not waived any of its rights under any
Assist Contract.
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(d) To the Knowledge of Assist, none of its customers under
existing Assist Contracts is insolvent or unable to satisfy its current or
future monetary obligations and other obligations and Liabilities to Assist.
(e) Except as set forth in Part 3.13 of the Disclosure Schedule:
(i) Assist has never guaranteed or otherwise agreed to
cause, insure or become liable for, and Assist has never pledged any of its
assets to secure, the performance or payment of any obligation or other
Liability of any other Person; and
(ii) Assist has never been a party to or bound by (A) any
joint venture agreement, partnership agreement, profit-sharing agreement,
cost-sharing agreement, loss-sharing agreement or similar Contract, or (B)
any Contract that creates or grants to any Person, or provides for the
creation or grant of, any stock appreciation right, phantom stock right or
similar right or interest.
(f) The performance of the Assist Contracts will not result in
any violation of or failure to comply with any material Legal Requirement.
(g) No Person is renegotiating, or has the right to
renegotiate, any amount paid or payable to Assist under any Assist Contract
or any other term or provision of any Assist Contract.
(h) The Contracts identified in Part 3.13 of the Disclosure
Schedule and the Excluded Contracts collectively constitute all of the
Contracts necessary to enable Assist to conduct its business in the manner in
which its business is currently being conducted.
(i) Part 3.13 of the Disclosure Schedule identifies and
provides an accurate and complete description of each proposed Contract as to
which any bid, offer, award, written proposal, term sheet or similar document
has been submitted or received by Assist since September 30, 1999.
3.14 LIABILITIES; MAJOR SUPPLIERS.
(a) Assist has no Liabilities, except for:
(i) liabilities identified as such in the "liabilities"
column of the Unaudited Interim Balance Sheet;
(ii) accounts payable (of the type required to be reflected
as current liabilities in the "liabilities" column of a balance sheet
prepared in accordance with GAAP) incurred by Assist in the Ordinary Course
of Business since September 30, 1999; and
(iii) Assist's obligations under the Contracts listed in
Part 3.13 of the Disclosure Schedule and under Excluded Contracts, to the
extent that the existence of such obligations is ascertainable solely by
reference to such Contracts.
(b) Part 3.14 of the Disclosure Schedule:
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(i) provides an accurate and complete breakdown and aging
of Assist's accounts payable as of September 30, 1999;
(ii) provides an accurate and complete breakdown of all
customer deposits and other deposits held by Assist as of the date of this
Agreement; and
(iii) provides an accurate and complete breakdown of
Assist's long-term debt as of the date of this Agreement.
(c) Assist has not paid, and Assist is not and will not become
liable for the payment of, any fees, costs or expenses of the type referred
to in Section 12.5(a).
(d) Part of the Disclosure Schedule accurately identifies, and
provides an accurate and complete breakdown of the amounts paid to, each
supplier or other Person that received (i) more than $200,000 from Assist in
1997, (ii) more than $200,000 from Assist in 1998, or (iii) more than
$150,000 from Assist in the first three quarters of 1999.
3.15 COMPLIANCE WITH LEGAL REQUIREMENTS.
(a) Except as set forth in Part 3.15 of the Disclosure Schedule:
(i) Assist is in material compliance with each Legal
Requirement that is applicable to it or to the conduct of its business or the
ownership or use of any of its assets;
(ii) Assist has at all times been in material compliance
with each Legal Requirement that is or was applicable to it or to the conduct
of its business or the ownership or use of any of its assets;
(iii) no event has occurred, and no condition or
circumstance exists, that might (with or without notice or lapse of time)
constitute or result directly or indirectly in a violation by Assist of, or a
failure on the part of Assist to comply with, any material Legal Requirement;
and
(iv) Assist has never received, at any time, any notice or
other communication (in writing or otherwise) from any Governmental Body or
any other Person regarding (i) any actual, alleged, possible or potential
violation of, or failure to comply with, any Legal Requirement, or (ii) any
actual, alleged, possible or potential obligation on the part of Assist to
undertake, or to bear all or any portion of the cost of, any cleanup or any
remedial, corrective or response action of any nature.
(b) Assist has delivered to Cayenta an accurate and complete
copy of each report, study, survey or other document in Assist's possession
or if not in Assist's possession of which it is aware and to which Assist has
access that addresses or otherwise relates to the compliance of Assist with,
or the applicability to Assist of, any Legal Requirement.
(c) To the Knowledge of Assist and the Selling Shareholders, no
Governmental Body has proposed or is considering any Legal Requirement that,
if adopted or otherwise put into effect, (i) may have an adverse effect on
Assist's business, condition, assets,
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liabilities, operations, financial performance, net income or prospects or on
the ability of Assist or any of the Selling Shareholders to comply with or
perform any covenant or obligation under any of the Transactional Agreements,
or (ii) may have the effect of preventing, delaying, making illegal or
otherwise precluding any of the Transactions.
3.16 GOVERNMENTAL AUTHORIZATIONS.
(a) Part 3.16 of the Disclosure Schedule identifies:
(i) each Governmental Authorization that is held by Assist;
and
(ii) each other Governmental Authorization that, to the
Knowledge of Assist and the Selling Shareholders, is held by any of Assist's
employees is necessary in connection with Assist's business.
Assist has delivered to Cayenta accurate and complete copies of all
of the Governmental Authorizations identified in Part 3.16 of the Disclosure
Schedule, including all renewals thereof and all amendments thereto. Each
Governmental Authorization identified or required to be identified in Part
3.16 of the Disclosure Schedule is valid and in full force and effect.
(b) Except as set forth in Part 3.16 of the Disclosure Schedule:
(i) Assist and its employees are and have at all times
been, in material compliance with all of the terms and requirements of each
Governmental Authorization identified or required to be identified in Part
3.16 of the Disclosure Schedule;
(ii) no event has occurred, and no condition or
circumstance exists, that might (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a violation of or a failure to
comply with any material term or requirement of any Governmental
Authorization identified or required to be identified in Part 3.16 of the
Disclosure Schedule, or (B) result directly or indirectly in the revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Authorization identified or required to be identified in Part
3.16 of the Disclosure Schedule;
(iii) Assist has never received, and, to the Knowledge of
Assist, no employee of Assist has ever received, any notice or other
communication (in writing or otherwise) from any Governmental Body or any
other Person regarding (A) any actual, alleged, possible or potential
violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (B) any actual, proposed, possible or
potential revocation, withdrawal, suspension, cancellation, termination or
modification of any Governmental Authorization; and
(iv) all applications required to have been filed for the
renewal of the Governmental Authorizations required to be identified in Part
3.16 of the Disclosure Schedule have been duly filed on a timely basis with
the appropriate Governmental Bodies, and each other notice or filing required
to have been given or made with respect to such Governmental Authorizations
has been duly given or made on a timely basis with the appropriate
Governmental Body.
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(c) The Governmental Authorizations identified in Part 3.16 of
the Disclosure Schedule constitute all of the Governmental Authorizations
necessary (i) to enable Assist to conduct its business in the manner in which
its business is currently being conducted, and (ii) to permit Assist to own
and use its assets in the manner in which they are currently owned and used.
3.17 TAX MATTERS.
(a) Each Tax required to have been paid, or claimed by any
Governmental Body to be payable, by Assist (whether pursuant to any Tax
Return or otherwise) has been duly paid in full or on a timely basis. Any Tax
required to have been withheld or collected by Assist has been duly withheld
and collected; and (to the extent required) each such Tax has been paid to
the appropriate Governmental Body.
(b) Part 3.17 of the Disclosure Schedule accurately identifies
all Tax Returns required to be filed by or on behalf of Assist with any
Governmental Body with respect to any taxable period beginning January 1,
1993 and ending on or before the Closing Date ("ASSIST RETURNS"). All Assist
Returns (i) have been or will be filed when due, and (ii) have been, or will
be when filed, accurately and completely prepared in compliance with all
applicable Legal Requirements. All amounts shown on the Assist Returns to be
due on or before the Closing Date, and all amounts otherwise payable in
connection with the Assist Returns on or before the Closing Date, have been
or will be paid on or before the Closing Date. Assist has delivered to
Cayenta accurate and complete copies of all Assist Returns filed since
December 31, 1996.
(c) The Assist Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the
dates thereof in accordance with GAAP. Assist will establish, in the Ordinary
Course of Business, reserves adequate for the payment of all Taxes for the
period from September 30, 1999 through the Closing Date, and Assist will
disclose the dollar amount of such reserves to Cayenta on or prior to the
Closing Date.
(d) Each Assist Return relating to income Taxes that has been
filed with respect to any period ended on or prior to December 31, 1995 has
either (i) been examined and audited by all relevant Governmental Bodies, or
(ii) by virtue of the expiration of the limitation period under applicable
Legal Requirements, is no longer subject to examination or audit by any
Governmental Body. Part 3.17 of the Disclosure Schedule accurately identifies
each examination or audit of any Assist Return that has been conducted since
January 1, 1997. Assist has delivered to Cayenta accurate and complete copies
of all audit reports and similar documents (to which Assist has access)
relating to Assist Returns. Except as set forth in Part 3.17 of the
Disclosure Schedule, no extension or waiver of the limitation period
applicable to any of the Assist Returns has been granted (by Assist or any
other Person), and no such extension or waiver has been requested from Assist.
(e) From inception through June 30, 1997, the Company was an S
corporation for federal tax purposes within the meaning of Section 1361(a)(1)
of the Code and the Company was not and is not subjection to the imposition
of any tax under Section 1374 of the Code for any period prior to the
Company's termination of its S corporation status effective June 30, 1997.
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(f) Except as set forth in Part 3.17 of the Disclosure
Schedule, no claim or other Proceeding is pending or has been threatened
against or with respect to Assist in respect of any Tax. There are no
unsatisfied Liabilities for Taxes (including liabilities for interest,
additions to tax and penalties thereon and related expenses) with respect to
any notice of deficiency or similar document received by Assist. Assist has
not entered into or has become bound by any agreement or consent pursuant to
Section 341(f) of the Code. Assist will not be, required to include any
adjustment in taxable income for any tax period (or portion thereof) pursuant
to Section 481 or 263A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions or events occurring, or
accounting methods employed, prior to the Closing.
(g) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of Assist that, individually or collectively, could
give rise directly or indirectly to the payment of any amount that would not
be deductible pursuant to Section 280G or Section 162 of the Code. Assist is
not, and has never been, a party to or bound by any tax indemnity agreement,
tax sharing agreement, tax allocation agreement or similar Contract.
3.18 EMPLOYEE AND LABOR MATTERS.
(a) Part 3.18 of the Disclosure Schedule accurately sets forth,
with respect to each employee of Assist (including any employee of Assist who
is on a leave of absence or on layoff status):
(i) the name of such employee and the date as of which such
employee was originally hired by Assist;
(ii) such employee's title, and a description of such
employee's duties and responsibilities;
(iii) the aggregate dollar amount of the compensation
(including wages, salary, commissions, director's fees, fringe benefits,
bonuses, profit-sharing payments and other payments or benefits of any type)
received by such employee from Assist with respect to services performed in
1998;
(iv) such employee's annualized compensation as of the date
of this Agreement;
(v) each Current Benefit Plan in which such employee
participates or is eligible to participate; and
(vi) any Governmental Authorization that is held by such
employee and that is necessary in connection with Assist's business.
(b) Part 3.18 of the Disclosure Schedule accurately identifies
each former employee of Assist who is receiving or is scheduled to receive
(or whose spouse or other dependent is receiving or is scheduled to receive)
any benefits (whether from Assist or
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otherwise) relating to such former employee's employment with Assist; and
Part 3.18 of the Disclosure Schedule accurately describes such benefits.
(c) Except as set forth in Part 3.18 of the Disclosure
Schedule, Assist is not a party to or bound by, and Assist has never been a
party to or bound by, any employment agreement or any union contract,
collective bargaining agreement or similar Contract.
(d) The employment of each of Assist's employees is terminable
by Assist at will. Assist has delivered to Cayenta accurate and complete
copies of all employee manuals and handbooks, disclosure materials, policy
statements and other materials relating to the employment of the current and
former employees of Assist.
(e) To the Knowledge of Assist and the Selling Shareholders:
(i) no employee of Assist intends to terminate his
employment with Assist;
(ii) no employee of Assist has received an offer to join a
business that may be competitive with Assist's business; and
(iii) no employee of Assist is a party to or is bound by
any confidentiality agreement, noncompetition agreement or other Contract
(with any Person) that may have a material adverse effect on (A) the
performance by such employee of any of his duties or responsibilities as an
employee of Assist, or (B) Assist's business or operations.
(f) Assist is not engaged, and has never been engaged, in any
unfair labor practice of any nature. There has never been any slowdown, work
stoppage, labor dispute or union organizing activity, or any similar activity
or dispute, affecting Assist or any of their employees. There is not now
pending, and no Person has threatened to commence, any such slowdown, work
stoppage, labor dispute or union organizing activity or any similar activity
or dispute. No event has occurred, and no condition or circumstance exists,
that might directly or indirectly give rise to or provide a basis for the
commencement of any such slowdown, work stoppage, labor dispute or union
organizing activity or any similar activity or dispute.
3.19 BENEFIT PLANS; ERISA.
(a) Part 3.19 of the Disclosure Schedule identifies and
provides an accurate description of each Current Benefit Plan and each Past
Benefit Plan. Assist has never established, adopted, maintained, sponsored,
contributed to, participated in or incurred any Liability with respect to any
Employee Benefit Plan, except for Company Plans identified in Part 3.19 of
the Disclosure Schedule; and Assist has never provided or made available any
fringe benefit or other benefit of any nature to any of its employees, except
as set forth in Part 3.19 of the Disclosure Schedule.
(b) No Company Plan:
(i) provides or provided any benefit guaranteed by the
Pension Benefit Guaranty Corporation;
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(ii) is or was a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA; or
(iii) is or was subject to the minimum funding standards of
Section 412 of the Code or Section 302 of ERISA.
There is no Person that (by reason of common control or otherwise)
is or has at any time been treated together with Assist as a single employer
within the meaning of Section 414 of the Code.
(c) Assist has delivered to Cayenta, with respect to each
Company Plan:
(i) an accurate and complete copy of such Company Plan and
all amendments thereto (including any amendment that is scheduled to take
effect in the future);
(ii) an accurate and complete copy of each Contract
(including any trust agreement, funding agreement, service provider
agreement, insurance agreement, investment management agreement or
recordkeeping agreement) relating to such Company Plan;
(iii) an accurate and complete copy of any description,
summary, notification, report or other document that has been furnished to
any employee of Assist with respect to such Company Plan;
(iv) an accurate and complete copy of any form, report,
registration statement or other document that has been filed with or
submitted to any Governmental Body with respect to such Company Plan; and
(v) an accurate and complete copy of any determination
letter, notice or other document that has been issued by, or that has been
received by Assist from, any Governmental Body with respect to such Company
Plan.
(d) Each Current Benefit Plan is being operated and
administered in compliance in all material respects with the provisions
thereof, and each Company Plan has at all times been operated and
administered in compliance in all material respects with the provisions
thereof. Each contribution or other payment that is required to have been
accrued or made under or with respect to any Company Plan has been duly
accrued and made on a timely basis.
(e) Each Current Benefit Plan complies and is being operated
and administered in compliance in all material respects with, and each
Company Plan has at all times complied and been operated and administered in
full compliance with, all applicable reporting, disclosure and other
requirements of ERISA and the Code and all other applicable Legal
Requirements. Assist has never incurred any Liability to the Internal Revenue
Service or any other Governmental Body with respect to any Company Plan; and
no event has occurred, and no condition or circumstance exists, that
reasonably might (with or without notice or lapse of time) give rise directly
or indirectly to any such Liability. None of the Companies, and no Person
that is or was an administrator or fiduciary of any Company Plan (or that
Assists or has Assisted as an agent of Assist or any such administrator or
fiduciary), has engaged in any transaction or has otherwise Assisted or
failed to Assist in a manner that has subjected or may subject Assist to any
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Liability for breach of any fiduciary duty or any other duty. No Company
Plan, and no Person that is or was an administrator or fiduciary of any
Company Plan (or that Assists or has Assisted as an agent of any such
administrator or fiduciary):
(i) has engaged in a "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Code;
(ii) has failed to perform any of the responsibilities or
obligations imposed upon fiduciaries under Title I of ERISA; or
(iii) has taken any action that (A) may subject such
Company Plan or such Person to any Tax, penalty or Liability relating to any
"prohibited transaction," or (B) may directly or indirectly give rise to or
serve as a basis for the assertion (by any employee or by any other Person)
of any claim under, on behalf of or with respect to such Company Plan.
(f) No inaccurate or misleading representation, statement or
other communication has been made or directed (in writing or otherwise) to
any current or former employee of Assist (i) with respect to such employee's
participation, eligibility for benefits, vesting, benefit accrual or coverage
under any Company Plan or with respect to any other matter relating to any
Company Plan, or (ii) with respect to any proposal or intention on the part
of Assist to establish or sponsor any Employee Benefit Plan or to provide or
make available any fringe benefit or other benefit of any nature.
(g) Except as set forth in Part 3.19 of the Disclosure
Schedule, Assist has not advised any of its employees (in writing or
otherwise) that it intends or expects to establish or sponsor any Employee
Benefit Plan or to provide or make available any fringe benefit or other
benefit of any nature in the future.
3.20 ENVIRONMENTAL MATTERS.
(a) Assist is not liable or potentially liable for any response
cost or natural resource damages under Section 107(a) of CERCLA, or under any
other so-called "superfund" or "superlien" law or similar Legal Requirement,
at or with respect to any site.
(b) None of the Companies has ever received any notice or other
communication (in writing or otherwise) from any Governmental Body or other
Person regarding any actual alleged, possible or potential Liability arising
from or relating to the presence, generation, manufacture, production,
transportation, importation, use, treatment, refinement, processing,
handling, storage, discharge, release, emission or disposal of any Hazardous
Material. No Person has ever commenced or threatened to commence any
contribution action or other Proceeding against Assist in connection with any
such actual, alleged, possible or potential Liability; and no event has
occurred, and no condition or circumstance exists, that may directly or
indirectly give rise to, or result in Assist becoming subject to, any such
Liability.
(c) Except as set forth in Part 3.20 of the Disclosure
Schedule, none of the Companies has ever generated, manufactured, produced,
transported, imported, used, treated, refined, processed, handled, stored,
discharged, released or disposed of any Hazardous Material (whether lawfully
or unlawfully). Except as set forth in Part 3.20 of the Disclosure Schedule,
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none of the Companies has ever permitted (knowingly or otherwise) any
Hazardous Material to be generated, manufactured, produced, used, treated,
refined, processed, handled, stored, discharged, released or disposed of
(whether lawfully or unlawfully):
(i) on or beneath the surface of any real property that is,
or that has at any time been, owned by, leased to, controlled by or used by
Assist;
(ii) in or into any surface water, groundwater, soil or air
associated with or adjacent to any such real property; or
(iii) in or into any well, pit, pond, lagoon, impoundment,
ditch, landfill, building, structure, facility, improvement, installation,
equipment, pipe, pipeline, vehicle or storage container that is or was
located on or beneath the surface of any such real property or that is or has
at any time been owned by, leased to, controlled by or used by Assist.
(d) All property that is owned by, leased to, controlled by or
used by Assist, and all surface water, groundwater, soil and air associated
with such property:
(i) is free of any Hazardous Material and any harmful
chemical or physical conditions; and
(ii) is free of any material environmental contamination of
any nature.
(e) Each storage tank or other storage container that is or has
been owned by, leased to, controlled by or used by Assist, or that is located
on or beneath the surface of any real property owned by, leased to,
controlled by or used by Assist:
(i) is in sound condition; and
(ii) has been demonstrated by accepted testing
methodologies to be free of any corrosion or leaks.
3.21 SALE OF PRODUCTS; PERFORMANCE OF SERVICES.
(a) Each product that has been sold by Assist and each service
that has been performed by any Assist for any Person:
(i) conformed and complied in all in all material respects
with the terms and requirements of any applicable warranty or other Contract
and with all applicable Legal Requirements; and
(ii) was free of any design defects, programming errors,
construction defects or other defects or deficiencies at the time of sale
other than programming errors that (x) occur or are experienced from time to
time by customers using Assist's products in a unique or custom fashion, (y)
have been resolved or are resolvable through Assist's help desk (without the
devotion of material additional resources) and (z) are consistent with the
experience of Comparable Entities. All design integration services, repair
services, technical, maintenance and other services that have been performed
by the Companies were performed properly and in full
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conformity with the terms and requirements of all applicable warranties and
other Contracts and with all applicable Legal Requirements.
(b) Assist will not incur or otherwise become subject to any
Liability arising directly or indirectly from any product manufactured or
sold, or any services performed by Assist on or at any time prior to the
Closing Date except for claims made on warranties in any Contracts entered
into prior to the Closing Date which shall not in the aggregate exceed the
warranty reserve on the Closing Balance Sheet.
(c) No product manufactured or sold by Assist has been the
subject of any recall or other similar action; and no event has occurred, and
no condition or circumstance exists, that might (with or without notice or
lapse of time) directly or indirectly give rise to or serve as a basis for
any such recall or other similar action relating to any such product.
(d) Except as set forth in Part 3.21 of the Disclosure
Schedule, no customer or other Person has ever asserted or threatened to
assert any material claim against Assist (i) under or based upon any warranty
provided by or on behalf of Assist, or (ii) under or based upon any other
warranty relating to any product sold by Assist or any services performed by
Assist. To the Knowledge of Assist and the Selling Shareholders, no event has
occurred, and no condition or circumstance exists, that reasonably might
(with or without notice or lapse of time) directly or indirectly give rise to
or serve as a basis for the assertion of any such claim.
(e) Assist has in place and at all times has had in place, an
adequate and appropriate quality control system that is at least as
comprehensive and effective as the quality control systems customarily
maintained by Comparable Entities.
3.22 INSURANCE.
(a) Part 3.22 of the Disclosure Schedule accurately sets forth,
with respect to each insurance policy maintained by or at the expense of, or
for the direct or indirect benefit of, Assist:
(i) the name of the insurance carrier that issued such
policy and the policy number of such policy;
(ii) whether such policy is a "claims made" or an
"occurrences" policy;
(iii) a description of the coverage provided by such policy
and the material terms and provisions of such policy (including all
applicable coverage limits, deductible amounts and co-insurance arrangements
and any non-customary exclusions from coverage);
(iv) the annual premium payable with respect to such
policy, and the cash value (if any) of such policy; and
(v) a description of any claims pending, and any claims
that have been asserted in the past, with respect to such policy.
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Part 3.22 also identifies (1) each pending application for insurance
that has been submitted by or on behalf of Assist, and (2) each
self-insurance or risk-sharing arrangement affecting Assist or any of its
assets. Assist has delivered to Cayenta accurate and complete copies of all
of the insurance policies identified in Part 3.22 of the Disclosure Schedule
(including all renewals thereof and endorsements thereto) and all of the
pending applications identified in Part 3.22 of the Disclosure Schedule.
(b) Each of the policies identified in Part 3.22 of the
Disclosure Schedule is valid, enforceable and in full force and effect. All
of the information contained in the applications submitted in connection with
said policies was (at the times said applications were submitted) accurate
and complete, and all premiums and other amounts owing with respect to said
policies have been paid in full on a timely basis. The nature, scope and
dollar amounts of the insurance coverage provided by said policies are
sufficient to adequately insure Assist's business, assets, operations, key
employees, services and potential liabilities.
(c) Except as set forth in Part 3.22 of the Disclosure
Schedule, there is no pending claim under or based upon any of the policies
identified in Part 3.22 of the Disclosure Schedule; and no event has
occurred, and no condition or circumstance exists, that might (with or
without notice or lapse of time) directly or indirectly give rise to or serve
as a basis for any such claim.
(d) Assist has not received:
(i) any notice or other communication (in writing or
otherwise) regarding the actual or possible cancellation or invalidation of
any of the policies identified in Part 3.22 of the Disclosure Schedule or
regarding any actual or possible adjustment in the amount of the premiums
payable with respect to any of said policies;
(ii) any notice or other communication (in writing or
otherwise) regarding any actual or possible refusal of coverage under, or any
actual or possible rejection of any claim under, any of the policies
identified in Part 3.22 of the Disclosure Schedule; or
(iii) any indication that the issuer of any of the policies
identified in Part 3.22 of the Disclosure Schedule may be unwilling or unable
to perform any of its obligations thereunder.
3.23 RELATED PARTY TRANSACTIONS. Except as set forth in Part 3.23
of the Disclosure Schedule:
(a) no Related Party has, and no Related Party has at any time
since December 31, 1997 had, any direct or indirect interest of any nature in
any asset used in or otherwise relating to the business of Assist;
(b) no Related Party is, or has at any time since December 31,
1997 been, indebted to Assist;
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(c) since December 31, 1997, no Related Party has entered into,
or has had any direct or indirect financial interest in, any Contract,
transaction or business dealing of any nature involving Assist;
(d) no Related Party is competing, or has at any time since
December 31, 1997 competed, directly or indirectly, with Assist in any market
served by Assist;
(e) no Related Party has any claim or right against Assist; and
(f) no event has occurred, and no condition or circumstance
exists, that reasonably might (with or without notice or lapse of time)
directly or indirectly give rise to or serve as a basis for any claim or
right in favor of any Related Party against Assist.
3.24 CERTAIN PAYMENTS, ETC. Neither Assist, nor any officer,
employee, agent or other Person associated with or acting for or on behalf of
Assist, has at any time, directly or indirectly:
(a) used any corporate funds (i) to make any unlawful political
contribution or gift or for any other unlawful purpose relating to any
political activity, (ii) to make any unlawful payment to any governmental
official or employee, or (iii) to establish or maintain any unlawful or
unrecorded fund or account of any nature;
(b) intentionally made any false or fictitious entry, or failed
to make any entry that should have been made, in any of the books of account
or other records of Assist;
(c) made any payoff, influence payment, bribe, rebate, kickback
or unlawful payment to any Person;
(d) performed any favor or given any gift which was not
deductible for federal income tax purposes;
(e) made any unlawful payment to any Person, or provided any
unlawful favor or anything of value (whether in the form of property or
services, or in any other form) to any Person, for the purpose of obtaining
or paying for (i) favorable treatment in securing business, or (ii) any other
special concession; or
(f) agreed, committed, offered or attempted to take any of the
actions described in clauses "(a)" through "(e)" above.
3.25 PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 3.25 of the Disclosure
Schedule, there is no pending Proceeding, and no Person has threatened to
commence any Proceeding:
(i) that involves Assist or that otherwise relates to or
reasonably might affect Assist's business or any of the assets owned or used
by Assist (whether or not Assist is named as a party thereto); or
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(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of
the Transactions.
Except as set forth in Part 3.25 of the Disclosure Schedule, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that might directly or indirectly give rise to or serve as a basis
for the commencement of any such Proceeding.
(b) Except as set forth in Part 3.25 of the Disclosure
Schedule, since January 1, 1996, no Proceeding has ever been commenced by or
against Assist; and no Proceeding otherwise involving or relating to Assist
has been pending or to Assist's Knowledge threatened at any time.
(c) Assist has delivered to Cayenta accurate and complete
copies of all pleadings, correspondence and other written materials to which
Assist has access that relate to the Proceedings identified in Part 3.25 of
the Disclosure Schedule.
(d) There is no Order to which Assist, or any of the assets
owned or used by Assist, is subject; and none of the Selling Shareholders is
subject to any Order that relates to Assist's business or to any of the
assets owned or used by Assist.
(e) To the Knowledge of Assist and the Selling Shareholders, no
officer or employee of Assist is subject to any Order that prohibits such
officer or employee from engaging in or continuing any conduct, activity or
practice relating to Assist's business.
(f) There is no proposed Order that, if issued or otherwise put
into effect, (i) may have an adverse effect on Assist's business, condition,
assets, liabilities, operations, financial performance or net income (or on
any aspect or portion thereof) or on the ability of Assist or any of the
Selling Shareholders to comply with or perform any covenant or obligation
under any of the Transactional Agreements, or (ii) may have the effect of
preventing, delaying, making illegal or otherwise interfering with any of the
Transactions.
3.26 AUTHORITY; BINDING NATURE OF AGREEMENTS.
(a) Assist has the absolute and unrestricted right, power and
authority to enter into and to perform its obligations under this Agreement;
and the execution, delivery and performance by Assist of this Agreement have
been duly authorized by all necessary action on the part of Assist and its
board of directors and officers. This Agreement constitutes the legal, valid
and binding obligation of Assist, enforceable against Assist in accordance
with its terms.
(b) Each Selling Shareholder has the absolute and unrestricted
right, power and capacity to enter into and to perform such Selling
Shareholder's obligations under each of the Transactional Agreements to which
such Selling Shareholder is or may become a party. This Agreement constitutes
the legal, valid and binding obligation of each of the Selling Shareholders,
enforceable against each of the Selling Shareholders in accordance with its
terms. Upon the execution of each of the other Transactional Agreements at
the Closing, each of such other Transactional Agreements will constitute the
legal, valid and binding obligation of each Selling Shareholder who is a
party thereto, and will be enforceable against such Selling Shareholder in
accordance with its terms.
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(c) The respective spouses of the Selling Shareholders have the
absolute and unrestricted right, power and capacity to execute and deliver
and to perform their obligations under the Spousal Consents, if any, being
executed by them. Said Spousal Consents constitute their legal, valid and
binding obligations, enforceable against them in accordance with their terms.
(d) The Agent has the unrestricted right, power, authority and
capacity to act for and bind each of the Selling Shareholders with respect to
all matters relating to the Transactional Agreements and the Transactions.
3.27 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 3.27
of the Disclosure Schedule, neither the execution and delivery of any of the
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of (i)
any of the provisions of Assist's certificate of incorporation or bylaws, or
(ii) any currently effective resolution adopted by Assist's shareholders,
Assist's board of directors or any committee of Assist's board of directors;
(b) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which Assist or any of the Selling Shareholders,
or any of the assets owned or used by Assist, is subject;
(c) cause Assist, Cayenta or any affiliate of Cayenta to become
subject to, or to become liable for the payment of, any Tax;
(d) cause any of the assets owned or used by Assist to be
reassessed or revalued by any taxing authority or other Governmental Body;
(e) contravene, conflict with or result in a violation of any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by Assist or any of its employees or that
otherwise relates to Assist's business or to any of the assets owned or used
by Assist;
(f) contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of any Assist
Contracts (other than any Excluded Contract);
(g) give any Person the right under any Assist Contract (other
than any Excluded Contract) to, (i) declare a default or exercise any remedy
under any Assist Contracts, (ii) accelerate the maturity or performance of
any Assist Contracts, or (iii) cancel, terminate or modify any Assist
Contract;
(h) contravene, conflict with or result in a violation or
breach of or a default under any provision of, or give any Person the right
to declare a default under, any Contract to
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which any of the Selling Shareholders is a party or by which any of the
Selling Shareholders is bound; or
(i) result in the imposition or creation of any Encumbrance
upon or with respect to any material asset owned or used by Assist.
Except as set forth in Part 3.27 of the Disclosure Schedule, neither
Assist nor any of the Selling Shareholders was, is or will be required to
make any filing with or give any notice to, or to obtain any Consent from,
any Person in connection with the execution and delivery of any of the
Transactional Agreements or the consummation or performance of any of the
Transactional.
3.28 YEAR 2000 COMPLIANCE. All of Assist's products and internal
systems are designed to be used prior to, during and after the year 2000, and
are Year 2000 Compliant. At Cayenta's request, Assist will provide evidence
demonstrating adequate testing of Assist's products and internal systems to
assure that they are Year 2000 Compliant.
(a) BROKERS. Neither Assist nor any of the Selling Shareholders
has agreed or become obligated to pay, or has taken any action that might
result in any Person claiming to be entitled to receive, any brokerage
commission, finder's fee or similar commission or fee in connection with any
of the Transactions.
3.29 FULL DISCLOSURE.
(a) None of the Transactional Agreements contains or will
contain any material untrue statement of fact; and none of the Transactional
Agreements omits or will omit to state any material facts necessary to make
any of the representations, warranties or other statements or information
contained therein not misleading in light of the circumstances in which they
were made.
(b) Except as set forth in Part 3.29 of the Disclosure
Schedule, there is no fact within the Knowledge of Assist (other than
publicly known facts relating exclusively to political or economic matters of
general applicability that will adversely affect all Comparable Entities)
that (i) might have a material adverse effect on Assist's business,
condition, assets, liabilities, operations, financial performance or net
income (or on any aspect or portion thereof) or on the ability of Assist or
any of the Selling Shareholders to comply with or perform any covenant or
obligation under any of the Transactional Agreements, or (ii) may have the
effect of preventing, delaying, making illegal or otherwise preventing any of
the Transactions.
(c) The information in the Information Statement regarding
Assist will not, as of the date of the Information Statement or as of the
Closing Date, (i) contain any statement that is inaccurate or misleading with
respect to any material fact, (ii) omit to state any material fact; or (iii)
omit to state any material fact necessary in order to make such information
(in the light of the circumstances under which it is provided) not false or
misleading.
(d) All of the information set forth in the Disclosure Schedule
is accurate and complete in all respects.
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(e) Assist and the Selling Shareholders have provided Cayenta
and Cayenta's Representatives with full and complete access to all of
Assist's records and other documents and data.
3.30 NO OTHER REPRESENTATIONS OR WARRANTIES. Neither Assist nor any
Selling Shareholder shall be deemed to have made to Cayenta, Cayenta Sub or
Titan or to any other Person any representation or warranty other than as
expressly made in this Agreement or any other Transactional Agreement, in the
Disclosure Schedule or in the Closing Certificate. Without limiting the
generality of the foregoing, neither Assist nor any Selling Shareholder makes
any representation or warranty with respect to any projections, estimates or
budgets relating to future operations or results of operations of Assist
heretofore delivered or made available to Cayenta, Cayenta Sub or Titan or
any of their Representatives.
4. REPRESENTATIONS AND WARRANTIES OF CAYENTA AND CAYENTA SUB
Cayenta and Cayenta Sub each represents and warrants, to and for the
benefit of the Selling Shareholders, as follows:
4.1 DUE ORGANIZATION. Cayenta is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all necessary power and authority to conduct its business in the
manner in which its business is currently being conducted and to own and use
its assets in the manner in which its assets are currently owned and used.
Cayenta Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all necessary power
and authority to conduct its business in the manner in which its business is
currently being conducted and to own and use its assets in the manner in
which its assets are currently owned and used. Cayenta and Cayenta Sub are
not required to be qualified, authorized, registered or licensed to do
business as a foreign corporation in any jurisdiction other than California
and Virginia except where the failure to be so qualified has not had and
reasonably is not expected to have a material adverse effect on the business
or financial condition of Cayenta.
4.2 AUTHORITY; BINDING NATURE OF AGREEMENTS. Cayenta and Cayenta
Sub each has the absolute and unrestricted right, power and authority to
enter into and to perform its obligations under the Transaction Agreements;
and the execution, delivery and performance by Cayenta and Cayenta Sub of the
Transaction Agreements have been duly authorized by all necessary action on
the part of Cayenta and its stockholders, board of directors and officers and
by Cayenta Sub and its stockholders, board of directors and officers. This
Agreement constitutes the legal, valid and binding obligation of Cayenta and
Cayenta Sub, enforceable against Cayenta and Cayenta Sub, respectively, in
accordance with its terms.
4.3 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 4.3 of
the Disclosure Schedule, neither the execution and delivery of any of the
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of (i)
any of the provisions of Cayenta's or Cayenta Sub's certificate of
incorporation or bylaws, or (ii) any resolution
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adopted by Cayenta's or Cayenta Sub's stockholders, Cayenta's or Cayenta
Sub's board of directors or any committee of Cayenta's or Cayenta Sub's board
of directors;
(b) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which Cayenta or any of the assets owned or used
by Cayenta, is subject or to which Cayenta Sub or any of the assets owned or
used by Cayenta Sub is subject;
(c) cause Cayenta or Cayenta Sub or any affiliate of Cayenta or
Cayenta Sub to become subject to, or to become liable for the payment of, any
Tax;
(d) cause any of the assets owned or used by Cayenta or Cayenta
Sub to be reassessed or revalued by any taxing authority or other
Governmental Body;
(e) contravene, conflict with or result in a violation of any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by Cayenta or Cayenta Sub or any of their
respective employees or that otherwise relates to Cayenta's or Cayenta Sub's
business or to any of the assets owned or used by Cayenta or Cayenta Sub;
(f) contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of any Contracts of
Cayenta or Cayenta Sub;
(g) give any Person the right under any Cayenta or Cayenta Sub
Contracts (other than Excluded Contracts) to (i) declare a default or
exercise any remedy under any Contracts of Cayenta or Cayenta Sub, (ii)
accelerate the maturity or performance of any Contracts of Cayenta or Cayenta
Sub, or (iii) cancel, terminate or modify any Contracts of Cayenta or Cayenta
Sub; or
(h) result in the imposition or creation of any Encumbrance
upon or with respect to any material asset owned or used by Cayenta or
Cayenta Sub.
Except as set forth in Part 4.3 of the Disclosure Schedule, neither Cayenta
nor Cayenta Sub was, is or will be required to make any filing with or give
any notice to, or to obtain any Consent from, any Person in connection with
the execution and delivery of any of the Transactional Agreements or the
consummation or performance of any of Transactions contemplated by this
Agreement.
4.4 CAPITALIZATION, ETC.
(a) The authorized capital stock of Cayenta consists of:
(i) 100,000,000 shares of Class A common stock having a par
value of $.001 per share, none of which is outstanding as of the date of this
Agreement;
(ii) 50,000,000 shares of Class B common stock having a par
value of $.001 per share, none of which is outstanding as of the date of this
Agreement;
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(iii) 2,345,000 shares of Series A preferred stock having a
par value of $.001 per share, none of which is outstanding as of the date of
this Agreement;
(iv) 15,000,000 shares of preferred stock (excluding the
Series A preferred stock) having a par value of $.001 per share; and
(v) 3,343,800 shares that will be reserved for issuance
under options and warrants.
(b) Upon Closing and the issuance of the Cayenta Shares
pursuant to this Agreement and upon the concurrent closing of the other
transactions that are part of Section 351 Plan, the following shares of
capital stock of Cayenta will be issued and outstanding:
(i) 10,000,000 shares of Class B common stock;
(ii) 566,458 shares of Class A common stock; and
(iii) 2,345,000 shares of Series A preferred stock.
(c) Upon Closing pursuant to this Agreement and upon the
concurrent closing of the other transactions that are part of the Section 351
Plan, all of the capital stock of Cayenta Sub will be owned by Cayenta.
(d) The Cayenta Shares when issued and delivered in accordance
with this Agreement in the Exchange shall be duly and validly authorized and
issued, fully paid and nonassessable.
4.5 FINANCIAL STATEMENTS. Cayenta Sub has delivered to Assist the
unaudited balance sheet of Cayenta Sub as of September 30, 1999, and the
related unaudited statements of operations, changes in shareholders' equity
and cash flows of Cayenta Sub for the nine months then ended (collectively,
the "CAYENTA FINANCIAL STATEMENTS"). All of the Cayenta Financial Statements
are accurate and complete in all respects, subject to normal year end audit
adjustments. The financial statements present fairly the financial position
of Cayenta Sub as of September 30, 1999 and the results of operations,
changes in shareholders' equity and cash flows of Cayenta Sub for nine months
then ended. The Cayenta Financial Statements have been prepared in accordance
with generally accepted accounting principles, applied on a consistent basis
throughout the periods covered.
4.6 NO ADVERSE CHANGE. There has not been any material adverse
change in Cayenta or Cayenta Sub's business, condition, assets, liabilities,
operations, financial performance or net income (or in any aspect or portion
thereof) since September 30, 1999, and no event since September 30, 1999 has
occurred that reasonably might have a material adverse effect on Cayenta or
Cayenta Sub's business, condition, assets, liabilities, operations, financial
performance or net income (or in any aspect or portion thereof).
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4.7 PROCEEDINGS.
(a) There is no pending Proceeding, and no Person has
threatened to commence any Proceeding:
(i) that involves Cayenta or Cayenta Sub or that otherwise
relates to or reasonably might affect Cayenta's or Cayenta Sub's business or
any of the assets owned or used by Cayenta or Cayenta Sub (whether or not
Cayenta or Cayenta Sub is named as a party thereto); or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of
the Transactions.
(b) No event has occurred, and no claim, dispute or other
condition or circumstance exists, that might directly or indirectly give rise
to or serve as a basis for the commencement of any such Proceeding.
4.8 BROKERS. Except for fees payable to Batchelder & Partners, Inc.
by Titan, Cayenta has not agreed or become obligated to pay, and has not
taken any action that might result in any Person claiming to be entitled to
receive, any brokerage commission, finder's fee or similar commission or fee
in connection with any of the Transactions.
4.9 NO OTHER REPRESENTATIONS OR WARRANTIES. Neither Cayenta,
Cayenta Sub nor Titan shall be deemed to have made to Assist, the Selling
Shareholders or to any other Person any representation or warranty other than
as expressly made in this Agreement or any other Transaction Agreement, in
the Closing Certificate. Without limiting the generality of the foregoing,
neither Cayenta, Cayenta Sub, nor Titan makes any representation or warranty
with respect to any projections, estimates or budgets relating to future
operations or results of operations of Cayenta or Cayenta Sub heretofore
delivered or made available to Assist or any of their Representatives.
5. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS.
Each Selling Shareholder understands, or has been advised by its
Purchaser Representative, that Cayenta Shares have not been registered under
the Securities Act. Each Selling Shareholder also understands, or has been
advised by its Purchaser Representative, that Cayenta Shares are being issued
pursuant to an exemption from registration contained in the Securities Act
based in part upon such Selling Shareholder's representations contained in
this Agreement. Each Selling Shareholder hereby represents and warrants, to
and for the benefit of Cayenta and Assist, as follows:
5.1 SELLING SHAREHOLDER BEARS ECONOMIC RISK. The Selling
Shareholder has substantial experience in evaluating and investing in private
placement transactions of securities in companies similar to Cayenta so that
he or it is capable of, or has been advised by his or its Purchaser
Representative regarding, evaluating the merits and risks of an investment in
Cayenta and has the capacity to protect his or its own interests. The Selling
Shareholder must bear the economic risk of this investment indefinitely
unless Cayenta Shares are registered pursuant to the Securities Act, or an
exemption from registration is available. The Selling Shareholder
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understands that Cayenta has not made any commitment to register any of its
shares under the Securities Act of 1933, as amended. The Selling Shareholder
also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow the Selling Shareholder to transfer
all or any portion of Cayenta Shares under the circumstances, in the amounts
or at the times the Selling Shareholder might propose.
5.2 ACQUISITION FOR OWN ACCOUNT. The Selling Shareholder is
acquiring Cayenta Shares for the Selling Shareholder's own account for
investment only, and not with a view towards their distribution.
5.3 SELLING SHAREHOLDER CAN PROTECT ITS INTEREST. The Selling
Shareholder represents that either (i) by reason of his or its, or of its
management's, business or financial experience, the Selling Shareholder has
the capacity to protect its own interests in connection with the transactions
contemplated by this Agreement or (ii) he or it has had its interests
represented by a Purchaser Representative (as defined in Rule 501 of
Regulation D) in the transactions contemplated by this Agreement. Further,
the Selling Shareholder is aware of no publication of any advertisement in
connection with the transactions contemplated in the Agreement.
5.4 ACCREDITED INVESTOR. The Selling Shareholder represents either
(i) that he or it is an accredited investor within the meaning of Regulation
D under the Securities Act or (ii) that he or it has been advised by a
Purchaser Representative (as defined in Rule 501 of Regulation D).
5.5 COMPANY INFORMATION. The Selling Shareholder has received and
read the information provided by Cayenta or has had such information
explained by its Purchaser Representative and either the Selling Shareholder
or its Purchaser Representative has had an opportunity to discuss Cayenta's
business, management and financial affairs with directors, officers and
management of Cayenta and has had the opportunity to review Cayenta's
operations and facilities. The Selling Shareholder or his or its Purchaser
Representative has also had the opportunity to ask questions of and receive
answers from, Cayenta and its management regarding the terms and conditions
of this investment.
5.6 RULE 144. The Selling Shareholder acknowledges and agrees that
Cayenta Shares must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. The Selling Shareholder has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act as in effect from
time to time, which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things: the availability of certain current public information about
Cayenta, the resale occurring following the required holding period under
Rule 144 and the number of shares being sold during any three-month period
not exceeding specified limitations.
5.7 RESIDENCE. If the Selling Shareholder is an individual, then
the Selling Shareholder resides in the state or province identified in the
address of the Selling Shareholder set forth on Exhibit D; if the Selling
Shareholder is a partnership, corporation, limited liability company or other
entity, then the office or offices of the Selling Shareholder in which its
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investment decision was made is located at the address or addresses of the
Selling Shareholder set forth on Exhibit D.
5.8 SELLING SHAREHOLDER.
(a) The Selling Shareholder has the capacity and financial
capability to comply with and perform all of such Selling Shareholder's
covenants and obligations under each of the Transactional Agreements to which
such Selling Shareholder is or may become a party.
(b) No Selling Shareholder:
(i) has, at any time, (A) made a general assignment for the
benefit of creditors, (B) filed, or had filed against such Selling
Shareholder, any bankruptcy petition or similar filing, (C) suffered the
attachment or other judicial seizure of all or a substantial portion of such
Selling Shareholder's assets, (D) admitted in writing such Selling
Shareholder's inability to pay such Selling Shareholder's debts as they
become due, (E) been convicted of, or pleaded guilty to, any felony, or (F)
taken or been the subject of any action that may have an adverse effect on
such Selling Shareholder's ability to comply with or perform any of such
Selling Shareholder's covenants or obligations under any of the Transactional
Agreements; or
(ii) is subject to any Order that may have an adverse
effect on such Selling Shareholder's ability to comply with or perform any of
such Selling Shareholder's covenants or obligations under any of the
Transactional Agreements.
There is no Proceeding pending, and no Person has threatened to
commence any Proceeding, that may reasonably have an adverse effect on the
ability of any Selling Shareholder to comply with or perform any of such
Selling Shareholder's covenants or obligations under any of the Transactional
Agreements. No event has occurred, and no claim, dispute or other condition
or circumstance exists, that reasonably might directly or indirectly give
rise to or serve as a basis for the commencement of any such Proceeding.
6. PRE-CLOSING COVENANTS OF ASSIST AND SELLING SHAREHOLDERS
6.1 ACCESS AND INVESTIGATION. Assist and the Selling Shareholders
shall ensure that, at all times during the Pre-Closing Period:
(a) Assist and its Representatives provide Cayenta and its
Representatives with free and complete access to Assist's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to the Companies;
(b) Assist and its Representatives provide Cayenta and its
Representatives with such copies of existing books, records, Tax Returns,
work papers and other documents and information relating to the Companies as
Cayenta may request in good faith; and
(c) Assist and its Representatives compile and provide Cayenta
and its Representations with such additional financial, operating and other
data and information regarding the Companies as Cayenta may request in good
faith.
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6.2 OPERATION OF BUSINESS. Assist and the Selling Shareholders shall
use Best Efforts to ensure that, during the Pre-Closing Period:
(a) none of the Selling Shareholders directly or indirectly
sells or otherwise transfers, or offers, agrees or commits (in writing or
otherwise) to sell or otherwise transfer, any of the Shares or any interest
in or right relating to any of the Shares;
(b) none of the Selling Shareholders permits, and none of the
Selling Shareholders offers, agrees or commits (in writing or otherwise) to
permit, any of the Shares to become subject, directly or indirectly, to any
Encumbrance;
(c) Assist preserves intact its current business organization,
keeps available the services of its current officers and employees and
maintains its relations and good will with all suppliers, customers,
landlords, creditors, licensors, licensees, employees and other Persons
having business relationships with Assist;
(d) Assist keeps in full force all insurance policies
identified in Part 3.22 of the Disclosure Schedule;
(e) Except as otherwise prohibited by law, Assist's officers
confer regularly with Cayenta concerning operational matters and otherwise
report regularly to Cayenta concerning the status of Assist's business,
condition, assets, liabilities, operations, financial performance and
prospects;
(f) Assist immediately notifies Cayenta of any inquiry,
proposal or offer from any Person relating to any Acquisition Transaction;
(g) Assist and its officers use their Best Efforts to cause the
Company to operate the business prudently and in the Ordinary Course of
Business, consistent with past practices, and the Company's current business
plan which includes the development of the application service provider and
total service provider businesses using the Company's current product
offerings;
(h) Assist does not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock, and does not repurchase, redeem or otherwise reacquire any shares of
capital stock or other securities except for the redemption of the Series A
and Series B preferred stock in accordance with this Agreement and the
cash-out of certain outstanding options prior to the Closing in accordance
with this Agreement;
(i) Assist does not sell or otherwise issue any shares of
capital stock or any other securities other than upon the exercise of
outstanding warrants or options;
(j) Assist does not amend its certificate of incorporation or
bylaws, and does not effect or become a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock
split or similar transaction;
(k) Assist does not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
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(l) Assist does not make any capital expenditure, except for
capital expenditures that are made in the Ordinary Course of Business and
that, when added to all other capital expenditures made on behalf of Assist
during the Pre-Closing Period, do not exceed $100,000 in the aggregate;
(m) Assist does not enter into or permit any of the assets
owned or used by Assist to become bound by any Contract, except for any
Excluded Contract;
(n) Assist does not incur, assume or otherwise become subject
to any Liability, except for current liabilities (of the type required to be
reflected in the "liabilities" column of a balance sheet prepared in
accordance with GAAP) incurred in the Ordinary Course of Business;
(o) Assist does not establish or adopt any Employee Benefit
Plan, and does not pay any bonus or make any profit-sharing or similar
payment to, or increase the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its
directors, officers or employees;
(p) Assist does not change any of its methods of accounting or
accounting practices in any material respect;
(q) Assist does not make any Tax election;
(r) Assist does not commence any Proceeding;
(s) Assist does not enter into any transaction or take any
other action of the type referred to in Section 3.5;
(t) Assist does not knowingly enter into any transaction or
take any other action that reasonably might cause or constitute a Breach of
any representation or warranty made by Assist or any of the Selling
Shareholders in this Agreement or in the Closing Certificate; and
(u) Assist does not agree, commit or offer (in writing or
otherwise), and does not attempt, to take any of the actions described in
clauses "(i)" through "(t)" of this Section 6.2.
6.3 FILINGS AND CONSENTS. Assist and the Selling Shareholders shall
ensure that:
(a) each other filing or notice required to be made or given
(pursuant to any applicable Legal Requirement, Order or Contract, or
otherwise) by Assist or any of the Selling Shareholders in connection with
the execution and delivery of any of the Transactional Agreements or in
connection with the consummation or performance of any of the Transactions
(including each of the filings and notices identified in Part 3.28 of the
Disclosure Schedule) is made or given as soon as possible after the date of
this Agreement;
(b) each Consent required to be obtained (pursuant to any
applicable Legal Requirement, Order or Contract, or otherwise) by Assist or
any of the Selling Shareholders in connection with the execution and delivery
of any of the Transactional Agreements or in connection with the consummation
or performance of any of the Transactions (including each of
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the Consents identified in Part 3.28 of the Disclosure Schedule) is obtained
as soon as possible after the date of this Agreement and remains in full
force and effect through the Closing Date;
(c) Assist promptly delivers to Cayenta a copy of each filing
made, each notice given and each Consent obtained by Assist or any Selling
Shareholder during the Pre-Closing Period; and
(d) during the Pre-Closing Period, Assist and its
Representatives cooperate with Cayenta and with Cayenta's Representatives,
and prepare and make available such documents and take such other actions as
Cayenta may request in good faith, in connection with any filing, notice or
Consent that Cayenta is required or elects to make, give or obtain.
6.4 NOTIFICATION; UPDATES TO DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, Assist and the Selling
Shareholders shall promptly notify Cayenta in writing of:
(i) the discovery by Assist or any of the Selling
Shareholders of any event, condition, fact or circumstance that occurred or
existed on or prior to the date of this Agreement and that caused or
constitutes a Breach of any representation or warranty made by Assist or any
of the Selling Shareholders in this Agreement;
(ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and that would
cause or constitute a Breach of any representation or warranty made by Assist
or any of the Selling Shareholders in this Agreement if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (B)
such event, condition, fact or circumstance had occurred, arisen or existed
on or prior to the date of this Agreement;
(iii) any Breach of any covenant or obligation of Assist or
any of the Selling Shareholders; and
(iv) any event, condition, fact or circumstance that may
make the timely satisfaction of any of the conditions set forth in Section 8
or Section 9 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 6.4(a) requires any change in
the Disclosure Schedule, or if any such event, condition, fact or
circumstance would require such a change assuming the Disclosure Schedule
were dated as of the date of the occurrence, existence or discovery of such
event, condition, fact or circumstance, then Assist and the Selling
Shareholders shall promptly deliver to Cayenta an update to the Disclosure
Schedule specifying such change. No such update shall be deemed to supplement
or amend the Disclosure Schedule for the purpose of (i) determining the
accuracy of any of the representations and warranties made by Assist or any
of the Selling Shareholders in this Agreement or in the Closing Certificate,
or (ii) determining whether any of the conditions set forth in Section 8 has
been satisfied unless Cayenta and Assist agree that such supplement or update
shall constitute an amendment to this Agreement; provided, however, that if
Cayenta agrees to close the Transactions notwithstanding any Breach disclosed
through any
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update of the Disclosure Schedule, Cayenta shall not have the right to seek
Damages with respect to such Breach unless Cayenta and Agent have agreed to
amend the Agreement to provide for such indemnity; and provided further, that
if Cayenta and Agent cannot agree in good faith on an appropriate remedy for
a Breach that occurs prior to the Closing and close the Transactions and the
Agreement is terminated, then Cayenta's remedies will be limited as follows:
(a) if the Breach existed as of the date of this Agreement, then Cayenta
shall be entitled to be reimbursed for its direct out of pocket professional
fees for the Transactions; (b) if the Breach is the result of any event,
circumstance, or condition occurring or arising after the date of execution
and prior to the Closing, then Cayenta's sole remedy shall be termination of
this Agreement.
6.5 PAYMENT OF INDEBTEDNESS BY RELATED PARTIES. Assist and the Selling
Shareholders shall cause all indebtedness and other Liabilities of each Related
Party to Assist (including any such indebtedness or other Liability identified
in Part 3.23 of the Disclosure Schedule) to be discharged and paid in full prior
to the Closing.
6.6 NO NEGOTIATION. Assist and the Selling Shareholders shall
ensure that, during the Pre-Closing Period, neither Assist nor any of
Assist's Representatives directly or indirectly:
(a) solicits or encourages the initiation of any inquiry,
proposal or offer from any Person (other than Cayenta) relating to any
Acquisition Transaction;
(b) participates in any discussions (other than the mere
receipt of an unsolicited inquiry, proposal or offer that Assist promptly
reports in writing to Cayenta) or negotiations with, or provides any
non-public information to, any Person (other than Cayenta) relating to any
Acquisition Proposal; or
(c) considers the merits of any unsolicited inquiry, proposal
or offer from any Person (other than Cayenta) relating to any Acquisition
Transaction.
6.7 BEST EFFORTS. During the Pre-Closing Period, Assist and the
Selling Shareholders shall use their Best Efforts to cause the conditions set
forth in Sections 8 and 9 to be satisfied on a timely basis.
6.8 CONFIDENTIALITY. Except for limited disclosures to Persons who
are not parties to this Agreement in order to obtain Consents, Assist and the
Selling Shareholders shall ensure that, during the Pre-Closing Period:
(a) Assist and its Representatives keep strictly confidential
the existence and terms of this Agreement;
(b) neither Assist nor any of its Representatives issues or
disseminates any press release or other publicity or otherwise makes any
disclosure of any nature (to any of Assist's suppliers, customers, landlords,
creditors or employees or to any other Person) regarding any of the
Transactions, except to the extent that Assist is required by law to make any
such disclosure regarding the Transactions; and
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(c) if Assist is required by law to make any disclosure
regarding the Transactions, Assist advises Cayenta, at least five business
days before making such disclosure, of the nature and content of the intended
disclosure.
7. PRE-CLOSING COVENANTS OF CAYENTA AND CAYENTA SUB
7.1 Cayenta and Cayenta Sub shall ensure that, during the
Pre-Closing Period:
(a) Cayenta, Cayenta Sub, Titan and their Representatives keep
strictly confidential the existence and terms of this Agreement;
(b) neither Cayenta, Cayenta Sub, nor Titan nor any of their
Representatives issues or disseminates any press release or other publicity
or otherwise makes any disclosure of any nature (to any of Assist's
suppliers, customers, landlords, creditors or employees or to any other
Person) regarding any of the Transactions, except to the extent that Cayenta,
Cayenta Sub or Titan is required by law to make any such disclosure regarding
the Transactions; and
(c) if Titan, Cayenta or Cayenta Sub is required by law to make
any disclosure regarding the Transactions, Cayenta advises Assist at least
five business days before making such disclosure, of the nature and content
of the intended disclosure.
8. CONDITIONS PRECEDENT TO CAYENTA'S OR CAYENTA SUB'S OBLIGATION TO CLOSE
Cayenta's obligation to consummate the Exchange and Cayenta Sub's
obligation to purchase the Purchased Shares and to take the other actions
required to be taken by Cayenta or Cayenta Sub at the Closing is subject to
the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by Cayenta or Cayenta Sub's, in whole
or in part, in accordance with Section 12.15):
8.1 SATISFACTORY COMPLETION OF PRE-ACQUISITION REVIEW. Cayenta
shall have satisfactorily completed its pre-acquisition investigation and
review of Assist's business, condition, assets, liabilities, operations,
financial performance, net income and prospects and shall be satisfied with
the results of that investigation and review.
8.2 ACCURACY OF REPRESENTATIONS.
(a) Each of the Specified Representations shall have been
accurate in all respects as of the Scheduled Closing Time as if made at the
Scheduled Closing Time and as of the Closing as if made at the Closing,
without giving effect to any update to the Disclosure Schedule.
(b) All of the other representations and warranties made by
Assist and the Selling Shareholders in this Agreement (considered
collectively), and each of said representations and warranties (considered
individually), shall have been accurate in all material respects as of the
date of this Agreement, and shall be accurate in all material respects as of
the Scheduled Closing Time as if made at the Scheduled Closing Time and as of
the Closing, as if made at the Closing, each without giving effect to any
update to the Disclosure Schedule.
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8.3 PERFORMANCE OF OBLIGATIONS. All of the other covenants and
obligations that Assist and the Selling Shareholders are required to comply
with or to perform at or prior to the Closing (considered collectively), and
each of said covenants and obligations (considered individually), shall have
been duly complied with and performed in all material respects.
8.4 APPROVAL OF CAYENTA'S BOARD OF DIRECTORS; CONSENTS.
(a) Cayenta's and Cayenta Sub's board of directors shall have
ratified the execution of this Agreement by Cayenta and Cayenta Sub and shall
have approved the consummation of the Transactions.
(b) Each of the Consents identified in Part 3.27 of the
Disclosure Schedule shall have been obtained and shall be in full force and
effect.
8.5 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in Assist's business, condition, assets, liabilities,
operations, financial performance, net income or prospects (or in any aspect
or portion thereof) since September 30, 1999.
8.6 REGULATION D. The Exchange shall be exempt from the
registration requirements of the Securities Act of 1933, as amended, pursuant
to Rule 506 under Regulation D as reasonably determined by counsel for
Cayenta.
8.7 CASH OUT OF OPTIONS. All options and rights to acquire any
capital stock of Assist other than options or warrants exercised by the
Selling Shareholders immediately prior to the Closing shall have been cashed
out in accordance with the Agreement to terminate options, which shall be
fully executed by each holder of a cashed out option or warrant. No more than
5,061,810 options and warrants shall have been exercised by the Selling
Shareholders.
8.8 SECTION 351 PLAN. The other transactions contemplated by the
Section 351 Plan shall have been concurrently consummated in accordance with
the Section 351 Plan attached as Exhibit E.
8.9 CLOSING DOCUMENTS. Cayenta shall have received the following
documents:
(a) the Selling Shareholders shall have executed and deliver to
Cayenta and Assist a General Release in the form of Exhibit F;
(b) Cayenta shall have received from the Selling Shareholders'
and Assist's counsel an opinion of such counsel substantially in the form of
Exhibit G;
(c) Assist shall have executed and deliver to Cayenta a
certificate (the "CLOSING CERTIFICATE") setting forth the estimated Debt and
the estimated Working Capital of Assist as of the Closing Date and that (A)
each of the representations and warranties made by Assist and the Selling
Shareholders in this Agreement was accurate in all respects as of the date of
this Agreement, (B) except as expressly set forth in the Closing Certificate,
each of the Specified Representations made by Assist and the Selling
Shareholders in this Agreement is accurate in all respects as of the Closing
Date as if made on the Closing Date and each of the other representations and
warranties made by Assist and the Selling Shareholders in this
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Agreement is accurate in all material respects as of the Closing Date
(without giving effect to any materiality exception within the representation
or warranty), (C) each of the covenants and obligations that Assist and the
Selling Shareholders are required to have complied with or performed pursuant
to this Agreement at or prior to the Closing has been duly complied with and
performed in all respects, and (D) except as expressly set forth in the
Closing Certificate, each of the conditions set forth in Sections 8.4(b),
8.5, 8.7, 8.10, 8.11, 8.12 and 8.13 has been satisfied in all respects;
(d) Assist shall have delivered to Cayenta a statement (in such
form as may be reasonably requested by counsel to Cayenta) conforming to the
requirements of Section 1.897-2(h)(1)(i) of the United States Treasury
Regulations and Assist shall deliver to the Internal Revenue Service the
notification required under Section 1.897-2(h)(2) of the United States
Treasury Regulations;
(e) Resignations of the directors and officers of Assist from
their respective positions as directors and officers of Assist;
(f) Scott Pynes shall have executed and delivered to Assist and
Cayenta a noncompetition agreement;
(g) estoppel certificates executed on behalf of Assist's
landlord, dated as of a date not more than three days prior to the Closing
Date and satisfactory in form and content to Cayenta; and
(h) such other documents as Cayenta may request in good faith
for the purpose of (i) evidencing the accuracy of any representation or
warranty made by Assist or any of the Selling Shareholders, (ii) evidencing
the compliance by Assist or any of the Selling Shareholders with, or the
performance by Assist or any of the Selling Shareholders of, any covenant or
obligation set forth in this Agreement, (iii) evidencing the satisfaction of
any condition set forth in this Section 8, or (iv) otherwise facilitating the
consummation of or performance of any of the Transactions.
8.10 NO PROCEEDINGS. Since the date of this Agreement, there shall
not have been commenced or threatened against Cayenta, or against any Person
affiliated with Cayenta, any Proceeding (a) involving any challenge to, or
seeking damages or other relief in connection with, any of the Transactions,
or (b) that may have the effect of preventing, delaying, making illegal or
otherwise interfering with any of the Transactions.
8.11 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS. No Person
shall have made or threatened any claim asserting that such Person (a) may be
the holder or the beneficial owner of, or may have the right to acquire or to
obtain beneficial ownership of, any capital stock or other securities of
Assist, or (b) may be entitled to all or any the Purchase Price or Cayenta
Shares.
8.12 NO PROHIBITION. Neither the consummation nor the performance of
any of the Transactions will, directly or indirectly (with or without notice
or lapse of time), contravene or conflict with or result in a violation of,
or cause Cayenta or any Person affiliated with Cayenta to suffer any material
adverse consequence under, (a) any applicable Legal Requirement or Order,
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or (b) any Legal Requirement or Order that has been proposed by or before any
Governmental Body.
8.13 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENTS.
All current employees of Assist shall have executed and delivered to Assist
an agreement (containing no exceptions to or exclusions from the scope of its
coverage except for prior inventions that do not conflict with the operations
of Assist's business or the use of Assist assets) that is substantially
identical to the standard form of Confidential Information and Invention
Assignment Agreement previously delivered to Cayenta.
9. CONDITIONS PRECEDENT TO ASSIST'S AND SELLING SHAREHOLDERS'
OBLIGATION TO CLOSE
The Selling Shareholders' obligation to sell the Shares and to take
the other actions required to be taken by the Selling Shareholders at the
Closing is subject to the satisfaction, at or prior to the Closing, of each
of the following conditions (any of which may be waived by the Agent, in
whole or in part, in accordance with Section 12.15):
9.1 ACCURACY OF REPRESENTATIONS. All of the representations and
warranties made by Cayenta in this Agreement (considered collectively), and
each of said representations and warranties (considered individually), shall
have been accurate in all material respects as of the date of this Agreement
and shall be accurate in all material respects as of the Scheduled Closing
Time as if made at the Scheduled Closing Time.
9.2 CAYENTA'S PERFORMANCE. All of the other covenants and
obligations that Cayenta is required to comply with or to perform pursuant to
this Agreement at or prior to the Closing (considered collectively), and each
of said covenants and obligations (considered individually), shall have been
complied with and performed in all material respects.
9.3 CLOSING DOCUMENTS. The Agent shall have received the following
documents:
(a) Cayenta shall have executed and delivered the Investor
Rights Agreement in the form of Exhibit C;
(b) Cayenta and Cayenta Sub shall have executed and delivered
to the Agent a certificate (the "CLOSING CERTIFICATE") that (A) each of the
representations and warranties made by Cayenta and Cayenta Sub in this
Agreement was accurate in all respects as of the date of this Agreement, (B)
except as expressly set forth in the Closing Certificate, each of the
Specified Representations made by Cayenta and Cayenta Sub in this Agreement
is accurate in all respects as of the Closing Date as if made on the Closing
Date and each of the representations and warranties made by Cayenta and
Cayenta Sub in this Agreement is accurate in all material respects as of the
Closing Date as if made on the Closing Date, and (C) each of the covenants
and obligations that Cayenta and Cayenta Sub is required to have complied
with or performed pursuant to this Agreement at or prior to the Closing has
been duly complied with and performed in all respects.
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10. TERMINATION
10.1 TERMINATION EVENTS. This Agreement may be terminated prior to
the Closing:
(a) by Cayenta if (i) there is a material Breach of any
covenant or obligation of Assist or any of the Selling Shareholders, or (ii)
Cayenta reasonably determines that the timely satisfaction of any condition
set forth in Section 8 has become impossible or impractical (other than as a
result of any failure on the part of Cayenta to comply with or perform its
covenants and obligations under this Agreement);
(b) by the Agent if (i) there is a material Breach of any
covenant or obligation of Cayenta, or (ii) the Agent reasonably determines
that the timely satisfaction of any condition set forth in Section 9 has
become impossible or impractical (other than as a result of any failure on
the part of Assist or any of the Selling Shareholders to comply with or
perform any covenant or obligation set forth in this Agreement);
(c) by Cayenta at or after the Scheduled Closing Time if any
condition set forth in Section 8 has not been satisfied by the Scheduled
Closing Time;
(d) by the Agent at or after the Scheduled Closing Time if any
condition set forth in Section 9 has not been satisfied by the Scheduled
Closing Time;
(e) by Cayenta if the Closing has not taken place on or before
December 31, 1999 (other than as a result of any failure on the part of
Cayenta to comply with or perform its covenants and obligations under this
Agreement);
(f) by the Agent if the Closing has not taken place on or
before December 31, 1999 (other than as a result of the failure on the part
of Assist or any of the Selling Shareholders to comply with or perform any
covenant or obligation set forth in this Agreement); or
(g) by the mutual consent of Cayenta, Cayenta Sub and the Agent.
10.2 TERMINATION PROCEDURES. If Cayenta and Cayenta Sub wishes to
terminate this Agreement pursuant to Section 10.1(a), Section 10.1(c) or
Section 10.1(e), Cayenta and Cayenta Sub shall deliver to the Agent a written
notice stating that Cayenta and Cayenta Sub is terminating this Agreement and
setting forth a brief description of the basis on which Cayenta and Cayenta
Sub is terminating this Agreement. If the Agent wishes to terminate this
Agreement pursuant to Section 10.1(b), Section 10.1(d) or Section 10.1(f),
the Agent shall deliver to Cayenta and Cayenta Sub a written notice stating
that the Agent is terminating this Agreement and setting forth a brief
description of the basis on which the Agent is terminating this Agreement.
10.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant
to Section 10.1, all further obligations of the parties under this Agreement
shall terminate; PROVIDED, HOWEVER, that:
(a) the parties shall, in all events, remain bound by and
continue to be subject to the provisions set forth in Section 12; and
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(b) Assist and the Selling Shareholders shall, in all events,
remain bound by and continue to be subject to Section 6.8.
11. INDEMNIFICATION, ETC.
11.1 SURVIVAL OF REPRESENTATIONS AND COVENANTS.
(a) The representations, warranties, covenants and obligations
of each party shall survive (without limitation):
(i) the Exchange, the purchase and sale of the Purchased
Shares and the other Transactions;
(ii) any sale or other disposition of Assist or any assets
of Assist by Cayenta; and
(iii) any Acquisition Transaction effected by or otherwise
involving Cayenta or Assist.
All of said representations, warranties, covenants and obligations
shall remain in full force and effect and shall survive until 11:59 p.m. on
the 18 month anniversary of the Closing Date; except the Specified
Representations shall survive until the fourth anniversary of the Closing
Date.
(b) The representations, warranties, covenants and obligations
of Assist and the Selling Shareholders, and the rights and remedies that may
be exercised by the Indemnitees, shall not be limited or otherwise affected
by or as a result of any information furnished to, or any investigation made
by or Knowledge of, any of the Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other
item of information set forth in the Disclosure Schedule or in any update to
the Disclosure Schedule shall be deemed to be a representation and warranty
made by Assist and the Selling Shareholders in this Agreement.
11.2 INDEMNIFICATION BY SELLING SHAREHOLDERS.
(a) The Selling Shareholders, jointly but not severally (except
where the Selling Shareholder makes a representation or warranty only with
respect to himself or itself in which case such Selling Shareholder shall
solely), shall hold harmless and indemnify each of the Indemnitees from and
against, and shall compensate and reimburse each of the Indemnitees for, any
Damages which are directly or indirectly suffered or incurred by any of the
Indemnitees or to which any of the Indemnitees may otherwise become subject
at any time during the 18 month period described in Section 11.1(a) above
(regardless of whether or not such Damages relate to any third-party claim)
and which arise directly or indirectly from or as a direct or indirect result
of, or are directly or indirectly connected with:
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(i) any Breach of any representation or warranty made by
Assist or any of the Selling Shareholders in this Agreement or in the Closing
Certificate, subject to Section 6.4(b);
(ii) any Breach of any representation, warranty, statement,
information or provision contained in the Disclosure Schedule, subject to
Section 6.4(b);
(iii) any Breach of any covenant or obligation of Assist or
any of the Selling Shareholders, subject to Section 6.4(b);
(iv) any matter identified or referred to in Part 3.15 or
Part 3.25 of the Disclosure Schedule (provided no Purchase Price adjustment
is made on account of any such specific matter following the post-closing
audit); or
(v) any Proceeding relating directly or indirectly to any
Breach, alleged Breach, Liability or matter of the type referred to in clause
"(i)," "(ii)," "(iii)," or "(iv)," above (including any Proceeding commenced
by any Indemnitee for the purpose of enforcing any of its rights under this
Section 11).
(b) The Selling Shareholders acknowledge and agree that, if
there is any Breach of any representation, warranty or other provision
relating to Assist or Assist's business, condition, assets, liabilities,
operations, financial performance or net income (or any aspect or portion
thereof), then Cayenta and Cayenta Sub itself shall be deemed, by virtue of
its ownership of common stock of Assist, to have incurred Damages as a result
of such Breach or Liability. Nothing contained in this Section 11.2(b) shall
have the effect of (i) limiting the circumstances under which Cayenta and
Cayenta Sub may otherwise be deemed to have incurred Damages for purposes of
this Agreement, (ii) limiting the other types of Damages that Cayenta and
Cayenta Sub may be deemed to have incurred (whether in connection with any
such Breach or Liability or otherwise), or (iii) limiting the rights of
Assist or any of the other Indemnitees under this Section 11.2. Nothing
herein shall entitle Cayenta or Cayenta Sub and Assist to recover Damages
more than once on the same claim although the Damage recovery may be
allocated among the Indemnitees.
11.3 THRESHOLD.
(a) Subject to Section 11.3(b), the Selling Shareholders shall
not be required to make any indemnification payment pursuant to Section 11.2
until such time as the total amount of all Damages (including the Damages
arising from such Breach and all other Damages arising from any other
Breaches of any representations or warranties) that have been directly or
indirectly suffered or incurred by any one or more of the Indemnitees, or to
which any one or more of the Indemnitees has or have otherwise become
subject, exceeds the amount equal to the positive Working Capital as shown in
the Audited Balance Sheet, if any, (the "DEDUCTIBLE"). At such time as the
total amount of Damages exceeds the Deductible, the Indemnitees shall be
entitled to be indemnified against any Damages in excess of the Deductible.
(b) The limitation on the Selling Shareholders' indemnification
obligations that is set forth in Sections 11.3(a) and 11.7 shall not apply to
(i) any Breach of any of the Specified Representations, or (ii) any act or
omission ruled by a non-appealable judgment to
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have been fraud by Assist or any of the Selling Shareholders in connection
with the Transaction. In no event shall any Selling Shareholder's liability
for the Specified Representations exceed its or his pro rata share of the
Purchase Price and the then fair market value of the Cayenta Shares. A
Selling Shareholder can satisfy this obligation by delivery of his or its pro
rata share of the Purchase Price and the Cayenta Shares. To the extent that a
Selling Shareholder does not deliver Cayenta Shares, then his or its
liability under this subsection shall be limited to his or its pro rata share
of the Purchase Price plus the fair market value of the Cayenta Shares he or
it still owns plus the proceeds received by the Selling Shareholder from the
sale of such Cayenta Shares, net of brokerage or underwriting commissions
only.
11.4 RIGHT TO REQUIRE CURE OF BREACH. Without limiting the
generality of anything contained in Section 11.2, if there is any Breach of
any representation or warranty made by Assist or any of the Selling
Shareholders after the Deductible is satisfied, then the Selling
Shareholders, jointly but not severally, may elect to (a) pay Damages to
Cayenta, Cayenta Sub or Assist or (b) take such other actions as Cayenta may
in good faith reasonably request for the purpose of causing such Breach to be
corrected, cured and eliminated in all respects (at no cost to Assist or
Cayenta or Cayenta Sub).
11.5 NO CONTRIBUTION. Each Selling Shareholder waives, and
acknowledges and agrees that such Selling Shareholder shall not have and
shall not exercise or assert or attempt to exercise or assert, any right of
contribution or right of indemnity or any other right or remedy against
Assist in connection with any indemnification obligation or any other
Liability to which such Selling Shareholder may become subject under any of
the Transactional Agreements or otherwise in connection with any of the
Transactions.
11.6 INTEREST. Any party that is required to indemnify any other
Person pursuant to this Section 11 with respect to any Damages shall also be
required to pay such other Person interest on the amount of such Damages (for
the period commencing as of the date on which such other Person first gave
notice of such Damages to the Agent and ending on the date on which the
applicable indemnification payment is made by such party) at a floating rate
three percentage points above the rate of interest publicly announced by Bank
of America, N.T. & S.A. from time to time as its prime, base or reference
rate; provided that to the extent that Damages are recovered through setoffs
against the Second Installment or the Third Installment, no interest will be
payable on the set off amount in lieu of recovering interest under this
Section 11.6.
11.7 SETOFF/LIMITED RECOURSE. Subject to Section 11.3, an
Indemnitee's sole remedy under this Agreement shall be to set off any amount
that may be owed to any Indemnitee under this Section 11 against the Second
Installment and the Third Installment. Except in the case of Breach of any of
the Specified Representations by Assist or the Selling Shareholders, the
Indemnitees shall have no recourse against the Selling Shareholders other
than through set offs against the Second Installment (until such installment
is paid) and the Third Installment. Except as set forth in Section 11.3 in no
event shall any Selling Shareholder be liable for any Damages in excess of
such Selling Shareholder's pro rata share of the Second Installment (prior to
the payment thereof) and the Third Installment (prior to payment thereof).
Each Selling Shareholder's pro rata share shall be determined by multiplying
the Second Installment or the Third Installment, as applicable, by a
fraction, the numerator of which is the number of
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Purchased Shares that were owned by the Selling Shareholder and the
denominator of which shall be 7,707,617. Cayenta Sub may set off any amount
under this Section 11 upon notice to the Agent of the claim, the amount of
Damages and the date on which such Damages were suffered or incurred and the
nature of the Breach or Liability giving rise to the Damages. Any such set
off shall be without prejudice to the right of the Agent on behalf of the
Selling Shareholders to challenge the validity of the set off and seek
recovery of the set off amounts. If the Selling Shareholders prevail as to
any portion of the set off Second or Third Installments, they will be
entitled to receive interest on the restored portion at the rate of 8% per
annum accruing from the Closing Date to the payment date.
11.8 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Proceeding (whether against
Assist, against any other Indemnitee or against any other Person) with
respect to which any of the Selling Shareholders may become obligated to
indemnify, hold harmless, compensate or reimburse any Indemnitee pursuant to
this Section 11, Cayenta and Cayenta Sub may proceed with the defense of such
claim or Proceeding on its own. If Cayenta and Cayenta Sub so proceeds with
the defense of any such claim or Proceeding on its own:
(a) all expenses relating to the defense of such claim or
Proceeding (whether or not incurred by Cayenta and Cayenta Sub) shall be
borne and paid exclusively by the Selling Shareholders through set offs
against the Second or Third Installment, as applicable;
(b) the Selling Shareholders shall make available to Cayenta
and Cayenta Sub any documents and materials in the possession or control of
any of the Selling Shareholders that may be necessary to the defense of such
claim or Proceeding;
(c) Cayenta and Cayenta Sub shall keep the Agent informed of
all material developments and events relating to such claim or Proceeding;
(d) Cayenta and Cayenta Sub shall have the right to settle,
adjust or compromise such claim or Proceeding with the consent of the Agent;
PROVIDED, HOWEVER, that the Agent shall not unreasonably withhold such
consent; and
(e) The counsel selected by Cayenta or Cayenta Sub to defend
such claim or Proceeding shall be subject to the approval of the Agent (such
approval not to be withheld unreasonably).
11.9 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN CAYENTA AND
CAYENTA SUB. No Indemnitee (other than Cayenta, Cayenta Sub or any of their
respective successor thereto or assign thereof) shall be permitted to assert
any indemnification claim or exercise any other remedy under this Agreement
unless Cayenta or Cayenta Sub (or any respective successor thereto or assign
thereof) shall have consented to the assertion of such indemnification claim
or the exercise of such other remedy.
11.10 INDEMNIFICATION BY CAYENTA AND CAYENTA SUB.
(a) Cayenta and Cayenta Sub shall jointly and severally hold
harmless and indemnify each of the Selling Shareholders from and against, and
shall compensate and
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reimburse each of the Selling Shareholders for, any Damages which are
directly or indirectly suffered or incurred by any of the Selling
Shareholders or to which any of the Selling Shareholders may otherwise become
subject at any time (regardless of whether or not such Damages relate to any
third-party claim) and which arise directly or indirectly from or as a direct
or indirect result of, or are directly or indirectly connected with any
Breach of any representation, warranty, covenant or obligation made by
Cayenta or Cayenta Sub in this Agreement (without giving effect to any update
to the Disclosure Schedule) or in the Closing Certificate and any Proceeding
relating directly or indirectly to any Breach or alleged Breach referred to
herein (including any Proceeding commenced by the Selling Shareholders for
the purpose of enforcing any of their rights under this Section 11).
(b) Subject to Section (c), Cayenta or Cayenta Sub shall not be
required to make any indemnification payment pursuant to Section 11.10 until
such time as the total amount of all Damages (including the Damages arising
from such Breach and all other Damages arising from any other Breaches of any
representations or warranties) that have been directly or indirectly suffered
or incurred by any one or more of the Selling Shareholders, or to which any
one or more of the Selling Shareholders has or have otherwise become subject,
exceeds $600,000.00. At such time as the total amount of such Damages exceeds
$600,000.00, the Selling Shareholders shall be entitled to be indemnified
against any Damages in excess of $600,000.00. Except as set forth in Section
11, in no event shall Cayenta, Cayenta Sub or any affiliate of Cayenta or
Cayenta Sub be liable for any Damages arising under this Agreement in excess
of $1,300,000.00.
(c) The limitation on Cayenta's and Cayenta Sub's
indemnification obligations that is set forth in Section (b) shall not apply
to (i) any Breach of any of the Specified Representations of Cayenta, or (ii)
any act or omission (including any violation of the securities laws) ruled by
a non-appealable judgment to have been fraud by Cayenta or Cayenta Sub in
connection with the Transaction.
12. MISCELLANEOUS PROVISIONS
12.1 SELLING SHAREHOLDERS' AGENT.
(a) Each of the Selling Shareholders hereby irrevocably
nominates, constitutes and appoints Andrew Dumke as the agent and true and
lawful attorney-in-fact of the Selling Shareholders (the "AGENT"), with full
power of substitution, to act in the name, place and stead of the Selling
Shareholders for purposes of executing any documents and taking any actions
that the Agent may, in his sole discretion, determine to be necessary,
desirable or appropriate in connection with any of the Transactional
Agreements or any of the Transactions. Andrew Dumke hereby accepts his
appointment as Agent.
(b) The Selling Shareholders hereby grant to the Agent full
authority to execute, deliver, acknowledge, certify and file on behalf of the
Selling Shareholders (in the name of any or all of the Selling Shareholders
or otherwise) any and all documents that the Agent may, in his sole
discretion, determine to be necessary, desirable or appropriate, in such
forms and containing such provisions as the Agent may, in his sole
discretion, determine to be appropriate (including the General Release
referred to in Section 8.9(a), the Closing Certificate and any
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amendment to or waiver of rights under any of the Transactional Agreements).
Notwithstanding anything to the contrary contained in any of the
Transactional Agreements:
(i) Cayenta and Cayenta Sub shall be entitled to deal
exclusively with the Agent on all matters relating to the respective
Transactional Agreements and the respective Transactional (including all
matters relating to any notice to, or any Consent to be given or action to be
taken by, any Selling Shareholder); and
(ii) each Indemnitee shall be entitled to rely conclusively
(without further evidence of any kind whatsoever) on any document executed or
purported to be executed on behalf of any Selling Shareholder by the Agent,
and on any other action taken or purported to be taken on behalf of any
Selling Shareholder by the Agent, as fully binding upon such Selling
Shareholder.
(c) The Selling Shareholders recognize and intend that the
power of attorney granted in Section 12.1:
(i) is coupled with an interest and is irrevocable;
(ii) may be delegated by the Agent; and
(iii) shall survive the death or incapacity of each of the
Selling Shareholders.
(d) The Agent shall be entitled to treat as genuine, and as the
document it purports to be, any letter, facsimile, telex or other document
that is believed by him to be genuine and to have been mailed, sent by
overnight delivery or express courier, telexed, telegraphed, faxed or cabled
by a Selling Shareholder or to have been signed and presented by a Selling
Shareholder.
(e) If the Agent shall die, become disabled or otherwise be
unable to fulfill his responsibilities hereunder, the Selling Shareholders
shall, within ten days after such death or disability, appoint a successor to
the Agent and immediately thereafter notify Cayenta and Cayenta Sub of the
identity of such successor. Any such successor shall succeed the Agent as
Agent hereunder. If for any reason there is no Agent at any time, all
references herein to the Agent shall be deemed to refer to the Selling
Shareholders.
(f) All expenses incurred by the Agent in connection with the
performance of his duties as Agent shall be borne and paid by the Selling
Shareholders.
(g) The Agent shall not incur any liability to the Selling
Shareholders directly or indirectly for any action taken by the Agent in good
faith in the exercise of his business judgment. Each Selling Shareholder
shall indemnify, protect and hold the Agent harmless from any against any and
all liability, loss, cost, claim, or expense, including attorneys' fees and
costs arising from his performance as the Agent.
12.2 FURTHER ASSURANCES. Each party hereto shall execute and/or
cause to be delivered to each other party hereto such instruments and other
documents, and shall take such
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other actions, as such other party may reasonably request (prior to, at or
after the Closing) for the purpose of carrying out or evidencing any of the
Transactions.
12.3 RETIREMENT OF DEBT. Within five (5) business days following the
Closing, Cayenta Sub shall have paid or shall have caused Assist to have paid
(1) to the Pacific Mezzanine Fund L.P. cash in the amount representing all
principal and any accrued interest on the Secured Promissory Notes and the
redemption price of all outstanding Series B 8% non-cumulative redeemable
preferred stock, (2) to Silicon Valley Bank all principal and any accrued
debt on its credit facility, (3) the redemption price of all outstanding
Series A preferred stock, including all accrued but unpaid dividends on the
Series A preferred stock and (4) any other Debt that Cayenta Sub agrees in
writing to satisfy within such period.
12.4 STOCK OPTIONS. Following the Closing, Cayenta shall grant to
the key managerial employees of Assist (the "KEY EMPLOYEES") listed on
Exhibit H hereto, either nonqualified options or incentive stock options to
acquire shares of Cayenta's Class A Common Stock (the "KEY EMPLOYEE OPTIONS")
in Cayenta's sole discretion. The Key Employee Options will be granted to the
Key Employees subject to substantially similar terms and conditions as
options granted to similarly situated employees of Cayenta. The exercise
price for such options shall be set at the fair market value of Cayenta's
Class A common stock on the date of grant and shall vest from the date of
grant equally over four years, on an annual basis.
12.5 FEES AND EXPENSES.
(a) Without limiting the generality of anything contained in
Section 12.5(b), the Selling Shareholders shall bear and pay all fees, costs
and expenses (including all legal fees and expenses payable to counsel for
Assist, which Assist shall pay at Closing, subject to reduction in the
Purchase Price as provided below) that have been incurred or that are in the
future incurred by, on behalf of or for the benefit of Assist or any of the
Selling Shareholders in connection with:
(i) the negotiation, preparation and review of any term
sheet or similar document relating to any of the Transactions;
(ii) the investigation and review conducted by Cayenta and
its Representatives with respect to Assist's business (and the furnishing of
information to Cayenta and its Representatives in connection with such
investigation and review);
(iii) the negotiation, preparation and review of this
Agreement (including the Disclosure Schedule), the other Transactional
Agreements and all certificates, opinions and other instruments and documents
delivered or to be delivered in connection with the Transactional
(iv) the preparation and submission of any filing or notice
required to be made or given in connection with any of the Transactions the
obtaining of any Consent required to be obtained in connection with any of
the Transactions; and
(v) the consummation and performance of the Transactions.
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Assist shall not bear or pay, and the Selling Shareholders shall not
permit Assist to bear or pay, any such fees, costs or expenses. To the extent
Assist bears or pays any such fees, costs, or expenses (the "TRANSACTION
EXPENSES"), the Purchase Price will be reduced on a dollar for dollar basis.
The Transaction Expenses shall not include the fees payable by Assist in the
Ordinary Course of Business to Batchelder & Partners, Inc. for outsourced
services.
(b) Subject to the provisions of Section 11 (including the
indemnification and other obligations of the Selling Shareholders thereunder)
and the provisions of Section 12.5(b)(iv), Cayenta shall bear and pay all
fees, costs and expenses (including all legal fees and expenses payable to
Cooley Godward LLP) that have been incurred or that are in the future
incurred by or on behalf of Cayenta in connection with:
(i) the negotiation, preparation and review of any term
sheet or similar document relating to any of the Transactions;
(ii) the investigation and review conducted by Cayenta and
its Representatives with respect to Assist's business;
(iii) the negotiation, preparation and review of this
Agreement, the other Transactional Agreements and all certificates, opinions
and other instruments and documents delivered or to be delivered in
connection with the Transactions; and
(iv) the consummation and the performance of the
Transactions.
12.6 ATTORNEYS' FEES. If any legal action or other legal proceeding
relating to any of the Transactional Agreements or the enforcement of any
provision of any of the Transactional Agreements is brought against any party
hereto, the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and disbursements (in addition to any other relief to
which the prevailing party may be entitled).
12.7 NOTICES. Any notice or other communication required or
permitted to be delivered to any party under this Agreement shall be in
writing and shall be deemed properly delivered, given and received when
delivered (by hand, by registered mail, by courier or express delivery
service or by facsimile) to the address or facsimile number set forth beneath
the name of such party below (or to such other address or facsimile number as
such party shall have specified in a written notice given to the other
parties hereto):
if to Assist:
Assist Cornerstone Technologies, Inc.
77 West 200 South, Suite 500
Salt Lake City, UT 84101
Attention: Scott E. Pynes
Facsimile: (801) 355-7720
WITH A COPY TO:
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Nolan S. Taylor, Esq.
LeBoeuf, Lamb, Greene & MacRae LLP
1000 Kearns Building
136 South Main Street
Salt Lake City, UT 84101
Facsimile: (801) 359-8256
if to any of the Selling Shareholders:
c/o of the Agent
if to the Agent:
Andrew Dumke as Agent of the Selling Shareholders
2200 Powell Street, Suite 1250
Emeryvile, CA 94608
Facsimile: (510) 595-9801
WITH A COPY TO:
Ed Wes, Esq.
Perkins Coie, LLP
135 Commonwealth #250
Menlo Park, CA 94025
Facsimile: (650) 752-6050
if to Cayenta or Cayenta Sub:
Cayenta.com, Inc. and Cayenta Operating Company
c/o The Titan Corporation
3033 Science Park Road
San Diego, CA 92121-1199
Attention: David Porreca
Facsimile: (858) 552-9759
WITH A COPY TO:
Nicholas J. Costanza, Esq.
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121-1199
Facsimile: (858) 552-9759
Barbara L. Borden, Esq.
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Facsimile: (858) 453-3555
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12.8 PUBLICITY. Without limiting the generality of anything
contained in Section 6.8, on and at all times after the Closing Date:
(a) no press release or other publicity concerning any of the
Transactions shall be issued or otherwise disseminated by or on behalf of any
of the Selling Shareholders, and the Selling Shareholders shall continue to
keep the existence and terms of this Agreement and the other Transactional
Agreements strictly confidential; and
(b) each Selling Shareholder shall keep strictly confidential,
and shall not use or disclose to any other Person, any non-public document or
other information in such Selling Shareholder's possession that relates
directly or indirectly to the business of Assist, Cayenta or any affiliate of
Cayenta.
12.9 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
12.10 HEADINGS. The underlined headings contained in this Agreement
are for convenience of reference only, shall not be deemed to be a part of
this Agreement and shall not be referred to in connection with the
construction or interpretation of this Agreement.
12.11 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which,
when taken together, shall constitute one agreement.
12.12 GOVERNING LAW; VENUE.
(a) This Agreement shall be construed in accordance with, and
governed in all respects by, the internal laws of the State of California
(without giving effect to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating to
this Agreement or the enforcement of any provision of this Agreement may be
brought or otherwise commenced in any state or federal court located in the
County of San Diego, California. Each party to this Agreement:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the County of San
Diego, California (and each appellate court located in the State of
California) in connection with any such legal proceeding;
(ii) agrees that each state and federal court located in
the County of San Diego, California shall be deemed to be a convenient forum;
and
(iii) agrees not to assert (by way of motion, as a defense
or otherwise), in any such legal proceeding commenced in any state or federal
court located in the County of San Diego, California, any claim that such
party is not subject personally to the jurisdiction of such court, that such
legal proceeding has been brought in an inconvenient forum, that the venue of
such proceeding is improper or that this Agreement or the subject matter of
this Agreement may not be enforced in or by such court.
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(c) Each Selling Shareholder agrees that, if any Proceeding is
commenced against any Indemnitee by any Person in or before any court or
other tribunal anywhere in the world, then such Indemnitee may proceed
against such Selling Shareholder in such court or other tribunal with respect
to any indemnification claim or other claim arising directly or indirectly
from or relating directly or indirectly to such Proceeding or any of the
matters alleged therein or any of the circumstances giving rise thereto.
(d) Nothing contained in Section 12.12(b) or 12.12(c) shall be
deemed to limit or otherwise affect the right of any Indemnitee to commence
any legal proceeding or otherwise proceed against Assist or any of the
Selling Shareholders in any other forum or jurisdiction.
(e) The Selling Shareholders irrevocably constitute and
appoint the Agent as their agent to receive service of process in connection
with any legal proceeding relating to this Agreement or the enforcement of
any provision of this Agreement.
(f) The Selling Shareholders irrevocably waive the right to a
jury trial in connection with any legal proceeding relating to this Agreement
or the enforcement of any provision of this Agreement.
12.13 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon:
Assist and its successors and assigns (if any); the Selling Shareholders and
their respective personal representatives, executors, administrators,
estates, heirs, successors and assigns (if any); and Cayenta and its
successors and assigns (if any). This Agreement shall inure to the benefit
of: Assist; the Selling Shareholders; Cayenta; the other Indemnitees (subject
to Section 11.9); and the respective successors and assigns (if any) of the
foregoing. Cayenta may freely assign any or all of its rights under this
Agreement (including its indemnification rights under Section 11), in whole
or in part, to any other Person without obtaining the consent or approval of
any other party hereto or of any other Person.
12.14 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the parties hereto shall be cumulative (and not alternative).
Each of the parties agrees that:
(a) in the event of any Breach or threatened Breach by a party
to this Agreement of any covenant, obligation or other provision set forth in
this Agreement, the other parties shall be entitled (in addition to any other
remedy that may be available to it) to (i) a decree or order of specific
performance or mandamus to enforce the observance and performance of such
covenant, obligation or other provision, and (ii) an injunction restraining
such Breach or threatened Breach; and
(b) the party seeking specific performance or an injunction
shall not be required to provide any bond or other security in connection
with any such decree, order or injunction or in connection with any related
action or Proceeding.
12.15 WAIVER.
(a) No failure on the part of any Person to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the
part of any Person in exercising any power, right,
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privilege or remedy under this Agreement, shall operate as a waiver of such
power, right, privilege or remedy; and no single or partial exercise of any
such power, right, privilege or remedy shall preclude any other or further
exercise thereof or of any other power, right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy
is expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have
any effect except in the specific instance in which it is given.
12.16 AMENDMENTS. This Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of Cayenta and the Agent.
12.17 SEVERABILITY. In the event that any provision of this
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as
to which it is determined to be invalid, unlawful, void or unenforceable,
shall not be impaired or otherwise affected and shall continue to be valid
and enforceable to the fullest extent permitted by law.
12.18 PARTIES IN INTEREST. Except for the provisions of Section 11
hereof, none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).
12.19 ENTIRE AGREEMENT. The Transactional Agreements set forth the
entire understanding of the parties relating to the subject matter thereof
and supersede all prior agreements and understandings among or between any of
the parties relating to the subject matter thereof.
12.20 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party
shall not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of
this Agreement and Exhibits to this Agreement.
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12.21 NEGOTIATION OF DISPUTES. If a dispute arises between the
parties relating to the interpretation or performance of this Agreement or
the grounds for the termination thereof, and the parties cannot resolve the
dispute within thirty days of a written request by either party to the other,
such dispute shall be referred to the Chief Executive Officer, Chief
Financial Officer or General Counsel of Cayenta and the Agent for resolution.
Such persons shall hold a meeting to attempt in good faith to negotiate a
resolution of the dispute prior to pursuing other available remedies. If
within 10 business days after such meeting, the Chief Executive Officer,
Chief Financial Officer or General Counsel of Cayenta and the Agent have not
succeeded in negotiating a resolution of the dispute, such dispute may be
resolved in accordance with Section 12.12.
12.22 ERNST & YOUNG LLP CONSENT. The Agent shall use its reasonable
Best Efforts to obtain any consent of Ernst & Young LLP required by Cayenta
in connection with the filing of any consolidated financial statements of
Cayenta in any registration statement, report or other filing made by Cayenta
or Titan with the Securities and Exchange Commission, or any blue sky
securities authority or any securities exchange or market.
12.23 TITAN AS SIGNING PARTY. Titan is signing this Agreement solely
as a party to Section 2 and Titan does not guarantee performance of any of
Cayenta's obligations under this Agreement.
12.24 ASSIST'S LEGAL COUNSEL. Each of the Selling Shareholders
acknowledges and agrees that LeBoeuf, Lamb, Greene & MacRae, LLP has
represented Assist only and not the Selling Shareholders individually. The
Selling Shareholders have been separately represented by and relied upon
their own legal, tax and accounting advisors.
12.25 DIRECTORS' AND OFFICERS' INSURANCE. For a period of four years
from the Closing Date, Cayenta shall cause Assist to maintain in effect the
current policies of directors and officers liability insurance maintained by
Assist covering persons who are currently covered by Assist directors' and
officers' liability insurance policies with respect to acts or omission
occurring prior to the closing; provided that policies of at least the same
coverage containing terms and conditions which are no less advantageous to
the insured as may be substituted therefor.
[THIS SPACE INTENTIONALLY LEFT BLANK]
58.
<PAGE>
The parties hereto have caused this Agreement to be executed and
delivered as of ______________, 1999.
CAYENTA: CAYENTA.COM, INC.,
a Delaware corporation
By:
-------------------------------
Its:
-------------------------------
CAYENTA OPERATING COMPANY,
a Delaware corporation
By:
-------------------------------
Its:
-------------------------------
TITAN: THE TITAN CORPORATION,
a Delaware corporation
By:
-------------------------------
Its:
-------------------------------
ASSIST: ASSIST CORNERSTONE
TECHNOLOGIES, INC.,
a Utah corporation
By:
-------------------------------
Scott E. Pynes
President
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE>
SELLING SHAREHOLDERS:
-------------------------------
SCOTT E. PYNES
-------------------------------
JERRY L. MCMILLAN
-------------------------------
KENNETH R. SAWYER
-------------------------------
ANDREAS SEEMULLER
-------------------------------
HENRY J. EYRING
-------------------------------
VERN R. CHRISTENSEN
-------------------------------
GREGORY C. ESTY
BATCHELDER & PARTNERS, INC.
By:
----------------------------
Its:
----------------------------
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE>
-------------------------------
E. SCOTT ANDERSON
-------------------------------
GUY M. CAMERON
-------------------------------
MARNIE NUTTALL-MARTINEZ
-------------------------------
RANDALL CROCKER
-------------------------------
PAUL SCHWEET
-------------------------------
STUART CLIFTON
-------------------------------
MARK S. HOWLETT
-------------------------------
C. BURTON STOHL
-------------------------------
MARLON R. BERRETT
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE>
PACIFIC MEZZANINE FUND, L.P.
By:
----------------------------
Its:
----------------------------
Agent
By:
----------------------------
ANDREW DUMKE
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license or other disposition or acquisition of
all or any portion of Assist's business or assets (other than in the
Ordinary Course of Business);
(b) the issuance, sale or other disposition of (i) any capital
stock or other equity security of Assist (other than common stock
issued to employees of Assist in routine transactions in accordance
with Assist's past practices), (ii) any option, call, warrant or right
(whether or not immediately exercisable) to acquire any capital stock
or other equity security of Assist other than stock options granted to
employees of Assist in routine transactions in accordance with Assist's
past practices), or (iii) any security, instrument or obligation that
is or may become convertible into or exchangeable for any capital stock
or other equity security of Assist; or
(c) any merger, consolidation, business combination, share
exchange, reorganization or similar transaction involving Assist.
ASSIST. "Assist" shall mean Assist Cornerstone Technologies, Inc., a
Utah corporation.
ASSIST CONTRACT. "Assist Contract" shall mean any Contract:
(a) to which Assist is a party;
(b) by which Assist or any of its assets is or may become
bound or under which Assist has, or may become subject to, any
obligation; or
(c) under which Assist has or may acquire any right or
interest.
ASSIST FINANCIAL STATEMENTS. "Assist Financial Statements" shall
have the meaning specified in Section 3.4(a) of the Agreement.
ASSIST RETURNS. "Assist Returns" shall have the meaning specified in
Section 3.17(a) of the Agreement.
AGENT. "Agent" shall have the meaning specified in Section 12.1 of
the Agreement.
AGREEMENT. "Agreement" shall mean the Stock Exchange and Stock
Purchase Agreement to which this Exhibit A is attached (including the
Disclosure Schedule), as it may be amended from time to time.
A-1.
<PAGE>
BEST EFFORTS. "Best Efforts" shall mean the efforts that a prudent
and reasonable Person desiring to achieve a particular result would use in
order to achieve such result as expeditiously as possible.
BREACH. There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been (a)
any inaccuracy in or breach of, or any failure to comply with or perform,
such representation, warranty, covenant, obligation or other provision, or
(b) any claim (by any Person) or other circumstance that is inconsistent with
such representation, warranty, covenant, obligation or other provision; and
the term "Breach" shall be deemed to refer to any such inaccuracy, breach,
failure, claim or circumstance.
CERCLA. "CERCLA" shall mean the Comprehensive Environmental
Response, Compensation and Liability Assist.
CLOSING. "Closing" shall have the meaning specified in Section 1.5
of the Agreement.
CLOSING CERTIFICATE. "Closing Certificate" shall have the meaning
specified in Section 8.9(b) of the Agreement.
CLOSING DATE. "Closing Date" shall have the meaning specified in
Section 1.5 of the Agreement.
CODE. "Code" shall mean the Internal Revenue Code of 1986.
COMPANY PLAN. "Company Plan" shall mean any Current Benefit Plan or
Past Benefit Plan.
COMPARABLE ENTITIES. "Comparable Entities" shall mean Entities
(other than Assist) that are engaged in businesses similar to Assist's
business and are of comparable size in annualized revenues.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental
Authorization).
CONTRACT. "Contract" shall mean any written, oral, implied or other
agreement, contract, understanding, arrangement, instrument, note, guaranty,
indemnity, representation, warranty, deed, assignment, power of attorney,
certificate, purchase order, work order, insurance policy, benefit plan,
commitment, covenant, assurance or undertaking of any nature.
CURRENT BENEFIT PLAN. "Current Benefit Plan" shall mean any Employee
Benefit Plan that is currently in effect and:
(a) that was established or adopted by Assist or any ERISA
Affiliate or is maintained or sponsored by Assist;
(b) in which Assist participates;
A-2.
<PAGE>
(c) with respect to which Assist or any ERISA Affiliate is or
may be required or permitted to make any contribution; or
(d) with respect to which Assist or any ERISA Affiliate is or
may become subject to any Liability.
DAMAGES. "Damages" shall include any loss, damage, injury, decline
in value, lost opportunity, Liability, claim, demand, settlement, judgment,
award, fine, penalty, Tax, fee (including any legal fee, expert fee,
accounting fee or advisory fee), charge, cost (including any cost of
investigation) or expense of any nature, less any amounts recovered through
insurance policies of Assist so long as the claim does not result in a
material increase in Assist's premiums for such policy or policies or the
cancellation of such policy or policies.
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule
(dated as of the date of the Agreement) delivered to Cayenta on behalf of
Assist and the Selling Shareholders, a copy of which is attached to the
Agreement and incorporated in the Agreement by reference.
EMPLOYEE BENEFIT PLAN. "Employee Benefit Plan" shall have the
meaning specified in Section 3(3) of ERISA.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge,
hypothecation, charge, mortgage, security interest, encumbrance, equity,
trust, equitable interest, claim, preference, right of possession, lease,
tenancy, license, encroachment, covenant, infringement, interference, Order,
proxy, option, right of first refusal, preemptive right, community property
interest, legend, defect, impediment, exception, reservation, limitation,
impairment, imperfection of title, condition or restriction of any nature
(including any restriction on the voting of any security, any restriction on
the transfer of any security or other asset, any restriction on the receipt
of any income derived from any asset, any restriction on the use of any asset
and any restriction on the possession, exercise or transfer of any other
attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any
non-profit corporation), general partnership, limited partnership, limited
liability partnership, joint venture, estate, trust, cooperative, foundation,
society, political party, union, company (including any limited liability
company or joint stock company), firm or other enterprise, association,
organization or entity.
ERISA. "ERISA" shall mean the Employee Retirement Income Security
Assist of 1974.
ERISA AFFILIATE. "ERISA Affiliate" shall mean any Person that is,
was or would be treated as a single employer with Assist under Section 414 of
the Code.
EXCLUDED CONTRACT. "Excluded Contract" shall mean any Assist
Contract that:
(a) Assist has entered into in the Ordinary Course of
Business;
(c) has a term of less than 90 days or may be terminated by
Assist (without penalty) within 90 days after the delivery of a
termination notice by Assist; and
A-3.
<PAGE>
(d) does not contemplate or involve the payment of cash or
other consideration in an amount or having a value in excess of
$15,000.
GAAP. "GAAP" shall mean United States generally accepted accounting
principles, applied on a basis consistent with the basis on which the Assist
Financial Statements were prepared.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any:
(a) permit, license, certificate, franchise, concession,
approval, consent, ratification, permission, clearance, confirmation,
endorsement, waiver, certification, designation, rating, registration,
qualification or authorization that is, has been or may in the future
be issued, granted, given or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Legal
Requirement; or
(b) right under any Contract with any Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any:
(a) nation, principality, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any
nature;
(b) federal, state, local, municipal, foreign or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department, agency,
bureau, branch, office, commission, council, board, instrumentality,
officer, official, representative, organization, unit, body or Entity
and any court or other tribunal);
(d) multi-national organization or body; or
(e) individual, Entity or body exercising, or entitled to
exercise, any executive, legislative, judicial, administrative,
regulatory, police, military or taxing authority or power of any
nature.
HAZARDOUS MATERIAL. "Hazardous Material" shall include:
(a) any petroleum, waste oil, crude oil, asbestos, urea
formaldehyde or polychlorinated biphenyl;
(b) any waste, gas or other substance or material that is
explosive or radioactive;
(c) any "hazardous substance," "pollutant," "contaminant,"
"hazardous waste," "regulated substance," "hazardous chemical" or
"toxic chemical" as designated, listed or defined (whether expressly or
by reference) in any statute, regulation or other Legal Requirement
(including CERCLA, any other so-called "superfund" or "superlien" law,
the Resource Conservation Recovery Assist, the Federal Water Pollution
Control
A-4.
<PAGE>
Assist, the Toxic Substances Control Assist, the Emergency Planning
and Community Right-to-Know Assist and the respective regulations
promulgated thereunder);
(d) any other substance or material (regardless of physical
form) or form of energy that is subject to any Legal Requirement which
regulates or establishes standards of conduct in connection with, or
which otherwise relates to, the protection of human health, plant life,
animal life, natural resources, property or the enjoyment of life or
property from the presence in the environment of any solid, liquid,
gas, odor, noise or form of energy; and
(e) any compound, mixture, solution, product or other
substance or material that contains any substance or material referred
to in clause "(a)", "(b)", "(c)" or "(d)" above.
INDEMNITEES. "Indemnitees" shall mean the following Persons:
(a) Cayenta;
(b) Cayenta Sub;
(c) Cayenta's and Cayenta Sub's current and future affiliates
(including Assist);
(d) the respective Representatives of the Persons referred to
in clauses "(a)" , "(b)" and "(c)" above; and
(d) the respective successors and assigns of the Persons
referred to in clauses "(a)", "(b)", "(c)" and "(d)" above;
PROVIDED, HOWEVER, that (i) Assist shall not be entitled to exercise
any rights as an Indemnitee prior to the Closing, and (ii) the Selling
Shareholders shall not be deemed to be "Indemnitees" as such term is used
herein.
INFORMATION STATEMENT. "Information Statement" shall mean an
information statement for the Assist Shareholders for purposes of soliciting
their approval of the Exchange in accordance with this Agreement. The
Information Statement will contain the type of information generally included
in an S-4 registration statement as required under the Exchange Act. Assist
shall submit a draft report to Cayenta for its prior approval.
KNOWLEDGE. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other
matter; or
(b) a prudent individual could reasonably be expected to
discover or otherwise become aware of such fact or other matter in the
course of conducting a diligent investigation concerning the truth or
existence of such fact or other matter.
A-5.
<PAGE>
Assist shall be deemed to have "Knowledge" of a particular fact or
other matter if any Scott Pynes, Marnie Nuttall-Martinez, Scott Anderson, Guy
Cameron, Randall Crocker or Paul Schweet has Knowledge of such fact or other
matter.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal,
state, local, municipal, foreign or other law, statute, legislation,
constitution, principle of common law, resolution, ordinance, code, edict,
decree, proclamation, treaty, convention, rule, regulation, ruling,
directive, pronouncement, requirement, specification, determination,
decision, opinion or interpretation that is, has been or may in the future be
issued, enacted, adopted, passed, approved, promulgated, made, implemented or
otherwise put into effect by or under the authority of any Governmental Body.
LIABILITY. "Liability" shall mean any debt, obligation, duty or
liability of any nature (including any unknown, undisclosed, unmatured,
unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious,
derivative, joint, several or secondary liability), regardless of whether
such debt, obligation, duty or liability would be required to be disclosed on
a balance sheet prepared in accordance with generally accepted accounting
principles and regardless of whether such debt, obligation, duty or liability
is immediately due and payable.
ORDER. "Order" shall mean any:
(a) order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence,
subpoena, writ or award that is, has been or may in the future be
issued, made, entered, rendered or otherwise put into effect by or
under the authority of any court, administrative agency or other
Governmental Body or any arbitrator or arbitration panel; or
(b) Contract with any Governmental Body that is, has been or
may in the future be entered into in connection with any Proceeding.
ORDINARY COURSE OF BUSINESS. An action taken by or on behalf of
Assist shall not be deemed to have been taken in the "Ordinary Course of
Business" unless:
(a) such action is recurring in nature, is consistent with
Assist's past practices and is taken in the ordinary course of Assist's
normal day-to-day operations;
(c) such action is not required to be authorized by Assist's
shareholders, Assist's board of directors or any committee of Assist's
board of directors and does not require any other separate or special
authorization of any nature; and
(d) such action is similar in nature and magnitude to actions
customarily taken, without any separate or special authorization, in
the ordinary course of the normal day-to-day operations of other
Entities that are engaged in businesses similar to Assist's business.
PAST BENEFIT PLAN. "Past Benefit Plan" shall mean any Employee
Benefit Plan (other than a Current Benefit Plan):
A-6.
<PAGE>
(a) of which Assist or any ERISA Affiliate has ever been a
"plan sponsor" (as defined in Section 3(16)(B) of ERISA) or that
otherwise has at any time been established, adopted, maintained or
sponsored by Assist or by any ERISA Affiliate;
(b) in which Assist or any ERISA Affiliate has ever
participated;
(c) with respect to which Assist or any ERISA Affiliate has
ever made, or has ever been required or permitted to make, any
contribution; or
(d) with respect to which Assist or any ERISA Affiliate has
ever been subject to any Liability.
PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
PRE-CLOSING PERIOD. "Pre-Closing Period" shall mean the period
commencing as of the date of the Agreement and ending on the Closing Date.
PROCEEDING. "Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding and any informal proceeding),
prosecution, contest, hearing, inquiry, inquest, audit, examination or
investigation that is, has been or may in the future be commenced, brought,
conducted or heard by or before, or that otherwise has involved or may
involve, any Governmental Body or any arbitrator or arbitration panel.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any patent, patent
application, trademark (whether registered or unregistered and whether or not
relating to a published work), trademark application, trade name, fictitious
business name, service mark (whether registered or unregistered), service
mark application, copyright (whether registered or unregistered), copyright
application, maskwork, maskwork application, trade secret, know-how,
franchise, system, computer software, invention, design, blueprint,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset.
RELATED PARTY. Each of the following shall be deemed to be a
"Related Party":
(a) each of the Selling Shareholders;
(b) each individual who is, or who has at any time been, an
officer of Assist;
(c) each member of the family of each of the individuals
referred to in clauses "(a)" and "(b)" above; and
(d) any Entity (other than Assist) in which any one of the
individuals referred to in clauses "(a)", "(b)" and "(c)" above holds
(or in which more than one of such individuals collectively hold),
beneficially or otherwise, a material voting, proprietary or equity
interest.
A-7.
<PAGE>
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives. The
Selling Shareholders and all other Related Parties shall be deemed to be
"Representatives" of Assist.
SCHEDULED CLOSING TIME. "Scheduled Closing Time" shall have the
meaning specified in Section 1.5 of the Agreement.
SELLING SHAREHOLDERS. "Selling Shareholders" shall have the meaning
specified in the introductory paragraph of the Agreement.
SPECIFIED REPRESENTATIONS. "Specified Representations" shall mean
the representations and warranties set forth in Sections 3.1, 3.3, 3.17 and
3.20 of the Agreement and the representations and warranties set forth in
Section 4.1 and Section 4.4 of the Agreement.
TAX. "Tax" shall mean any tax (including any income tax, franchise
tax, capital gains tax, estimated tax, gross receipts tax, value-added tax,
surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use
tax, property tax, business tax, occupation tax, inventory tax, occupancy
tax, withholding tax or payroll tax), levy, assessment, tariff, impost,
imposition, toll, duty (including any customs duty), deficiency or fee, and
any related charge or amount (including any fine, penalty or interest), that
is, has been or may in the future be (a) imposed, assessed or collected by or
under the authority of any Governmental Body, or (b) payable pursuant to any
tax-sharing agreement or similar Contract.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule,
notice, notification, form, election, certificate or other document or
information that is, has been or may in the future be filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection or payment of any
Tax or in connection with the administration, implementation or enforcement
of or compliance with any Legal Requirement relating to any Tax.
TRANSACTIONAL AGREEMENTS. "Transactional Agreements" shall mean:
(a) the Agreement;
(b) the Investor Rights Agreement;
(c) the Noncompetition Agreement referred to in Section 8.9(f)
of the Agreement;
(d) the General Release referred to in Section 8.9(a) of the
Agreement;
(e) the Closing Certificate; and
(f) the mutual non-disclosure agreement between the parties
executed prior to the date of this Agreement.
A-8.
<PAGE>
TRANSACTIONS. "Transactions" shall mean (i) the consummation of the
Exchange as part of the 351 Plan, (ii) the consummation of the purchase and
sale of the Purchased Shares; (iii) the execution and delivery of the
respective Transactional Agreements, and (iv) all of the transactions
contemplated by the respective Transactional Agreements.
WORKING CAPITAL. "Working Capital" shall mean as of the Closing Date
the difference between Assist's current assets and Assist's current
liabilities (excluding the current portion of any Debt) as determined under
GAAP. Notwithstanding the foregoing, any cash contributions made or deemed to
be made by Cayenta at Closing to fund repayment or retirement of Debt and any
cash payments made to cash-out options shall be excluded from the calculation
of Working Capital.
YEAR 2000 COMPLIANT. "Year 2000 Compliant" shall mean, in regard to
any product or internal system, that such product or internal system can
individually continue to be used normally and to operate successfully (both
in functionality and performance in all material respects) over the
transition into the twenty first century when used in accordance with the
documentation relating to such product or internal system, including being
able to, before, on and after January 1, 2000 substantially conform to the
following: (i) use logic pertaining to dates that allow users to identify
and/or use the century portion of any date fields without special processing;
and (ii) respond to all date elements and date input so as to resolve any
ambiguity as to century in a disclosed, defined and pre-determined manner and
provide date information in ways that are unambiguous as to century, either
by permitting or requiring the century to be specified or where the data
element is represented without a century, the correct century is unambiguous
for all manipulations involving that element.
A-9.
<PAGE>
==============================================================================
STOCK EXCHANGE AND STOCK PURCHASE AGREEMENT
among:
CAYENTA.COM, INC.,
a Delaware corporation
CAYENTA OPERATING COMPANY.,
a Delaware corporation
THE TITAN CORPORATION,
a Delaware corporation
ASSIST CORNERSTONE TECHNOLOGIES, INC.,
a Utah corporation
and
SELLING SHAREHOLDERS
Dated as of December 7, 1999
==============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1.1 Exchange of Shares..............................................................1
1.2 No Fractional Shares............................................................2
1.3 Cayenta Shares..................................................................2
1.4 Appraisal Rights................................................................2
1.5 Closing.........................................................................3
2. SALE AND PURCHASE OF SHARES..............................................................3
2.1 Sale and Purchase of Shares.....................................................3
2.2 Purchase Price..................................................................3
2.3 Post-Closing Adjustment.........................................................5
3. REPRESENTATIONS AND WARRANTIES OF ASSIST AND SELLING SHAREHOLDERS........................6
3.1 Due Organization; No Subsidiaries; Etc..........................................6
3.2 Certificate of Incorporation and Bylaws; Records................................7
3.3 Capitalization, Etc.............................................................7
3.4 Financial Statements............................................................9
3.5 Absence of Changes..............................................................9
3.6 Title to Assets................................................................11
3.7 Bank Accounts..................................................................12
3.8 Receivables; Major Customers...................................................12
3.9 Inventory......................................................................12
3.10 Equipment, Etc.................................................................13
3.11 Real Property..................................................................13
3.12 Proprietary Assets.............................................................13
3.13 Contracts......................................................................15
3.14 Liabilities; Major Suppliers...................................................16
3.15 Compliance With Legal Requirements.............................................17
3.16 Governmental Authorizations....................................................18
3.17 Tax Matters....................................................................19
3.18 Employee and Labor Matters.....................................................20
3.19 Benefit Plans; ERISA...........................................................21
3.20 Environmental Matters..........................................................23
3.21 Sale of Products; Performance of Services......................................24
i.
<PAGE>
3.22 Insurance......................................................................25
3.23 Related Party Transactions.....................................................26
3.24 Certain Payments, Etc..........................................................27
3.25 Proceedings; Orders............................................................27
3.26 Authority; Binding Nature of Agreements........................................28
3.27 Non-Contravention; Consents....................................................29
3.28 Year 2000 Compliance...........................................................30
(a) Brokers...............................................................30
3.29 Full Disclosure................................................................30
3.30 No Other Representations or Warranties.........................................31
4. REPRESENTATIONS AND WARRANTIES OF CAYENTA AND CAYENTA SUB...............................31
4.1 Due Organization...............................................................31
4.2 Authority; Binding Nature of Agreements........................................31
4.3 Non-Contravention; Consents....................................................31
4.4 Capitalization, Etc............................................................32
4.5 Financial Statements...........................................................33
4.6 No Adverse Change..............................................................33
(a) 34
4.8 Brokers........................................................................34
4.9 No Other Representations or Warranties.........................................34
5. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS..............................34
5.1 Selling Shareholder Bears Economic Risk........................................34
5.2 Acquisition for Own Account....................................................35
5.3 Selling Shareholder Can Protect Its Interest...................................35
5.4 Accredited Investor............................................................35
5.5 Company Information............................................................35
5.6 Rule 144.......................................................................35
5.7 Residence......................................................................35
5.8 Selling Shareholder............................................................36
6. PRE-CLOSING COVENANTS OF ASSIST AND SELLING SHAREHOLDERS................................36
ii.
<PAGE>
6.1 Access and Investigation.......................................................36
6.2 Operation of Business..........................................................37
6.3 Filings and Consents...........................................................38
6.4 Notification; Updates to Disclosure Schedule...................................39
6.5 Payment of Indebtedness by Related Parties.....................................40
6.6 No Negotiation.................................................................40
6.7 Best Efforts...................................................................40
6.8 Confidentiality................................................................40
7. PRE-CLOSING COVENANTS OF CAYENTA AND CAYENTA SUB........................................41
8. CONDITIONS PRECEDENT TO CAYENTA'S OR CAYENTA SUB'S OBLIGATION TO CLOSE..................41
8.1 Satisfactory Completion of Pre-Acquisition Review..............................41
8.2 Accuracy of Representations....................................................41
8.3 Performance of Obligations.....................................................42
8.4 Approval of Cayenta's Board of Directors; Consents.............................42
8.5 No Material Adverse Change.....................................................42
8.6 Regulation D...................................................................42
8.7 Cash Out of Options............................................................42
8.8 Section 351 Plan...............................................................42
8.9 Closing Documents..............................................................42
8.10 No Proceedings.................................................................43
8.11 No Claim Regarding Stock Ownership or Sale Proceeds............................43
8.12 No Prohibition.................................................................43
8.13 Confidential Information and Invention Assignment Agreements...................44
9. CONDITIONS PRECEDENT TO ASSIST'S AND SELLING SHAREHOLDERS' OBLIGATION TO CLOSE..........44
9.1 Accuracy of Representations....................................................44
9.2 Cayenta's Performance..........................................................44
9.3 Closing Documents..............................................................44
10. TERMINATION.............................................................................45
10.1 Termination Events.............................................................45
iii.
<PAGE>
10.2 Termination Procedures.........................................................45
10.3 Effect of Termination..........................................................45
11. INDEMNIFICATION, ETC....................................................................46
11.1 Survival of Representations and Covenants......................................46
11.2 Indemnification by Selling Shareholders........................................46
11.3 Threshold......................................................................47
11.4 Right to Require Cure of Breach................................................48
11.5 No Contribution................................................................48
11.6 Interest.......................................................................48
11.7 Setoff/ Limited Recourse.......................................................48
11.8 Defense of Third Party Claims..................................................49
11.9 Exercise of Remedies by Indemnitees Other Than Cayenta and Cayenta Sub.........49
11.10 Indemnification by Cayenta and Cayenta Sub.....................................49
12. MISCELLANEOUS PROVISIONS................................................................50
12.1 Selling Shareholders' Agent....................................................50
12.2 Further Assurances.............................................................51
12.3 Retirement of Debt.............................................................51
12.4 Stock Options..................................................................52
12.5 Fees and Expenses..............................................................52
(i) 53
12.6 Attorneys' Fees................................................................53
12.7 Notices........................................................................53
12.8 Publicity......................................................................54
12.9 Time of the Essence............................................................55
12.10 Headings.......................................................................55
12.11 Counterparts...................................................................55
12.12 Governing Law; Venue...........................................................55
12.13 Successors and Assigns.........................................................56
12.14 Remedies Cumulative; Specific Performance......................................56
12.15 Waiver.........................................................................56
iv.
<PAGE>
12.16 Amendments.....................................................................57
12.17 Severability...................................................................57
12.18 Parties in Interest............................................................57
12.19 Entire Agreement...............................................................57
12.20 Construction...................................................................57
12.21 Negotiation of Disputes........................................................57
12.22 Ernst & Young LLP Consent......................................................58
12.23 Titan as Signing Party.........................................................58
12.24 Assist's Legal Counsel.........................................................58
12.25 Directors' and Officers' Insurance.............................................58
</TABLE>
EXHIBITS
Exhibit A: Certain Definitions
Exhibit B: Amended and Restated Certificate of Incorporation
Exhibit C: Investor Rights Agreement
Exhibit D: Selling Shareholders Address List
Exhibit E: Section 351 Plan
Exhibit F: General Release
Exhibit G: Opinion Letter
Exhibit H: List of Key Employees
v.
<PAGE>
EXHIBIT 2.5
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT ("AGREEMENT") is entered into as of
December 7, 1999 among THE TITAN CORPORATION a Delaware corporation
("Titan"), CAYENTA.COM, INC., a Delaware corporation ("Company"), GENE RAY,
an individual, and TRANSNATIONAL PARTNERS II, LLC, a limited liability
company ("TNP") (Titan, Gene Ray and TNP shall sometimes be referred to
herein individually as a "CONTRIBUTOR" and collectively as the
"CONTRIBUTORS").
WHEREAS, Titan, Gene Ray and TNP have agreed to form the Company in
order to transfer certain assets and property of Titan now used in connection
with the business of Cayenta.com, Inc. (which shall change its name to
Cayenta Operating Company prior to the Closing) to the Company in exchange
for shares of capital stock of the Company and in order to facilitate the
concurrent acquisition of certain shares of Assist Cornerstone Technologies,
Inc. ("ASSIST");
WHEREAS, Titan desires to contribute and assign to the Company all
right, title and interest in and to those assets listed on Exhibit A hereto
in exchange for an aggregate of 10,000,000 shares of Class B Common Stock of
the Company (the "CLASS B SHARES") (the rights, preferences and privileges of
which are as set forth in the Certificate of Incorporation of the Company
attached hereto as Exhibit D) pursuant to Section 351 of the Internal Revenue
Code of 1986, as amended (the "CODE");
WHEREAS, Gene Ray desires to contribute to the Company the property
listed on Exhibit B hereto in exchange for an aggregate of 50,000 shares of
Class A Common Stock of the Company (the "CLASS A SHARES") pursuant to
Section 351 of the Code;
WHEREAS, TNP desires to contribute to the Company the property
listed on Exhibit C hereto in exchange for an aggregate of 2,345,000 Series A
Preferred Stock of the Company (the "PREFERRED SHARES," together with the
Class A Shares and Class B Shares, the "SHARES") pursuant to Section 351 of
the Code;
WHEREAS, concurrent with the execution of this Agreement, the
Company, Cayenta Operating Company, Titan and the shareholders of Assist
shall enter into a Stock Exchange and Stock Purchase Agreement ("Exchange
Agreement"), together with the exhibits thereto, including the Investor
Rights Agreement (collectively, the "RELATED AGREEMENTS");
WHEREAS, the contributions pursuant to this Agreement and the
exchange pursuant to the Agreement are part of a plan under Section 351 of
the Internal Revenue Code of 1986, as amended, and are intended to close
concurrently; and
WHEREAS, the parties desire to enter into this Agreement with
respect to the assets and property being contributed and assigned to the
Company by Titan, Gene Ray and TNP and the Company desires to accept such
contribution and assignment, on the terms set forth in this Agreement.
1.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions set forth below, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties to this Agreement agree as follows:
1. CONTRIBUTION OF ASSETS; ASSUMPTION OF LIABILITIES
1.1 CONTRIBUTION OF ASSETS BY TITAN. At the Closing, Titan
shall grant, sell, convey, transfer, assign, release and deliver to the
Company all right, title and interest in and to the assets set forth on
Exhibit A hereto, to have and hold the same unto itself, its successors and
assigns forever, and the Company shall accept such grant, sale, conveyance,
etc.
1.2 ASSUMPTION OF LIABILITIES BY THE COMPANY. At the Closing,
Titan shall transfer, assign and delegate to the Company all of the
liabilities set forth on Exhibit A hereto (the "LIABILITIES"), and the
Company shall accept such transfer, assignment and delegation and assume and
undertake to become liable for such Liabilities and agree to faithfully pay,
perform and discharge such Liabilities when due. The Company further agrees
that it shall indemnify, defend and hold harmless Titan, its affiliates,
agents, officers, directors and employees from and against any and all
losses, damages, liabilities expenses, costs, assessments and taxes
(including, without limitation, interest, penalties and attorneys' fees)
arising from or in connection with any debts, liabilities, obligations or
contracts assumed under this Agreement.
1.3 CONTRIBUTION OF ASSETS BY GENE RAY. At the Closing, Gene
Ray shall grant, sell, convey, transfer, assign, release and deliver to the
Company all right, title and interest in and to the assets set forth on
Exhibit B hereto, to have and hold the same unto itself, its successors and
assigns forever, and the Company shall accept such grant, sale, conveyance,
etc.
1.4 CONTRIBUTION OF ASSETS BY TNP. At the Closing, TNP shall
grant, sell, convey, transfer, assign, release and deliver to the Company all
right, title and interest in and to the assets set forth on Exhibit C hereto,
to have and hold the same unto itself, its successors and assigns forever,
and the Company shall accept such grant, sale, conveyance, etc.
2. ISSUANCE OF SHARES; ITEMS TO BE DELIVERED AT CLOSING
2.1 ISSUANCE OF SHARES. Subject to the terms and conditions
hereof, at the Closing (as hereinafter defined) the Company agrees to issue,
in consideration for the assets and property contributed by the respective
parties pursuant to Section 1.1, Section 1.2 and Section 1.3 that number of
Class B Shares, Class A Shares or Preferred Shares, as applicable, as follows:
Name Number of Shares
---- ----------------
Titan 10,000,000 shares of Class B Common Stock
Gene Ray 50,000 shares of Class A Common Stock
TNP 2,345,000 shares of Series A Preferred Stock
2.2 CLOSING DATE. The issuance of the Class B Shares, Class A
Shares and the Preferred Shares, the contribution of assets and property and
the other transactions contemplated
2.
<PAGE>
hereunder (the "CLOSING") shall take place at the offices of Cooley Godward
LLP at 4365 Executive Drive, Suite 1100, San Diego, California 92121 on
December 13, 1999, or at such other time upon which the Contributors shall
agree which shall in any event be no later than the date on which the
transactions contemplated under the Stock Exchange and Stock Purchase
Agreement are closed.
2.3 DELIVERY OF CLASS B SHARES, CLASS A SHARES AND PREFERRED
SHARES. At the Closing, the Company shall issue and deliver to each
Contributor one or more certificates representing the Class B Shares, Class A
Shares and Preferred Shares, as applicable, in consideration for the
contribution of the assets and property set forth herein. Such certificate or
certificates evidencing the Class B, Class A Shares and Preferred Shares
shall be registered in the name of the applicable Contributor on the books
and records of Company.
2.4 CONDITION TO CLOSING. The obligations of the parties to
contribute assets or issue shares and to take any other actions required to
be taken by the parties hereto shall be subject to the closing of the
transactions contemplated under the Stock Exchange and Stock Purchase
Agreement.
2.5 ITEMS TO BE DELIVERED AT THE CLOSING.
(a) INVESTOR RIGHTS AGREEMENT. The Company, Titan
and the shareholders of Assist shall deliver a fully executed Investor Rights
Agreement.
(b) TITAN ASSETS. Titan shall deliver the assets
listed on Exhibit A hereto as well as an Assignment and Assumption Agreement
evidencing the transfer of such assets. Each stock certificate shall be duly
endorsed or shall be accompanied by an executed stock power in favor of the
Company.
(c) GENE RAY ASSETS. Gene Ray shall deliver the
assets listed on Exhibit B hereto. Each stock certificate shall be duly
endorsed or shall be accompanied by an executed stock power in favor of the
Company.
(d) TNP ASSETS. TNP shall deliver the assets
listed on Exhibit C hereto. Each stock certificate shall be duly endorsed or
shall be accompanied by an executed stock power in favor of the Company.
(e) CERTIFIED COPY OF THE CERTIFICATE OF
INCORPORATION OF THE COMPANY. The Company shall deliver a certified copy of
the Certificate of Incorporation of the Company filed with the Secretary of
State of the State of Delaware.
3. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE CONTRIBUTORS. Each
of the Contributors hereby represents, warrants, and covenants to the Company
as follows:
3.1 REQUISITE POWER AND AUTHORITY.
3.
<PAGE>
(a) Contributor has all necessary power and authority under
all applicable provisions of law to execute and deliver this Agreement and to
carry out its provisions. All action on Contributor's part required for the
lawful execution and delivery of this Agreement has been or will be taken
prior to the Closing. Upon its execution and delivery, this Agreement will be
a valid and binding obligation of Contributor, enforceable in accordance with
its terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights and (b) general principles of equity that
restrict the availability of equitable remedies.
(b) TNP represents that it has obtained all necessary
consents and/or approvals of the limited partners of TNP to enter into this
Agreement and the Related Agreements and to perform its obligations set forth
hereunder and thereunder.
3.2 INVESTMENT REPRESENTATIONS. Contributor understands that
the Shares have not been registered under the Securities Act of 1933, as
amended (the "SECURITIES ACT"). Contributor also understands that the Shares
are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Contributor's
representations contained in this Agreement. Each Contributor hereby further
represents and warrants as follows:
(a) CONTRIBUTOR BEARS ECONOMIC RISK. Contributor has
substantial experience in evaluating and investing in private transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Contributor must bear the economic
risk of this investment indefinitely unless the Shares are registered
pursuant to the Securities Act, or an exemption from registration is
available. Contributor understands that the Company has no present intention
of registering the Shares or any shares of the Company's Common Stock.
Contributor also understands that there is no assurance that any exemption
from registration under the Securities Act will be available and that, even
if available, such exemption may not allow Contributor to transfer all or any
portion of the Shares under the circumstances in the amounts or at the times
Contributor might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Contributor is acquiring
the Shares for Contributor's own account for investment only, and not with a
view towards their distribution within the meaning of the Securities Act and
the California Corporate Securities Law of 1968, as amended.
(c) CONTRIBUTOR CAN PROTECT ITS INTEREST. Contributor
represents that by reason of Contributor's business or financial experience,
Contributor has the capacity to protect Contributor's own interests in
connection with the transactions contemplated in this Agreement.
(d) COMPANY INFORMATION. Contributor has had an opportunity
to discuss the Company's business, management and financial affairs with
directors, officers and management of the Company and has had the opportunity
to review the Company's operations and facilities. Contributor has also had
the opportunity to ask questions of and receive answers from, the Company and
its management regarding the terms of this transaction.
4.
<PAGE>
(e) RULE 144. Contributor acknowledges and agrees that the
Shares must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Contributor has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act as in effect from time to time, which
permits limited resale of shares purchased in a private transaction subject
to the satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the
resale occurring following the required holding period under Rule 144
promulgated under the Securities Act and the number of shares being sold
during any three-month period not exceeding specified limitations.
(f) RESIDENCE. Contributor resides or has a principal place
of business in the state of California.
4. REPRESENTATION, WARRANTIES AND COVENANTS OF THE COMPANY. The Company
hereby represents, warrants, and covenants to the Contributors as follows:
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is duly organized, validly existing and in good standing under the laws of
the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and
deliver this Agreement, to issue, sell and deliver the Class B Shares, Class
A shares and the Preferred Shares as the case may be, and to carry out the
provisions of this Agreement.
4.2 CAPITALIZATION. The authorized capital stock of the
Company, as of the date hereof and immediately prior to the Closing, will
consist of 150,000,000 shares of Common Stock, of which 100,000,000 shall be
designated Class A Common Stock, none of which are issued and outstanding,
and 50,000,000 of which are designated Class B Common Stock, none of which
are issued or outstanding, and 17,345,000 shares of Preferred Stock, of which
2,345,000 shall be designated Series A Preferred Stock, none of which are
issued or outstanding. The Company has reserved 2,450,000 shares of its Class
A Common Stock for issuance under its 1997 Stock Option Plan. The rights,
preferences, privileges and restrictions of the Company's Class A Common
Stock, Class B Common Stock and Series A Preferred Stock are as stated in the
Company's Certificate of Incorporation. As of the Closing Date, there are no
outstanding options, warrants, rights (including conversion or preemptive
rights and rights of first refusal), proxy or stockholder agreements, or
agreements of any kind for the purchase or acquisition from the Company of
any of its securities or which are convertible into or exercisable for
securities of the Company other than options to purchase Class A Common Stock
of the Company outstanding and granted under its 1997 Stock Option Plan and
warrants to purchase 493,800 shares of Class A Common Stock. As of the
Closing Date, the Class A Shares, the Class B Shares and the Preferred Shares
shall be validly issued, fully paid and nonassessable, and are free of any
restrictions, limits, claims, liens or other encumbrances; provided, however,
that the Class A Shares, the Class B Shares and the Preferred Shares may be
subject to restrictions on transfer under state and/or federal securities
laws as set forth herein or as otherwise required by such laws at the time a
transfer is proposed.
5.
<PAGE>
4.3 AUTHORIZATION; BINDING OBLIGATIONS. The Agreement, when
executed and delivered, will be a valid and binding obligation of the Company
enforceable in accordance with its terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights and (b) general
principles of equity that restrict the availability of equitable remedies.
The sale of the Class B Shares, the Class A Shares and the Preferred Shares
is not subject to any preemptive or similar rights or rights of first refusal
that have not been properly waived or complied with.
4.4 OFFERING VALID. Assuming the accuracy of the
representations and warranties of each of the Contributors contained in
Section 3 hereof, the offer, sale and issuance of the Class B Shares, the
Class A Shares and the Preferred Shares, as applicable, will be exempt from
the registration requirements of the Securities Act and will have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all
applicable state securities laws.
5. OPTION PLAN AMENDMENTS.
5.1 Effective as of the Closing, Cayenta Operating Company's
1997 Stock Option Plan (the "PLAN") shall be assumed by the Company and
amended to provide that 2,450,000 shares of Class A Common Stock are reserved
for issuance thereunder.
5.2 Effective as of the Closing, each outstanding option
agreement to purchase Common Stock of Cayenta Operating Company issued under
the Plan shall be amended to become an option to purchase Class A Common
Stock of the Company pursuant to Section 11(a) of the Plan.
6. EMPLOYEES. Effective as of the Closing, all employees of the
Information Technologies Division of Titan shall become employees of the
Company.
7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and performed entirely
in California.
7.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by each
Contributor and the closing of the transactions contemplated hereby.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by
each person who shall be a holder of the Class B Shares, Class A Shares or
Preferred Shares, as the case may be, from time to time.
6.
<PAGE>
7.4 ENTIRE AGREEMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subject matter hereof and no
party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically
set forth herein and therein.
7.5 SEVERABILITY. In case any provision of this Agreement shall
be invalid, illegal or unenforceable, the parties intend that (a) in lieu of
such provision there be added as part of this Agreement a provision as
similar in terms to such invalid, illegal or unenforceable provision as may
be possible and be valid, legal and enforceable and (b) the validity,
legality and enforceability of the remaining provisions, or any subsequent
applications thereof, shall not in any way be affected or impaired thereby.
7.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and each Contributor.
(b) The rights of each Contributor may be waived only with the
written consent of the Company and each Contributor.
7.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission
to exercise any right, power or remedy accruing to any party, upon any
breach, default or noncompliance by another party under this Agreement shall
impair any such right, power or remedy, nor shall it be construed to be a
waiver of any breach, default or noncompliance, or any acquiescence therein,
or of or in any similar breach, default or noncompliance thereafter
occurring. All remedies, either under this Agreement, by law, or otherwise
afforded to any party, shall be cumulative and not alternative.
7.8 NOTICES. All notices required or permitted hereunder shall
be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party to be notified; (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient, if not, then
on the next business day; (c) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All
communications shall be sent to the Contributors at the respective addresses
set forth below or at such other address as Contributor may designate by ten
(10) days advance written notice to the other party hereto:
Addresses for Notices:
If to the Company:
Cayenta.com
225 Broadway, Suite 1500
San Diego, CA 92101
Attn: David Porreca
7.
<PAGE>
Phone: (619) 228-2100
Fax:
If to Titan:
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121-1199
Attn:
Fax: (858) 552-9651
If to Gene Ray:
c/o The Titan Corporation
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121-1199
Attn: Gene Ray
Fax: (858) 552-9651
If to TNP:
c/o Cayenta.com
225 Broadway, Suite 1500
San Diego, CA 92101
Attn: David Porreca
Phone: (619) 228-2100
Fax:
7.9 EXPENSES. Each party shall pay all costs and expenses that
it incurs with respect to the negotiation, execution, delivery and
performance of the Agreement.
7.10 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
7.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
7.12 BROKER'S FEES. Each party hereto represents and warrants
that no agent, broker, investment banker, person or firm acting on behalf of
or under the authority of such party hereto is or will be entitled to any
broker's or finder's fee or any other commission directly or indirectly in
connection with the transactions contemplated herein. Each party hereto
further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation in
this Section 6.12 being untrue.
7.13 PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.
8.
<PAGE>
7.14 PUBLIC DISCLOSURE. Unless otherwise required by law or by
obligations pursuant to any listing agreement or rules of any securities
exchange (in which case the disclosing party shall employ reasonable best
efforts to provide the other parties hereto with as much notice as possible
with respect to the contemplated disclosure and the content of the
disclosure) or as otherwise contemplated by or to enforce this Agreement, no
disclosure (whether or not in response to an inquiry) of the subject matter
of this Agreement and the other transactions contemplated by this Agreement
without the prior consultation and consent of the other parties.
7.15 LEGEND. Each certificate representing shares issued under
this Agreement shall be stamped or otherwise imprinted with a legend
substantially similar to the following (in addition to any legend required
under applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
9.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this CONTRIBUTION
AGREEMENT as of the date set forth in the first paragraph hereof.
CONTRIBUTORS:
THE TITAN CORPORATION
By:_________________________
Name:_______________________
Title:______________________
TRANSNATIONAL PARTNERS II, LLC
a California Limited Liability Company
By:_________________________
Name:_______________________
Title: GENERAL PARTNER
______________________
Name:_______________________
Gene Ray
COMPANY:
CAYENTA.COM, INC.
By:_________________________
Name:_______________________
Title:______________________
SIGNATURE PAGE TO CONTRIBUTION AGREEMENT
<PAGE>
EXHIBIT A
ASSETS CONTRIBUTED BY TITAN
A. ASSETS
1. 10,000,000 shares of Common Stock of Cayenta.com Inc.
2. All of the assets of the Information Technologies Division of
Titan headquartered in Reston, Virginia, excluding the
excluded assets as set forth on Annex I hereto.
3. The fixed assets of the Client Server Division as set forth on
Annex II hereto.
4. $7,000,000 in cash to be delivered by check or wire transfer
in immediately available funds.
B. LIABILITIES.
1. The liabilities of the Information Technologies Division,
excluding the obligations and liabilities under any excluded
assets and Excluded Liabilities as set forth on Annex 1.
<PAGE>
ANNEX I
ASSETS:
The assets of the Information Technologies Division of Titan shall
mean and include: (a) all of the properties, rights, interests and other
tangible and intangible assets of Titan's Information Technologies Division
(wherever located and whether or not required to be reflected on a balance
sheet prepared in accordance with generally accepted accounting principles);
PROVIDED, HOWEVER, that such assets shall not include any Excluded Assets (as
defined below). Without limiting the generality of the foregoing, the Assets
shall include:
(1) all inventories and work-in-progress;
(2) unbilled accounts receivable in total book value
of $1,052,094 under FAA Contract F049 as set forth on the attached
detail;
(3) all equipment, materials, prototypes, tools,
supplies, vehicles, furniture, fixtures, improvements and other
tangible assets;
(4) all advertising and promotional materials;
(5) all proprietary assets, intellectual property,
general intangibles, and goodwill;
(6) all governmental authorizations to the extent
transferable;
(7) all claims (including claims for past
infringement of proprietary assets or intellectual property) and causes
of action against other persons (regardless of whether or not such
claims and causes of action have been asserted), and all rights of
indemnity, warranty rights, rights of contribution, rights to refunds,
rights of reimbursement and other rights of recovery (regardless of
whether such rights are currently exercisable);
(8) all contracts; provided, however that to the
extent any contract for which assignment is provided for herein is not
assignable pursuant to such contract without the written consent of
another party or requires novation, if assigned, this Agreement shall
not constitute an assignment or an attempted assignment thereof if such
assignment or attempted assignment would constitute a breach thereof.
To the extent a contract is not assigned pursuant to this provision,
Titan shall cooperate with the Company and shall use its commercial
best efforts in any reasonable arrangement to provide the Company the
economic and other benefits intended to be assigned to the Company
under the relevant contract; and
(9) all books, records, files and data.
<PAGE>
EXCLUDED ASSETS:
The Excluded Assets shall mean and include:
(1) all accounts receivable related to Titan's
Information Technologies Division not set forth above; and
(2) the following contract: FAA Contract F049.
; provided, however, that Titan shall cooperate with the Company and shall use
its commercial best efforts in any reasonable arrangement to provide the Company
the economic or other benefits received under the contracts set forth in this
subpart.
EXCLUDED LIABILITIES:
The Excluded Liabilities shall mean and include:
(1) Any and all intercompany and interdivisional
payables between the Information Technologies Division and Titan or any
affiliate of Titan.
<PAGE>
EXHIBIT B
ASSETS CONTRIBUTED BY GENE RAY
1. 50,000 shares of Common Stock of Cayenta.com Operating Company.
<PAGE>
EXHIBIT C
ASSETS CONTRIBUTED BY TRANSNATIONAL PARTNERS
1. 2,345,000 shares of Series A Preferred Stock of Cayenta.com Operating
Company.
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE OF INCORPORATION
<PAGE>
CAYENTA.COM, INC.
SECTION 351 PLAN
CAYENTA.COM, INC., a Delaware corporation (the "Company"), hereby
adopts the following plan under Section 351 of the Internal Revenue Code of
1986, as amended (the "Code") for the purpose of completing the initial
capitalization of the Company through the simultaneous closing of
transactions intended as a single transaction under Section 351.
The Company is a party to that certain Stock Exchange and Stock
Purchase Agreement, dated as of December 7, 1999, with Cayenta Operating
Company, a Delaware corporation ("Cayenta Sub"), The Titan Corporation, a
Delaware corporation ("Titan"), Assist Cornerstone Technologies, Inc., a Utah
corporation ("Assist"), and certain shareholders of Assist (the "Selling
Shareholders") pursuant to which the Company has agreed to exchange 516,458
shares of Class A Common Stock of the Company for 2,015,838 shares of Assist
held by the Selling Shareholders and Cayenta Sub has agreed to purchase
7,707,617 shares of Assist from the Selling Shareholders for cash.
The Company also has entered into a Contribution Agreement, dated
December 7, 1999, between the Company, Titan, Gene Ray, an individual, and
Transnational Partners, a limited partnership ("TNP") relating to Titan's,
Gene Ray's and TNP's contribution of certain assets to the Company in
exchange for certain capital stock of the Company.
The Company intends for each of these contributions or purchases to
occur simultaneously in a single transaction exempt under Section 351 of the
Code (the "Section 351 Transaction."). The Section 351 Transaction will
result in the transfers of property or cash to the Company in exchange for
the stock, cash and other rights as set forth on Exhibit A hereto.
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
- ------------------------------------- ----------------------------------------- --------------------------------------
NAME OF TRANSFEROR PROPERTY CONTRIBUTED TO COMPANY PROPERTY RECEIVED FROM COMPANY IN
EXCHANGE
<S> <C> <C>
- ------------------------------------- ----------------------------------------- --------------------------------------
10,000,000 shares of Common Stock of 10,000,000 shares of Class B Common
TITAN Cayenta.com, Inc. Stock of Cayenta.com, Inc.
Certain assets of the information
technology division of Titan.
The fixed assets of the client server
division of Titan
- ------------------------------------- ----------------------------------------- --------------------------------------
GENE RAY 50,000 shares of Common Stock of 50,000 shares of Class A Common
Cayenta.com, Inc. Stock of Cayenta.com, Inc.
- ------------------------------------- ----------------------------------------- --------------------------------------
TRANSNATIONAL PARTNERS II, LLC 2,345,000 shares of Series A Preferred 2,345,000 shares of Series A
Stock of Cayenta.com, Inc. Preferred Stock of Cayenta.com, Inc.
- ------------------------------------- ----------------------------------------- --------------------------------------
SELLING SHAREHOLDERS 2,015,838 shares of Common Stock of 516,458 shares of Class A Common
OF ASSIST Assist Stock of Cayenta.com, Inc.
- ------------------------------------- ----------------------------------------- --------------------------------------
</TABLE>
<PAGE>
CERTIFICATE OF INCORPORATION
OF
CAYENTA.COM, INC.
The undersigned, a natural person (the "SOLE INCORPORATOR"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is CAYENTA.COM, INC.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of Dover and the name
of the registered agent of the corporation in the State of Delaware at such
address is the Corporate Service Company.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. The total number of shares of stock that the Corporation shall have
authority to issue is One Hundred Sixty-Seven Million Three Hundred Forty-Five
Thousand (167,345,000) of which (i) One Hundred Million (100,000,000) shares
shall be shares of Class A Common Stock, $.001 par value per share (the "CLASS A
COMMON STOCK"), and Fifty Million (50,000,000) shares shall be shares of Class B
Common Stock, $.001 par value per share (the "CLASS B COMMON STOCK") (the Class
A Common Stock and the Class B Common Stock being collectively referred to
herein as the "COMMON STOCK"), and (ii) Seventeen Million Three Hundred
Forty-Five Thousand (17,345,000) shares shall be shares of Preferred Stock,
$.001 par value per share, of which Two Million Three Hundred Forty-Five
Thousand (2,345,000) shares shall be designated shares of Series A Preferred
Stock, $.001 par value per share (the "SERIES A PREFERRED STOCK").
B. The number of authorized shares of any class or classes of stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the votes
entitled to be cast by the holders of the Common Stock of the Corporation,
voting together as a single class, irrespective of the provisions of Section
242(b)(2) of the GCL or any corresponding provision hereinafter enacted.
1.
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C. The following is a statement of the powers, preferences, and relative
participating, optional or other special rights and qualifications, limitations
and restrictions of the Class A Common Stock and Class B Common Stock of the
Corporation:
1. Except as otherwise set forth below in this Article IV, the powers,
preferences and relative participating, optional or other special rights and
qualifications, limitations or restrictions of the Class A Common Stock and
Class B Common Stock shall be identical in all respects.
2. Subject to the rights of the holders of Series A Preferred Stock
and subject to the rights of any Preferred Stock issued hereafter, and subject
to any other provisions of this Certificate of Incorporation, holders of Class A
Common Stock and Class B Common Stock shall be entitled to receive such
dividends and other distributions in cash, stock or property of the Corporation
as may be declared thereon by the Board of Directors of the Corporation from
time to time out of assets or funds of the Corporation legally available
therefor. If any dividend or other distribution in cash or other property is
paid with respect to Class A Common Stock or with respect to Class B Common
Stock (other than dividends or other distributions payable in shares of Common
Stock), a like dividend or other distribution in cash or other property shall
also be paid with respect to shares of the other class of Common Stock, in an
amount equal per share. In the case of dividends or other distributions payable
in Common Stock, including distributions pursuant to stock splits or divisions
of Common Stock of the Corporation, only shares of Class A Common Stock shall be
paid or distributed with respect to Class A Common Stock and only shares of
Class B Common Stock shall be paid or distributed with respect to Class B Common
Stock. The number of shares of Class A Common Stock and Class B Common Stock so
distributed shall be equal in number on a per share basis. Neither the shares of
Class A Common Stock nor the shares of Class B Common Stock may be reclassified,
subdivided or combined unless such reclassification, subdivision or combination
occurs simultaneously and in the same proportion for each class.
3.
a. At every meeting of the stockholders of the Corporation, every
holder of Class A Common Stock shall be entitled to one (1) vote in person or by
proxy for each share of Class A Common Stock standing in his or her name on the
transfer books of the Corporation, and every holder of Class B Common Stock
shall be entitled to ten (10) votes in person or by proxy for each share of
Class B Common Stock standing in his or her name on the transfer books of the
Corporation, in connection with the election of directors and all other matters
submitted to a vote of the stockholders; provided, however, that with respect to
any proposed conversion subsequent to a Tax-Free Spin-Off (as defined in
paragraph (C)(6)(b) below) of the shares of Class B Common Stock into shares of
Class A Common Stock pursuant to paragraph (C)(6)(b) below, each holder of a
share of Common Stock, irrespective of class, shall have one vote in person or
by proxy for each share of Common Stock standing in his or her name on the
transfer books of the Corporation. Except as may be otherwise required by this
ARTICLE IV, the holders of Class A Common Stock and Class B Common Stock shall
vote together as a single class, subject to any voting rights which may be
granted to holders of Series A Preferred Stock, on all matters submitted to a
vote of the holders of Common Stock.
2.
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b. Subject to any rights of the holders of Series A Preferred
Stock and other Preferred Stock, the provisions of this Certificate of
Incorporation shall not be modified, revised, altered or amended, repealed or
rescinded in whole or in part, without the approval of a majority of the votes
entitled to be cast by the holders of the Class A Common Stock and the Class B
Common Stock, voting together as a single class; provided, however, that with
respect to any proposed amendment of this Certificate of Incorporation which
would alter or change the powers, preferences or special rights of the shares of
Class A Common Stock or Class B Common Stock so as to affect them adversely, the
approval of a majority of the votes entitled to be cast by the holders of the
shares affected by the proposed amendment, voting separately as a class, shall
be obtained in addition to the approval of a majority of the votes entitled to
be cast by the holders of the Class A Common Stock and the Class B Common Stock
voting together as a single class as hereinbefore provided. Any increase in the
authorized number of shares of any class or classes of stock of the Corporation
or creation, authorization or issuance of any securities convertible into, or
warrants, options or similar rights to purchase, acquire or receive, shares of
any such class or classes of stock shall be deemed not to affect adversely the
powers, preferences or special rights of the shares of Class A Common Stock or
Class B Common Stock. Neither the outcome of any vote with respect to any
proposed conversion subsequent to a Tax-Free Spin-Off of the shares of Class B
Common Stock into shares of Class A Common Stock pursuant to paragraph
IV(C)(6)(b) below nor the occurrence of the events described in the last
sentence of paragraph IV(C)(6)(b)(iii) below shall be deemed to be a
modification, revision, alteration, amendment, repeal or rescission of the
provisions of this Certificate of Incorporation.
c. Every reference in this Certificate of Incorporation to a
majority or other proportion of shares of Common Stock, Class A Common Stock or
Class B Common Stock shall refer to such majority or other proportion of the
votes to which such shares of Common Stock, Class A Common Stock or Class B
Common Stock, as applicable, are entitled.
4. In the event of any dissolution, liquidation or winding up of the
affairs of the Corporation, whether voluntary or involuntary, after payment in
full of the amounts required to be paid to the holders of Series A Preferred
Stock and other Preferred Stock, the remaining assets and funds of the
Corporation shall be distributed pro rata to the holders of Class A Common Stock
and Class B Common Stock. For the purposes of this paragraph (C)(4), the
voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
assets of the Corporation or a consolidation or merger of the Corporation with
one or more other corporations (whether or not the Corporation is the
corporation surviving such consolidation or merger) shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.
5. In the event of (i) any reorganization or any consolidation of the
Corporation with one or more other corporations or a merger of the Corporation
with another corporation unless (ii) immediately following such event, and based
solely on the securities issued in connection therewith, a majority of the total
voting power of the successor corporation is held by Persons that were
stockholders of the Corporation immediately prior to such event, each holder of
a share of Class A Common Stock shall be entitled to receive with respect to
such share the same kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reorganization, consolidation or
merger by a holder of a share of
3.
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Class B Common Stock, and each holder of a share of Class B Common Stock shall
be entitled to receive with respect to such share the same kind and amount of
shares of stock and other securities and property (including cash) receivable
upon such reorganization, consolidation or merger by a holder of a share of
Class A Common Stock.
6.
a. Prior to the date on which shares of Class B Common Stock are
distributed to stockholders of Titan (as defined in paragraph (C)(6)(b) below),
or to stockholders of the Class B Transferee (as defined in paragraph (C)(6)(b)
below) in a Tax-Free Spin-Off, each record holder of shares of Class B Common
Stock may convert from time to time any or all of such shares into an equal
number of shares of Class A Common Stock by surrendering the certificates for
such shares, accompanied by any required tax transfer stamps and by a written
notice by such record holder to the Corporation stating that such record holder
desires to convert such shares of Class B Common Stock into the same number of
shares of Class A Common Stock and requesting that the Corporation issue all of
such shares of Class A Common Stock to Persons (as defined in paragraph
(C)(6)(b) below) named therein, setting forth the number of shares of Class A
Common Stock to be issued to each such Person and the denominations in which the
certificates therefor are to be issued. To the extent permitted by law, such
voluntary conversion shall be deemed to have been effected at the close of
business on the date of such surrender. Following a Tax-Free Spin-Off, shares of
Class B Common Stock shall no longer be convertible into shares of Class A
Common Stock except as set forth in paragraph IV(C)(6)(b) below.
b. Prior to a Tax-Free Spin-Off, each share of Class B Common
Stock shall automatically convert into one share of Class A Common Stock
immediately prior to the transfer of such share if, after such transfer, such
share is not Beneficially Owned (as defined below) by Titan (as defined below)
or, as set forth below in this paragraph IV(C)(6)(b), by the Class B Transferee
or any subsidiary of the Class B Transferee. Shares of Class B Common Stock
shall not convert into shares of Class A Common Stock (x) in any transfer
effected in connection with a distribution of Class B Common Stock as a
spin-off, split-up or split-off to stockholders of Titan or stockholders of the
Class B Transferee intended to be on a tax-free basis under the Internal Revenue
Code of 1986, as amended from time to time (the "CODE") (a "TAX-FREE SPIN-OFF")
or (y) except as otherwise set forth below in this paragraph IV(C)(6)(b), in any
transfer after a Tax-Free Spin-Off. For purposes of this paragraph IV(C)(6), a
Tax-Free Spin-Off shall be deemed to have occurred at the time shares are first
transferred to stockholders of Titan or stockholders of the Class B Transferee,
as the case may be, following receipt of an affidavit described in clauses (vi)
or (vii) of the first sentence of paragraph IV(C)(6)(c) below. For purposes of
this paragraph IV(C)(6), Article X and Article XI, "TITAN" shall mean The Titan
Corporation, a Delaware corporation, all successors to The Titan Corporation by
way of merger, consolidation or sale of all or substantially all its assets, and
all corporations, partnerships, joint ventures, associations and other entities
in which The Titan Corporation Beneficially Owns (as defined below), directly or
indirectly, 50% or more of the outstanding voting stock, voting power or similar
voting interests ("VOTING INTERESTS") (each, a "SUBSIDIARY ENTITY"), but which
shall not include the Corporation or any Subsidiary Entity in which the
Corporation Beneficially Owns, directly or indirectly, 50% or more of the
outstanding Voting Interests. For purposes of this
4.
<PAGE>
paragraph IV(C)(6), Article X and Article XI, the terms "BENEFICIALLY OWN,"
"BENEFICIALLY OWNS" and "BENEFICIALLY OWNED" shall have the meanings ascribed to
such terms in Rule 13d-3 of the General Rules and Regulations of the Securities
Exchange Act of 1934, as in effect on December 10, 1999.
(i) Prior to a Tax-Free Spin-Off, shares of Class B Common
Stock representing more than a 50% equity interest in the then outstanding
shares of Common Stock taken as a whole transferred in a single transaction to
one Person who is not an affiliate of Titan (together with its successors, the
"CLASS B TRANSFEREE") or to the Class B Transferee and any Subsidiary Entity of
the Class B Transferee, and shares of Class B Common Stock transferred among a
Class B Transferee and any Subsidiary Entity thereof, shall not automatically
convert to Class A Common Stock upon the transfer of such shares. Any shares of
Class B Common Stock retained by Titan following any such transfer of shares of
Class B Common Stock to the Class B Transferee shall automatically convert into
shares of Class A Common Stock upon such transfer. For purposes of this
paragraph IV(C)(6), the term "PERSON" shall mean any individual, firm,
corporation or other entity; each reference to an "individual" (or to a "record
holder" of shares, if an individual) shall be deemed to include in his or her
representative capacity a guardian, committee, executor, administrator or other
legal representative of such individual or record holder.
(ii) In the event of a Tax-Free Spin-Off, shares of Class B
Common Stock shall automatically convert into shares of Class A Common Stock on
the [fifth] anniversary of the date on which shares of Class B Common Stock are
first transferred to stockholders of Titan or the stockholders of the Class B
Transferee, as the case may be, in a Tax-Free Spin-Off unless, prior to such
Tax-Free Spin-Off, Titan or the Class B Transferee, as the case may be, delivers
to the Corporation the written advice of counsel, reasonably satisfactory to the
Corporation, to the effect that (x) such conversion could adversely affect the
ability of Titan or the Class B Transferee, as the case may be, to obtain a
favorable ruling from the Internal Revenue Service that the distribution would
be a Tax-Free Spin-Off under the Code or (y) the Internal Revenue Service has
adopted a general non-ruling policy on tax-free spinoffs and that such
conversion could adversely affect the status of the transaction as a Tax-Free
Spin-Off. If such written advice of counsel is received, approval of such
conversion shall be submitted to a vote of the holders of the Common Stock as
soon as practicable after the fifth anniversary of the Tax-Free Spin-Off. At the
meeting of stockholders called for such purpose, every holder of Common Stock
shall be entitled to one vote (irrespective of the voting rights provided for
such shares under paragraph IV(C)(3)(a) above) in person or by proxy for each
share of Common Stock standing in his or her name on the transfer books of the
Corporation. Approval of such conversion shall require the approval of a
majority of the votes, on the per share voting basis provided in the preceding
sentence, entitled to be cast by the holders of the Class A Common Stock and
Class B Common Stock present and voting, voting together as a single class, and
the holders of the Class B Common Stock shall not be entitled to a separate
class vote. Such conversion shall be effective on the date on which such
approval is given at a meeting of stockholders called for such purpose.
Notwithstanding the foregoing, if Titan or the Class B Transferee, as the case
may be, delivers to the Corporation prior to such anniversary the written advice
of counsel, reasonably satisfactory to the Corporation, to the effect that such
vote could adversely affect the status of the transaction as a Tax-Free Spin-Off
(including without limitation
5.
<PAGE>
the ability to obtain a favorable ruling from the Internal Revenue Service),
such vote shall not be held and no such conversion shall take place. Upon
delivery of such written advice of counsel as to such vote, and the further
advice that the continued existence of this paragraph IV(C)(6)(b)(iii) itself
could adversely affect the status of the transaction as a Tax-Free Spin-Off
(including without limitation the ability to obtain a favorable ruling from the
Internal Revenue Service), then this paragraph IV(C)(6)(a)(ii) shall thereafter
be null and void and no longer be deemed to be part of this Certificate of
Incorporation.
(iii) If at any time prior to a Tax-Free Spin-Off Titan or a
Class B Transferee shall cease, respectively, to Beneficially Own a number of
outstanding shares of Class B Common Stock at least equal to 50% of the voting
power represented by the aggregate number of shares of Common Stock then
outstanding entitled to vote generally in the election of directors, then each
share of Class B Common Stock Beneficially Owned by such less than 50% owner
shall automatically convert into one share of Class A Common Stock.
(iv) The Corporation will provide notice of any automatic
conversion of all outstanding shares of Class B Common Stock to holders of
record as soon as practicable after the conversion; provided, however, that the
Corporation may satisfy such notice requirement by providing such notice prior
to conversion. Such notice shall be provided by mailing notice of such
conversion first class postage prepaid, to each holder of record of the Common
Stock, at such holder's address as it appears on the transfer books of the
Corporation; provided, however, that no failure to give such notice nor any
defect therein shall affect the validity of the automatic conversion of any
shares of Class B Common Stock. Each such notice shall state, as appropriate,
the following:
(w) the automatic conversion date;
(x) that all outstanding shares of Class B Common Stock are
automatically converted;
(y) the place or places where certificates for such shares are to be
surrendered for conversion; and
(z) that no dividends will be declared on the shares of Class B Common
Stock converted after such conversion date.
Immediately upon such conversion, the rights of the holders of shares of Class B
Common Stock as such shall cease and such holders shall be treated for all
purposes as having become the record owners of the shares of Class A Common
Stock issuable upon such conversion; provided, however, that such Persons shall
be entitled to receive when paid any dividends declared on the Class B Common
Stock as of a record date preceding the time of such conversion and unpaid as of
the time of such conversion, subject to paragraph (C)(6)(f) below.
c. Prior to a Tax-Free Spin-Off, holders of shares of Class B
Common Stock may (i) sell or otherwise dispose of or transfer any or all of such
shares held by them, respectively, only in connection with a transfer which
meets the qualifications of paragraph
6.
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IV(C)(6)(d) below, and under no other circumstances, or (ii) convert any or all
of such shares into shares of Class A Common Stock as provided in paragraph
IV(C)(6)(a) above. Prior to a Tax-Free Spin-Off, no one other than those Persons
in whose names shares of Class B Common Stock originally are registered on the
stock ledger of the Corporation, or transferees or successive transferees who
receive shares of Class B Common Stock in connection with a transfer which meets
the qualifications set forth in paragraph (C)(6)(d) below, shall by virtue of
the acquisition of a certificate for shares of Class B Common Stock have the
status of an owner or holder of shares of Class B Common Stock or be recognized
as such by the Corporation or be otherwise entitled to enjoy for his or her own
benefit the special rights and powers of a holder of shares of Class B Common
Stock.
Holders of shares of Class B Common Stock may at any and all times transfer
to any Person the shares of Class A Common Stock issuable upon conversion of
such shares of Class B Common Stock.
d. Prior to a Tax-Free Spin-Off, shares of Class B Common Stock
shall be transferred on the books of the Corporation and a new certificate
therefor issued, upon presentation at the office of the Secretary of the
Corporation (or at such additional place or places as may from time to time be
designated by the Secretary of the Corporation) of the certificate for such
shares, in proper form for transfer and accompanied by all requisite stock
transfer tax stamps, only if such certificate when so presented shall also be
accompanied by any one of the following:
(i) an affidavit from Titan stating that such certificate is
being presented to effect a transfer by Titan of such shares to a Subsidiary
Entity of Titan; or
(ii) an affidavit from Titan stating that such certificate
is being presented to effect a transfer by any Subsidiary Entity of Titan of
such shares to Titan or another Subsidiary Entity of Titan; or
(iii) an affidavit from Titan (or the Class B Transferee)
stating that such certificate is being presented to effect a transfer by Titan
(or the Class B Transferee) or any of its (or the Class B Transferee's)
Subsidiary Entities of such shares to a Class B Transferee or a Subsidiary
Entity of the Class B Transferee as contemplated by paragraph (C)(6)(b); or
(iv) an affidavit from the Class B Transferee stating that
such certificate is being presented to effect a transfer by the Class B
Transferee of such shares to a Subsidiary Entity of the Class B Transferee; or
(v) an affidavit from the Class B Transferee stating that
such certificate is being presented to effect a transfer by any Subsidiary
Entity of the Class B Transferee of such shares to the Class B Transferee or
another Subsidiary Entity of the Class B Transferee; or
7.
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(vi) an affidavit from Titan stating that such certificate
is being presented to effect a transfer by Titan of such shares to the
stockholders of Titan in connection with a Tax-Free Spin-Off; or
(vii) an affidavit from the Class B Transferee stating that
such certificate is being presented to effect a transfer by the Class B
Transferee of such shares to the stockholders of the Class B Transferee in
connection with a Tax-Free Spin-Off.
Each affidavit of a record holder furnished pursuant to this paragraph
(C)(6)(d) shall be verified as of a date not earlier than five days prior to the
date of delivery thereof, and, where such record holder is a corporation or
partnership, shall be verified by an officer of the corporation or by a general
partner of the partnership, as the case may be.
e. Prior to the occurrence of a Tax-Free Spin-Off, each
certificate for shares of Class B Common Stock shall bear a legend on the face
thereof reading as follows:
"The shares of Class B Common Stock represented by this certificate
may not be transferred to any person or entity in connection with a
transfer that does not meet the qualifications set forth in paragraph
(C)(6)(d) of ARTICLE IV of the Amended and Restated Certificate of
Incorporation of this Corporation and no person who receives such shares in
connection with a transfer which does not meet the qualifications
prescribed by paragraph (C)(6)(d) of said ARTICLE IV is entitled to own or
to be registered as the record holder of such shares of Class B Common
Stock and such shares will have been automatically converted into Class A
Common Stock upon any such purported transfer. The record holder of this
certificate may at any time convert such shares of Class B Common Stock
into the same number of shares of Class A Common Stock. Each holder of this
certificate, by accepting the same, accepts and agrees to all of the
foregoing."
Upon and after the transfer of shares in a Tax-Free Spin-Off, shares of
Class B Common Stock shall no longer bear the legend set forth above in this
paragraph (C)(6)(e).
f. Upon any conversion of shares of Class B Common Stock into
shares of Class A Common Stock pursuant to the provisions of this paragraph
(C)(6), any dividend, for which the payment date shall be subsequent to such
conversion, which may have been declared on the shares of Class B Common Stock
so converted shall be deemed to have been declared, and shall be payable, with
respect to the shares of Class A Common Stock into or for which such shares of
Class B Common Stock shall have been so converted, and any such dividend payable
in Common Stock shall be deemed to have been declared, and shall be payable, in
shares of Class A Common Stock.
g. The Corporation shall not reissue or resell any shares of
Class B Common Stock which shall have been converted into shares of Class A
Common Stock pursuant to or as permitted by the provisions of this paragraph
(C)(6), or any shares of Class B Common Stock which shall have been acquired by
the Corporation in any other manner. The Corporation
8.
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shall, from time to time, take such appropriate action as may be necessary to
retire such shares and to reduce the authorized amount of Class B Common Stock
accordingly.
The Corporation shall at all times reserve and keep available, out of its
authorized but unissued Common Stock, such number of shares of Class A Common
Stock as would become issuable upon the conversion of all shares of Class B
Common Stock then outstanding.
h. In connection with any transfer or conversion of any stock of
the Corporation pursuant to or as permitted by the provisions of this paragraph
(C)(6) or in connection with the making of any determination referred to in this
paragraph (C)(6):
(i) the Corporation shall be under no obligation to make any
investigation of facts unless an officer, employee or agent of the Corporation
responsible for making such transfer or determination or issuing Class A Common
Stock pursuant to such conversion has substantial reason to believe, or unless
the Board of Directors (or a committee of the Board of Directors designated for
such purpose) determines that there is substantial reason to believe, that any
affidavit or other document is incomplete or incorrect in a material respect or
that an investigation would disclose facts upon which any determination referred
to in paragraph (C)(6)(f) above should be made, in either of which events the
Corporation shall make or cause to be made such investigation as it may deem
necessary or desirable in the circumstances and have a reasonable time to
complete such investigation; and
(ii) neither the Corporation nor any director, officer,
employee or agent of the Corporation shall be liable in any manner for any
action taken or omitted in good faith.
i. The Corporation will not be required to pay any documentary,
stamp or similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Class A Common Stock on the conversion of shares of Class
B Common Stock pursuant to this paragraph (C)(6), and no such issue or delivery
shall be made unless and until the Person requesting such issue has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid.
D. The rights, preferences, privileges, restrictions and other matters
relating to the Series A Preferred are as follows:
1. DIVIDENDS. Subject to the provisions of the Delaware General
Corporation Law, the holders of outstanding shares of Series A Preferred Stock
shall be entitled to receive in any fiscal year, dividends, if, when and as
declared by the Board of Directors, out of any assets at the time legally
available therefor.
2. VOTING. Except as otherwise required by applicable law, on all
matters to come before the stockholders, including the election of directors,
the Series A Preferred Stock shall have that number of votes per share (with any
resulting fractional share disregarded) equivalent to the number of shares of
Class A Common Stock into which a share of Series A Preferred Stock is
convertible.
9.
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3. RESTRICTION ON TRANSFER. No holder of Series A Preferred Stock may
sell, assign, transfer, pledge or otherwise encumber or dispose of any share of
Series A Preferred Stock or of any interest therein, other than, in the case of
an individual holder, to such holder's immediate family members (or to such
holder's heirs if no immediate family members are living) in the event of the
death or incapacity of such holder, or to a trust for the benefit of such holder
or to a corporation or LLC of which such holder is and remains the sole
shareholder or member, prior to the sooner of (a) a sale of substantially all of
the assets of the Corporation or (b) a Qualified Public Offering, except after
an offer to the Corporation or its designee as provided below. For purposes of
this section a "QUALIFIED PUBLIC OFFERING" shall mean an underwritten public
offering by the Corporation of shares of its Common Stock pursuant to a
registration statement under the Securities Act, which results in gross proceeds
of at least $20,000,000 and the public offering price of which is not less than
$12.00 per share (appropriately adjusted for any stock split, dividend,
combination or other recapitalization).
a. If at any time any holder of Series A Preferred Stock proposes
to sell, assign, transfer, pledge or otherwise encumber or dispose of any share
of Series A Preferred Stock or of any interest therein to one or more third
parties pursuant to an understanding with such third parties in a transaction
not registered under the Securities Act in reliance upon a claimed exemption
thereunder (the "TRANSFER"), then such holder shall give the Corporation written
notice of the holder's intention (the "TRANSFER NOTICE"), describing the offered
shares ("OFFERED SHARES"), the identity of the prospective transferee and the
consideration and the material terms and conditions upon which the proposed
Transfer is to be made. The Transfer Notice shall certify that the holder has
received a firm offer from the prospective transferee and in good faith believes
a binding agreement for Transfer is obtainable on the terms set forth, and shall
also include a copy of any written proposal or letter of intent or other
agreement relating to the proposed Transfer.
b. Titan shall have an option for a period of thirty (30) days
from receipt of the Transfer Notice to purchase, or to designate an affiliated
entity to purchase, all of the Offered Shares at the same price and subject to
the same material terms and conditions as described in the Transfer Notice. The
Corporation may only exercise such purchase option by notifying the holder in
writing, before expiration of the initial thirty (30) day period as to the
number of such shares covered by the Transfer Notice which it wishes to
purchase.
c. If the Corporation fails to purchase all of the Offered Shares
by exercising the rights granted in this Section 3 within the periods provided,
the holder shall be entitled for a period of ninety (90) days thereafter to
complete the proposed Transfer of the balance of such shares not purchased by
the Corporation upon the terms and conditions specified in the Transfer Notice.
If the holder has not so transferred the Offered Shares during such period, the
holder shall not thereafter make a Transfer of shares without again first
offering such shares to the other parties in the manner provided in this Section
3.
d. On and after any sale, assignment, transfer, pledge,
encumbrance or disposition in violation of this Section 3 the Corporation shall
have a right to redeem the Series A Preferred Stock from the holder thereof at
the fair market value of such Series A
10.
<PAGE>
Preferred Stock as determined by independent third-party valuation by a
nationally recognized ("BIG FIVE") accounting firm (not including Titan's
principal accounting firm at such time).
e. CONVERSION. On the close of business of the day immediately
preceding the occurrence of a Qualified Public Offering, each share of Series A
Preferred Stock of the Corporation shall automatically convert into that number
of fully paid and nonassessable shares of Class A Common Stock determined in
accordance with the provisions of Section 4. below. In order to effect the
conversion of shares of the Series A Preferred Stock into shares of Class A
Common Stock, the holder thereof shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or to the transfer
agent for the Series A Preferred Stock or the Class A Common Stock. The
Corporation shall, as soon as practicable after the surrender of the certificate
or certificates evidencing shares of Series A Preferred Stock for conversion at
the office of the Corporation or the transfer agent for the Series A Preferred
Stock or the Class A Common Stock, issue to each holder of such shares, a
certificate or certificates evidencing the number of shares of Class A Common
Stock (and any other securities and property) to which such holder shall be
entitled.
4. DILUTION. The Series A Preferred Stock shall be convertible into
the number of shares of Class A Common Stock that results from dividing the
Conversion Price per share in effect at the time into $.36 per share of Series A
Preferred Stock being converted. The "CONVERSION PRICE" per share for the Series
A Preferred Stock shall initially be $.36, subject to adjustment from time to
time as provided herein. Notwithstanding any other provisions of this Section
(D)(4), no adjustment of the Conversion Price pursuant to this Section (D)(4)
shall have the effect of increasing the Conversion Price above the Conversion
Price in effect immediately prior to such adjustment.
a. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If outstanding
shares of the Class A Common Stock of the Corporation shall be subdivided into a
greater number of shares, or a dividend in Class A Common Stock or other
securities of the Corporation convertible into or exchangeable for Class A
Common Stock (in which latter event the number of shares of Class A Common Stock
issuable upon the conversion or exchange of such securities shall be deemed to
have been distributed) shall be paid in respect to the Class A Common Stock of
the Corporation, the Conversion Price in effect immediately prior to such
subdivision or at the record date of such dividend shall, simultaneously with
the effectiveness of such subdivision or immediately after the record date of
such dividend, be proportionately reduced, and conversely, if outstanding shares
of the Common Stock of the Corporation shall be combined into a smaller number
of shares, the Conversion Price in effect immediately prior to such combination
shall simultaneously with the effectiveness of such combination, be
proportionately increased. Any adjustment to the Conversion Price under this
Section (D)(4)(a) shall become effective at the close of business on the date
subdivision or combination referred to herein becomes effective.
b. ADJUSTMENTS FOR OTHER DIVIDENDS. In the event the Corporation
at any time, or from time to time, shall make or issue, or fix a record date for
the determination of holders of Class A Common Stock entitled to receive a
dividend or other distribution payable in securities of the Corporation other
than shares of Class A Common Stock or securities convertible into or
exchangeable for Class A Common Stock, then and for each such event,
11.
<PAGE>
provision shall be made so that the holders of Series A Preferred Stock shall
receive upon conversion of such stock, in addition to the number of shares of
Class A Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had their Series A Preferred Stock
been converted into Class A Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including the
date of conversion, retained such securities receivable by them as aforesaid
during such period, giving application to all adjustments called for during such
period under this Section 4 with respect to the rights of the holders of Series
A Preferred Stock.
c. REORGANIZATION, MERGERS, CONSOLIDATIONS, RECLASSIFICATIONS,
EXCHANGES, SUBSTITUTIONS, OR SALE OF ASSETS. In the event of any capital
reorganization, any reclassification of the Class A Common Stock (other than a
change in par value or as a result of a stock dividend, subdivision, split-up or
combination of shares), the consolidation or merger of the Corporation with or
into another person, or the sale or other disposition of all or substantially
all of the assets of the Corporation as an entirety to another person (each, a
"REORGANIZATION"), the holders of the Series A Preferred Stock shall thereafter
be entitled to receive, and provision shall be made therefor in any agreement
relating to a Reorganization, upon conversion of the Series A Preferred Stock,
the kind and number of shares of Class A Common Stock or other securities or
property (including cash) of the Corporation, or other corporation resulting
from such consolidation or surviving such merger or to which such assets shall
have been sold or otherwise disposed to, to which a holder of the number of
shares of the Class A Common Stock of the Corporation in which the Series A
Preferred Stock would have been convertible immediately prior to such
Reorganization would have been entitled to receive with respect to such
Reorganization; and in any such case appropriate adjustment shall be made in the
application of the provisions herein set forth with respect to the rights and
interests thereafter of the holders of the Series A Preferred Stock, to the end
that the provisions set forth herein (including the specified changes and other
adjustments to the Conversion Price) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares, other securities or property
thereafter receivable upon conversion of the Series A Preferred Stock. The
provisions of this Section (D)(4)(c) shall similarly apply to successive
Reorganizations.
d. SALE OF ADDITIONAL SHARES. If at any time or from time to time
the Corporation shall issue or sell Additional Shares of Common Stock (as
defined below) or Convertible Securities (as defined below), other than as a
dividend or other distribution on any class of stock as provided in Section
(4)(b) above and other than as a subdivision or combination of shares of Common
Stock as provided in Section (4)(a) above, for a consideration per share less
than the then existing Conversion Price for Series A Preferred Stock, then, and
in each such case, the then existing Conversion Price for such series of Series
A Preferred Stock shall be reduced, as of the opening of business on the date of
such issuance or sale, to a price determined by dividing (A) an amount equal to
the sum of (1) the Conversion Price for such series of Series A Preferred Stock
immediately prior to such issue or sale multiplied by the number of shares of
Common Stock outstanding at the close of business on the day next preceding the
date of such issue or sale, plus (2) the aggregate consideration, if any,
received or to be received by the Corporation upon such issue or sale, by (B)
the number of shares of Common Stock outstanding at the close of business on the
date of such issue or sale after giving effect to the issuance of such
Additional Shares of Common Stock or Convertible Securities.
12.
<PAGE>
(i) For the purpose of making any adjustment in the
Conversion Price or number of shares of Class A Common Stock purchasable upon
conversion of the Series A Preferred Stock, as provided above, the consideration
received by the Corporation for any issue or sale of securities shall (1) to the
extent it consists of cash, be computed at the net amount of cash received by
the Corporation after deduction of any expenses payable directly or indirectly
by the Corporation and any underwriting or similar commissions, compensations,
discounts or concessions paid or allowed by the Corporation in connection with
such issue or sale; (2) to the extent it consists of property other than cash,
the consideration other than cash shall be computed at the fair market value
thereof as determined in good faith by the Board of Directors, at or about, but
as of, the date of the adoption of the resolution specifically authorizing such
issuance or sale, irrespective of any accounting treatment thereof, provided,
however, that such fair market value as determined by the Board of Directors,
when added to any such consideration received in connection with such issuance
or sale, shall not exceed the aggregate market price of the Additional Shares of
Common Stock being issued, as of the date of the adoption of such resolution;
and (3) if Additional Shares of Common Stock, Convertible Securities or rights,
options or warrants to purchase Additional Shares of Common Stock or Convertible
Securities (such rights, options or warrants being hereinafter referred to as
"RIGHTS"), are issued or sold together with other stock or securities or other
assets of the Corporation for consideration which covers both, the consideration
received for the Additional Shares of Common Stock, Convertible Securities or
Rights shall be computed as that portion of the consideration so received which
is reasonably determined in good faith by the Board of Directors to be allocable
to such Additional Shares of Common Stock, Convertible Securities or Rights.
(ii) For the purpose of making any adjustment in the
Conversion Price provided in Section 4 hereof, if at any time, or from time to
time, the Corporation issues any Convertible Securities or issues any Rights,
then, and in each such case, if the Effective Conversion Price of such Rights or
Convertible Securities shall be less than the Conversion Price immediately prior
to the issuance of such Rights or Convertible Securities, the Corporation shall
be deemed to have issued at the time of such Rights or Convertible Securities,
the maximum number of Additional Shares of Common Stock issuable upon exercise
or conversion thereof and to have received in consideration for the issuance of
such shares an amount equal to the aggregate Effective Conversion Price of such
Rights or Convertible Securities. For the purposes of this Section (4)(d)(ii)
"EFFECTIVE CONVERSION PRICE" shall mean an amount equal to the sum of the lowest
amount of consideration, if any, received or receivable by the Corporation with
respect to any one Additional Share of Common Stock upon issuance of the Rights
or Convertible Securities and upon their exercise or conversion, respectively.
In the event of any change in the number of shares of Common Stock deliverable
on or in the consideration payable to the Corporation upon exercise of such
options or rights or upon conversion of or in exchange for such convertible or
exchangeable securities, including, but not limited to, a change resulting from
the antidilution provisions thereof, the Conversion Price of each of the Series
A Preferred Stock shall be recomputed to reflect such change. No further
adjustment of the Conversion Price adjusted upon the issuance of such Rights or
Convertible Securities shall be made as a result of the actual issuance of
Additional Shares of Common Stock on the exercise of any such Rights or the
conversion of any such Convertible Securities.
13.
<PAGE>
e. "ADDITIONAL SHARES OF COMMON STOCK" as used in this Section
(4)(d) shall mean all shares of Common Stock (whether Class A or Class B Common
Stock) issued by the Corporation, whether or not subsequently reacquired or
retired by the Corporation, other than:
(i) Up to 3,500,000 shares of Common Stock (as adjusted for
any stock dividends, stock splits, recapitalizations and the like effective
after the filing of this Certificate of Incorporation) issuable or issued to
employees, consultants or directors of the Corporation directly or pursuant to a
stock option plan or restricted stock plan approved by the Board of Directors of
the Corporation;
(ii) Class A Common Stock issued or issuable upon conversion
of Series A Preferred Stock;
(iii) Common Stock issued or issuable in connection with a
merger, acquisition, combination, consolidation or other reorganization
involving the Corporation approved by the Board of Directors of the Corporation
(which approval shall include the directors elected by the holders of Series A
Preferred Stock); or
(iv) Common Stock issued or issuable in a Qualified Public
Offering before or in connection with which all outstanding shares of Series A
Preferred Stock will be converted to Common Stock or upon exercise of warrants
or rights granted to underwriters in connection with such a Qualified Public
Offering.
E. Subject to the limitations and in the manner provided by law, shares of
the Preferred Stock may be issued from time to time in one or more series, and
the Board of Directors of the Corporation or a duly-authorized committee of the
Board of Directors of the Corporation, in accordance with the laws of the State
of Delaware, is hereby authorized to determine or alter the relative rights,
powers (including voting powers), preferences and privileges granted to
Preferred Stock or any wholly unissued series of shares of Preferred Stock, and
the qualifications, limitations or restrictions thereof, including without
limitation the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), redemption
price or prices, and the liquidation preferences of any wholly unissued series
of shares of Preferred Stock, and to establish from time to time the number of
shares constituting any such series and the designation thereof, or any of them
(a "PREFERRED STOCK DESIGNATION"); and to increase or decrease (but not below
the number of shares of any series of Preferred Stock then outstanding) the
number of shares of any such series subsequent to the issue of shares of that
series. In case the number of shares of any series shall be so decreased, the
shares constituting such decrease shall upon the taking of any action required
by applicable law resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
F. No stockholder of the Corporation shall have any preemptive or
preferential right, nor be entitled as such as a matter of right, to subscribe
for or purchase any part of any new or additional issue of stock of the
Corporation of any class or series, whether now or hereafter
14.
<PAGE>
authorized, and whether issued for money or for consideration other than money,
or of any issue of securities convertible into stock of the Corporation.
G. No stockholder shall be entitled to exercise any right of cumulative
voting.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of Series A
Preferred Stock to elect additional directors under specified circumstances,
directors shall be elected at each annual meeting of stockholders for a term of
one year. Each director shall serve until his successor is duly elected and
qualified or until his death, resignation or removal. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director.
Subject to the rights of the holders of any series of Preferred Stock to elect
additional directors under specified circumstances, the directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the adoption and filing of this Certificate of
Incorporation, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following the adoption and filing of this
Certificate of Incorporation, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the adoption and filing of
this Certificate of Incorporation, the term of office of the Class III directors
shall expire and Class III directors shall be elected for a full term of three
years. At each succeeding annual meeting of stockholders, directors shall be
elected for a full term of three years to succeed the directors of the class
whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
15.
<PAGE>
3.
a. Prior to the Qualifying Record Date and Subject to the rights
of the holders of any series of Series A Preferred Stock, the Board of Directors
or any individual director may be removed from office at any time (i) with cause
by the affirmative vote of the holders of a majority of the voting power of all
the then-outstanding shares of voting stock of the corporation, entitled to vote
at an election of directors (the "VOTING STOCK") or (ii) without cause by the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all the then-outstanding shares of the Voting
Stock.
b. After the Qualifying Record Date and subject to any
limitations imposed by law, Section A(3)(a) above shall no longer apply and
subject to the rights of the holders of any series of Series A Preferred Stock,
no director shall be removed without cause. Subject to any limitations imposed
by law, the Board of Directors or any individual director may be removed from
office at any time with cause by the affirmative vote of the holders of a
majority of the Voting Stock.
4. Subject to the rights of the holders of any series of Series A
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
B. 1. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the Voting Stock. The Board of Directors shall
also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws.
4. Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer,(iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
16.
<PAGE>
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors shall fix.
5. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Series A Preferred Stock Designation, the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of the Voting Stock,
voting together as a single class, shall be required to alter, amend or repeal
Articles V, VI, and VII.
VIII.
The name and the mailing address of the Sole Incorporator is as follows:
NAME MAILING ADDRESS
CHERYL L. BARR The Titan Corporation
3033 Science Park Road
17.
<PAGE>
San Diego, CA 92121
IN WITNESS WHEREOF, this Certificate has been subscribed this _____ day of
December, 1999 by the undersigned who affirms that the statements made herein
are true and correct.
--------------------------------
CHERYL L. BARR
Sole Incorporator
18.
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
CAYENTA.COM, INC.
CAYENTA.COM, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is Cayenta.com, Inc.
SECOND: The date on which the Certificate of Incorporation of the
Corporation was originally filed with the Secretary of State of the State of
Delaware is December 13, 1999 under the name Cayenta.com, Inc.
THIRD: The Board of Directors of the Corporation, acting in accordance
with the provisions of Sections 141 and 242 of the General Corporation Law of
the State of Delaware, adopted resolutions amending its Certificate of
Incorporation as follows:
Article First shall be amended and restated to read in its
entirety as follows:
The name of this corporation is Cayenta, Inc.
FOURTH: Thereafter pursuant to a resolution of the Board of Directors,
this Certificate of Amendment was submitted to the stockholders of the
Corporation for their approval, and was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its Executive Vice President and attested to by its
Assistant Secretary this 15th day of December, 1999.
By:
-----------------------------------------
Eric M. Demarco, Executive Vice President
ATTEST:
- -----------------------------------
Cheryl L. Barr, Assistant Secretary
<PAGE>
BYLAWS
OF
CAYENTA.COM, INC.
(A DELAWARE CORPORATION)
<PAGE>
BYLAWS
OF
CAYENTA.COM, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of [Dover].
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors. Nominations of persons
for election to the Board of Directors of the corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by
any stockholder of the corporation who was a stockholder of record at the time
of giving of notice provided for in the following paragraph,
1.
<PAGE>
who is entitled to vote at the meeting and who complied with the notice
procedures set forth in Section 5.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of Section 5(a) of these
Bylaws, (i) the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation, (ii) such other business must be a proper
matter for stockholder action under the Delaware General Corporation Law
("DGCL"), (iii) if the stockholder, or the beneficial owner on whose behalf any
such proposal or nomination is made, has provided the corporation with a
Solicitation Notice (as defined in this Section 5(b)), such stockholder or
beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to holders of a percentage of the corporation's
voting shares reasonably believed by such stockholder or beneficial owner to be
sufficient to elect the nominee or nominees proposed to be nominated by such
stockholder, and must, in either case, have included in such materials the
Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has
been timely provided pursuant to this section, the stockholder or beneficial
owner proposing such business or nomination must not have solicited a number of
proxies sufficient to have required the delivery of such a Solicitation Notice
under this Section 5. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation not later
than the close of business on the ninetieth (90th) day nor earlier than the
close of business on the one hundred twentieth (120th) day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced more than thirty (30)
days prior to or delayed by more than thirty (30) days after the anniversary of
the preceding year's annual meeting, notice by the stockholder to be timely must
be so delivered not earlier than the close of business on the one hundred
twentieth (120th) day prior to such annual meeting and not later than the close
of business on the later of the ninetieth (90th) day prior to such annual
meeting or the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth: (A) as to each person whom the stockholder proposed to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "1934 Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (B) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, and (iii)
2.
<PAGE>
whether either such stockholder or beneficial owner intends to deliver a
proxy statement and form of proxy to holders of, in the case of the proposal,
at least the percentage of the corporation's voting shares required under
applicable law to carry the proposal or, in the case of a nomination or
nominations, a sufficient number of holders of the corporation's voting
shares to elect such nominee or nominees (an affirmative statement of such
intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section
5(b) of these Bylaws to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least one hundred (100) days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Section 5 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section
5, in order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption).
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(b) If a special meeting is properly called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
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SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the
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Secretary is given written notice to the contrary and is furnished with a
copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect: (a) if only one (1) votes, his act binds all; (b) if more
than one (1) votes, the act of the majority so voting binds all; (c) if more
than one (1) votes, but the vote is evenly split on any particular matter,
each faction may vote the securities in question proportionally, or may apply
to the Delaware Court of Chancery for relief as provided in the DGCL, Section
217(b). If the instrument filed with the Secretary shows that any such
tenancy is held in unequal interests, a majority or even-split for the
purpose of subsection (c) shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the DGCL if such action had been voted on by stockholders at a meeting
thereof, then the certificate filed under such section shall state, in lieu of
any statement
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required by such section concerning any vote of stockholders, that written
consent has been given in accordance with Section 228 of the DGCL.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the
meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
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SECTION 17. BOARD OF DIRECTORS. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following the closing of the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At each succeeding
annual meeting of stockholders, directors shall be elected for a full term of
three years to succeed the directors of the class whose terms expire at such
annual meeting.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Section 18 in the
case of the death, removal or resignation of any director.
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors.
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When one or more directors shall resign from the Board of Directors,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each Director so chosen shall hold
office for the unexpired portion of the term of the Director whose place
shall be vacated and until his successor shall have been duly elected and
qualified.
SECTION 20. SECTION 20. REMOVAL. The Board of Directors or any
individual director may be removed from office at any time (a) with cause by the
affirmative vote of the holders of a majority of the voting power of all the
then-outstanding shares of voting stock of the corporation, entitled to vote at
an election of directors or (b) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all the then-outstanding shares of the voting stock of the corporation
entitled to vote at an election of directors.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an annual
meeting of the Board of Directors shall be necessary and such meeting shall be
held for the purpose of electing officers and transacting such other business as
may lawfully come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for regular meetings of
the Board of Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will
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be waived by any director by attendance thereat, except when the director
attends the meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; PROVIDED, HOWEVER, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different vote
be required by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of
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Directors shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to
all papers which may require it; but no such committee shall have the power
or authority in reference to (i) approving or adopting, or recommending to
the stockholders, any action or matter expressly required by the DGCL to be
submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall
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constitute a quorum for the transaction of business, and the act of a
majority of those present at any meeting at which a quorum is present shall
be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President (if a director), or if the President is absent, the
most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present,
shall preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision,
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direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers, as the Board
of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given him
in these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
(g) DUTIES OF CHIEF TECHNOLOGY OFFICER. The Chief Technology
Officer shall be responsible for overall technical direction, strategic planning
for technology, insuring basic technology exists to meet corporate objectives
and insuring technical superiority of staff by, among other things, setting
technical standards and other related activities as from time to time determined
by the president. The Chief Technology Officer shall report directly to the
President.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
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SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY
THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and
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applicable law. Every holder of stock in the corporation shall be entitled to
have a certificate signed by or in the name of the corporation by the
Chairman of the Board of Directors, or the President or any Vice President
and by the Treasurer or Assistant Treasurer or the Secretary or Assistant
Secretary, certifying the number of shares owned by him in the corporation.
Any or all of the signatures on the certificate may be facsimiles. In case
any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer
agent, or registrar at the date of issue. Each certificate shall state upon
the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional, or other
special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or
rights. Within a reasonable time after the issuance or transfer of
uncertificated stock, the corporation shall send to the registered owner
thereof a written notice containing the information required to be set forth
or stated on certificates pursuant to this section or otherwise required by
law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or
rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same
class and series shall be identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the DGCL.
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SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall, subject to applicable law, not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty (60) days prior to such action. If no record date is fixed, the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate
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security, authenticated by a trustee as aforesaid, shall be signed by the
Treasurer or an Assistant Treasurer of the corporation or such other person
as may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who shall have signed
or attested any bond, debenture or other corporate security, or whose
facsimile signature shall appear thereon or on any such interest coupon,
shall have ceased to be such officer before the bond, debenture or other
corporate security so signed or attested shall have been delivered, such
bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased
to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the DGCL or any
other applicable law; PROVIDED, HOWEVER, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
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executive officers; and, PROVIDED, FURTHER, that the corporation shall not be
required to indemnify any director or executive officer in connection with
any proceeding (or part thereof) initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding
was authorized by the Board of Directors of the corporation, (iii) such
indemnification is provided by the corporation, in its sole discretion,
pursuant to the powers vested in the corporation under the DGCL or any other
applicable law or (iv) such indemnification is required to be made under
subsection (d).
(b) The corporation shall have power to indemnify its other
officers, employees and other agents as set forth in the DGCL or any other
applicable law. The Board of Directors shall have the power to delegate the
determination of whether indemnification shall be given to any such person
except executive officers to such officers or other persons as the Board of
Directors shall determine.
(c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or
executive officer, of the corporation, or is or was serving at the request of
the corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Section 43 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 43, no advance shall be made by the corporation to
an executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Section 43 to a director or executive officer shall
be enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
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corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
DGCL or any other applicable law for the corporation to indemnify the claimant
for the amount claimed. Neither the failure of the corporation (including its
Board of Directors, independent legal counsel or its stockholders) to have made
a determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the DGCL or any other applicable law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct. In
any suit brought by a director or executive officer to enforce a right to
indemnification or to an advancement of expenses hereunder, the burden of
proving that the director or executive officer is not entitled to be
indemnified, or to such advancement of expenses, under this Section 43 or
otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any applicable statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law, or by any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the DGCL or
any other applicable law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Section 43.
(h) AMENDMENTS. Any repeal or modification of this Section 43
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Section 43 that
shall not have been invalidated, or by any other applicable law. If this Section
43 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
executive officer to the full extent under any other applicable law.
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(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed
and shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the giving of
testimony in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed
and shall include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Section 43 with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section 43.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and
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duly deposited in the United States mail, postage prepaid, and addressed to
his last known post office address as shown by the stock record of the
corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to
any director may be given by the method stated in subsection (a), or by
overnight delivery service, facsimile, telex or telegram, except that such
notice other than one which is delivered personally shall be sent to such
address as such director shall have filed in writing with the Secretary, or, in
the absence of such filing, to the last known post office address of such
director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the name
and address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate shall state, if such is the fact and if
notice is required, that notice was given to all persons entitled to receive
notice except such persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and
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all notices of meetings or of the taking of action by written consent without
a meeting to such person during the period between such two consecutive
annual meetings, or (ii) all, and at least two, payments (if sent by first
class mail) of dividends or interest on securities during a twelve-month
period, have been mailed addressed to such person at his address as shown on
the records of the corporation and have been returned undeliverable, the
giving of such notice to such person shall not be required. Any action or
meeting which shall be taken or held without notice to such person shall have
the same force and effect as if such notice had been duly given. If any such
person shall deliver to the corporation a written notice setting forth his
then current address, the requirement that notice be given to such person
shall be reinstated. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
DGCL, the certificate need not state that notice was not given to persons to
whom notice was not required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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ARTICLE I Offices......................................................................1
Section 1. Registered Office..............................................1
Section 2. Other Offices..................................................1
ARTICLE II Corporate Seal...............................................................1
Section 3. Corporate Seal.................................................1
ARTICLE III Stockholders' Meetings.......................................................1
Section 4. Place Of Meetings..............................................1
Section 5. Annual Meetings................................................1
Section 6. Special Meetings...............................................3
Section 7. Notice Of Meetings.............................................4
Section 8. Quorum.........................................................5
Section 9. Adjournment And Notice Of Adjourned Meetings...................5
Section 10. Voting Rights..................................................5
Section 11. Joint Owners Of Stock..........................................6
Section 12. List Of Stockholders...........................................6
Section 13. Action Without Meeting.........................................6
Section 14. Organization...................................................6
ARTICLE IV Directors....................................................................7
Section 15. Number And Term Of Office......................................7
Section 16. Powers.........................................................7
Section 17. Board of Directors.............................................7
Section 18. Vacancies......................................................7
Section 19. Resignation....................................................8
Section 20. Section 20. Removal............................................8
Section 21. Meetings.......................................................8
Section 22. Quorum And Voting..............................................9
Section 23. Action Without Meeting.........................................9
Section 24. Fees And Compensation.........................................10
Section 25. Committees....................................................10
Section 26. Organization..................................................11
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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ARTICLE V Officers....................................................................11
Section 27. Officers Designated...........................................11
Section 28. Tenure And Duties Of Officers.................................11
Section 29. Delegation Of Authority.......................................13
Section 30. Resignations..................................................13
Section 31. Removal.......................................................13
ARTICLE VI Execution Of Corporate Instruments And Voting
Of Securities Owned By The Corporation......................................13
Section 32. Execution Of Corporate Instruments............................13
Section 33. Voting Of Securities Owned By The Corporation.................13
ARTICLE VII Shares Of Stock.............................................................14
Section 34. Form And Execution Of Certificates............................14
Section 35. Lost Certificates.............................................14
Section 36. Transfers.....................................................15
Section 37. Fixing Record Dates...........................................15
Section 38. Registered Stockholders.......................................15
ARTICLE VIII Other Securities Of The Corporation.........................................16
Section 39. Execution Of Other Securities.................................16
ARTICLE IX Dividends...................................................................16
Section 40. Declaration Of Dividends......................................16
Section 41. Dividend Reserve..............................................16
ARTICLE X Fiscal Year.................................................................17
Section 42. Fiscal Year...................................................17
ARTICLE XI Indemnification.............................................................17
Section 43. Indemnification Of Directors, Executive Officers,
Other Officers, Employees And Other Agents....................17
ARTICLE XII Notices.....................................................................20
Section 44. Notices.......................................................20
ARTICLE XIII Amendments..................................................................21
Section 45. Amendments....................................................21
ARTICLE XIV Loans To Officers...........................................................22
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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Section 46. Loans To Officers.............................................22
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iii.
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1.
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EXHIBIT 10.1
CAYENTA.COM, INC.
INVESTOR RIGHTS AGREEMENT
DECEMBER 13, 1999
<PAGE>
CAYENTA.COM, INC.
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") is entered into as of
the ____ day of December, 1999, by and among Cayenta.com, Inc., a Delaware
corporation (the "Company"), The Titan Corporation, a Delaware corporation
("Titan"), and certain holders of the Company's Class A Common Stock set forth
on Exhibit A hereto. The holders of the Cayenta Stock set forth on Exhibit A
shall be referred to hereinafter as the "Stockholders" and each individually as
a "Stockholder."
RECITALS
WHEREAS, the Company proposes to issue up to five hundred sixteen
thousand four hundred fifty-eight (516,458) shares of its Common Stock to the
Stockholders pursuant to a Stock Purchase Agreement by and among the Company and
the stockholders of Assist Cornerstone Technologies, Inc. (the "Stock Purchase
Agreement"); and
WHEREAS, as a condition of entering into the Stock Purchase Agreement,
the Stockholders have requested that the Company and Titan extend to them
certain registration rights, co-sale rights, rights of first refusal on certain
issuances of equity securities of the Company, and certain other rights as set
forth below; and
WHEREAS, as a condition of entering into the Stock Purchase Agreement,
the Company and Titan have requested rights of first refusal on certain
transfers of the Cayenta Shares by the Stockholders and certain other rights as
set forth below.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties mutually agree as follows:
SECTION 1. GENERAL
1.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FORM S-3" means such form under the Securities Act as in
effect on the date hereof or any successor registration form under the
Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
"HOLDER" means any person owning of record Registrable
Securities that have not been sold to the public or any assignee of record of
such Registrable Securities in accordance with Section 2.9 hereof.
1.
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"INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the Securities
Act.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
"REGISTRABLE SECURITIES" means (a) the Cayenta Shares; and (b)
any Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
the Cayenta Shares. Notwithstanding the foregoing, Registrable Securities shall
not include any securities sold by a person to the public either pursuant to a
registration statement or Rule 144 or sold in a private transaction in which the
transferor's rights under Section 2 of this Agreement are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be a number of
shares determined by calculating the total number of Cayenta Shares that are
then Registrable Securities and are then issued and outstanding.
"REGISTRATION EXPENSES" shall mean all expenses incurred by
the Company in complying with Sections 2.2 and 2.3 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"SEC" or "COMMISSION" means the Securities and Exchange
Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale.
"CAYENTA SHARES" shall mean the Company's Class A Common Stock
issued pursuant to the Stock Purchase Agreement and held by the Stockholders
listed on Exhibit A hereto and their permitted assigns.
"TITAN SHARES" shall mean any shares of Class B Common Stock
of the Company held by Titan.
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or
any portion of the Cayenta Shares or Registrable Securities unless and until:
(i) It has complied with the requirements of Section
5 hereof;
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(ii) There is then in effect a registration statement
under the Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement;
(iii) (A) The transferee has agreed in writing to be
bound by the terms of this Agreement, (B) such Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (C) if reasonably requested by the Company, such Holder shall have furnished
the Company with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require registration of such Cayenta Shares under
the Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances; or
(iv) Notwithstanding the provisions of paragraphs
(i), (ii) and (iii) above, Section 5 hereof shall not apply and no such
registration statement or opinion of counsel shall be necessary for a transfer
by a Holder to the Holder's immediate family member or trust, limited liability
company, partnership or other entity established for the benefit of an
individual Holder or the Holder's immediate family members or to a Holder's
employees provided that each such transferee is an accredited investor as
defined in Regulation D under the Securities Act; PROVIDED that in each case the
transferee will be subject to the terms of this Agreement to the same extent as
if he were an original Holder hereunder.
(b) Each certificate representing Cayenta Shares or
Registrable Securities shall (unless otherwise permitted by the provisions of
the Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder shall
have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order of
the appropriate blue sky authority authorizing such removal.
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(e) Notwithstanding anything to the contrary set forth herein,
each Holder agrees not to make any transfer or disposition of Cayenta Shares or
Registrable Securities to any third party, government or administrative agency
that in the reasonable judgment of Titan's board of directors could cause Titan
to be debarred or otherwise precluded from engaging in its government contracts
business. Any such attempted transfer or disposition shall be void and the
Company agrees that it will not effect such a transfer nor will it treat such a
transferee as the holder of such Cayenta Shares or Registrable Securities.
2.2 FORM S-3 REGISTRATION.
(a) Subject to the conditions of this Section 2.2, if the
Company shall receive a written request from the Holders of a majority of the
Registrable Securities then outstanding (the "Initiating Holders") that the
Company file a registration statement under the Securities Act on Form S-3, then
the Company shall, within fifteen (15) days of the receipt thereof, give written
notice of such request to all Holders, and subject to the limitations of this
Section 2.2, use its best efforts to effect, as soon as practicable, such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other Holder or Holders joining in such request as are specified in a written
request given within fifteen (15) days after receipt of such written notice from
the Company.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.2 and the Company shall include such information in the written
notice referred to in Section 2.2(a). In such event, the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders (which underwriter or underwriters shall be
reasonably acceptable to the Company). Notwithstanding any other provision of
this Section 2.2, if the underwriter advises the Company that marketing factors
require a limitation of the number of securities to be underwritten (including
Registrable Securities) then the Company shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of Registrable Securities that may be included in the
underwriting shall be allocated to the Holders of such Registrable Securities on
a PRO RATA basis based on the number of Registrable Securities held by all such
Holders (including the Initiating Holders). Any Registrable Securities excluded
or withdrawn from such underwriting shall be withdrawn from the registration. If
the Holders are unable to register and sell at least seventy-five percent (75%)
of the Registrable Securities requested by them to be registered because of such
underwriter's cutback, the such registration statement shall be withdrawn and
the expenses of such withdrawn registration statement shall be borne by the
Company in accordance with Section 2.4 hereof, and such registration shall not
constitute a registration requested under this Section 2.2.
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(c) The Company shall not be required to effect a registration
pursuant to this Section 2.2:
(i) prior to the first anniversary of the
registration statement pertaining to the Initial Offering;
(ii) if Form S-3 (or any successor or similar form)
is not available for such offering by the Holders; provided however, that the
Company shall use all commercially reasonable efforts to become and remain
eligible to use Form S-3 (or any successor or similar form);
(iii) if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than four million dollars ($4,000,000);
provided, however, that in the event the aggregate price to the public is less
than four million dollars ($4,000,000) due to the underwriter's cutback provided
for in Section 2.2(b) and the Company elects not to effect such registration,
then such registration shall not be counted as a registration requested under
this Section 2.2;
(iv) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance;
(v) after the Company has effected one (1)
registration pursuant to this Section 2.2, and such registration has been
declared or ordered effective; provided, however, that if such registration is
underwritten and Registrable Securities are not sold pursuant to such
registration, such registration shall not be counted as a registration requested
under this Section 2.2
(vi) if within fifteen (15) days of receipt of a
written request from Initiating Holders pursuant to Section 2.2(a), the Company
gives notice to the Holders of the Company's intention to make a public offering
within ninety (90) days; or
(vii) if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 2.2, a certificate
signed by the Chairman of the Board stating that in the good faith judgment of
the Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be effected at
such time, in which event the Company shall have the right to defer such filing
for a period of not more than ninety (90) days after receipt of the request of
the Initiating Holders; PROVIDED that such right to delay a request shall be
exercised by the Company not more than once in any twelve (12) month period.
2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least twenty (20) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding the registration statement related to the Initial
Offering and registration statements relating to employee benefit plans or with
respect to corporate
<PAGE>
reorganizations or other transactions under Rule 145 of the Securities Act)
and will afford each such Holder an opportunity to include in such
registration statement all or part of such Registrable Securities held by
such Holder. Each Holder desiring to include in any such registration
statement all or any part of the Registrable Securities held by it shall,
within fifteen (15) days after the above-described notice from the Company,
so notify the Company in writing. Such notice shall state the intended method
of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the
terms and conditions set forth herein. Notwithstanding anything set forth
above, the registration rights set forth in this Section 2.3 do not apply to
the Company's Initial Offering.
(a) UNDERWRITING. If the registration statement under which
the Company gives notice under this Section 2.3 is for an underwritten offering,
the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder to be included in a registration pursuant to
this Section 2.3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of the Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of Registrable Securities
to be underwritten, the number of Registrable Securities that may be included in
the underwriting shall be allocated, first, to the Company; second, to the
Holders on a PRO RATA basis based on the total number of Registrable Securities
held by the Holders; and third, to any shareholder of the Company (other than a
Holder) on a PRO RATA basis. No such reduction shall reduce the securities being
offered by the Company for its own account to be included in the registration
and underwriting. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the underwriter, delivered at least ten (10) business days prior
to the effective date of the registration statement. Any Registrable Securities
excluded or withdrawn from such underwriting shall be excluded and withdrawn
from the registration. For any Holder which is a partnership, limited liability
company or corporation, the partners, retired partners, members and shareholders
of such Holder, or the estates and family members of any such partners and
retired partners and any trusts for the benefit of any of the foregoing person
shall be deemed to be a single "Holder", and any PRO RATA reduction with respect
to such "Holder" shall be based upon the aggregate amount of Cayenta Shares
carrying registration rights owned by all entities and individuals included in
such "Holder," as defined in this sentence.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The Registration
Expenses of such withdrawn registration shall be borne by the Company in
accordance with Section 2.4 hereof.
<PAGE>
2.4 EXPENSES OF REGISTRATION. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 herein shall be borne by the Company. All Selling Expenses incurred
in connection with any registrations hereunder, shall be borne by the holders of
the securities so registered PRO RATA on the basis of the number of Registrable
Securities so registered. The Company shall not, however, be required to pay for
expenses of any registration proceeding begun pursuant to Section 2.2, the
request of which has been subsequently withdrawn by the Initiating Holders
unless (a) the withdrawal is based upon material adverse information concerning
the Company of which the Initiating Holders were not aware at the time of such
request, (b) the Holders of a majority of Registrable Securities agree to
forfeit their right to the one requested registration pursuant to Section 2.2,
in which event such right shall be forfeited by all Holders), or (c) the
registration is withdrawn in accordance with the last sentence of Section
2.2(b). If the Holders are required to pay the Registration Expenses, such
expenses shall be borne by the holders of securities (including Registrable
Securities) requesting such registration in proportion to the number of
securities for which registration was requested. If the Company is required to
pay the Registration Expenses of a withdrawn offering pursuant to clause (a)
above, then the Holders shall not forfeit their rights under Section 2.2.
2.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities pursuant to Section 2.2, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for up to ninety (90) days or, if
earlier, until the Holder or Holders have completed the distribution related
thereto. The Company shall not be required to file, cause to become effective or
maintain the effectiveness of any registration statement that contemplates a
distribution of securities on a delayed or continuous basis pursuant to Rule 415
under the Securities Act.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement for the period set forth in
paragraph (a) above.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its reasonable best efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders; PROVIDED that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
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(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Use its best efforts to furnish, on the date that such
Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (i) an opinion, dated as of such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and (ii)
a letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering addressed to the underwriters.
2.6 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Section 2 shall terminate and be of no further force and effect five
(5) years after the date of this Agreement. In addition, a Holder's registration
rights shall expire if all Registrable Securities held by and issuable to such
Holder (and its affiliates, partners, former partners, members and former
members) may be immediately sold under Rule 144 during any ninety (90) day
period.
2.7 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to Section 2.2 or 2.3 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
(c) The Company shall have no obligation with respect to any
registration requested pursuant to Section 2.2 if, due to the operation of
subsection 2.2(b), the number of Registrable Securities or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of Registrable Securities or
the anticipated aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified in Section 2.2.
2.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2 or 2.3:
<PAGE>
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers, employees and directors
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the indemnifying party of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law in connection with the offering covered by such registration
statement; and the Company will pay as incurred to each such Holder, partner,
officer, employee, director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED HOWEVER,
that the indemnity agreement contained in this Section 2.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers and
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, employees,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or controlling person of such other Holder
may become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation by a Holder, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will pay as incurred any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or other
Holder, or partner, officer, director or controlling person of such other Holder
in connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was such a
Violation; PROVIDED, HOWEVER, that the indemnity agreement contained in this
Section 2.8(b) shall not apply to amounts paid in
<PAGE>
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; PROVIDED FURTHER, that in no event shall any
indemnity under this Section 2.8 exceed the net proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.8, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.8.
(d) If the indemnification provided for in this Section 2.8 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; PROVIDED, that in no event shall any contribution by a
Holder hereunder exceed the net proceeds from the offering received by such
Holder.
(e) The obligations of the Company and Holders under this
Section 2.8 shall survive completion of any offering of Registrable Securities
in a registration statement and the termination of this agreement. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
<PAGE>
2.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 2 may be assigned by
a Holder to a transferee or assignee of Registrable Securities which is a
Holder's family member or trust, limited liability company, partnership or other
entity established for the benefit of an individual Holder or to a Holder's
employees provided that each such transferee is an accredited investor as
defined in Regulation D under the Securities Act; PROVIDED, HOWEVER, (i) the
transferor shall, within ten (10) days after such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned and (ii) such transferee shall agree to be subject to all restrictions
set forth in this Agreement.
2.10 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 2
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of at least a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this Section 2.10 shall be binding upon each Holder and the
Company. By acceptance of any benefits under this Section 2, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
2.11 "MARKET STAND-OFF" AGREEMENT; AGREEMENT TO FURNISH INFORMATION.
Each Holder hereby agrees that such Holder shall not sell or otherwise transfer
or dispose of any Common Stock (or other securities) of the Company held by such
Holder (other than those included in the registration) for a period specified by
the representative of the underwriters of Common Stock (or other securities) of
the Company not to exceed one hundred eighty (180) days following the effective
date of the Initial Offering of the Company filed under the Securities Act;
provided, however, that each Holder shall agree to any market stand-off
agreement (not in excess of 180 days) proposed by any underwriter in connection
with a registration statement whereby Registrable Securities are offered for
sale pursuant to Section 2.3 hereof. Each Holder agrees to execute and deliver
such other agreements as may be reasonably requested by the Company or the
underwriter which are consistent with the foregoing or which are necessary to
give further effect thereto. In addition, if requested by the Company or the
representative of the underwriters of Common Stock (or other securities) of the
Company, each Holder shall provide, within ten (10) days of such request, such
information as may be required by the Company or such representative in
connection with the completion of any public offering of the Company's
securities pursuant to a registration statement filed under the Securities Act.
The obligations described in this Section 2.11 shall not apply to a registration
relating solely to employee benefit plans on Form S-1 or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the Common Stock (or other securities) subject to the foregoing
restriction until the end of said one hundred eighty (180) day period.
2.12 RULE 144 REPORTING. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
<PAGE>
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) File with the SEC, in a timely manner, all reports and
other documents required of the Company under the Exchange Act; and
(c) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144 of
the Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
SECTION 3. STOCKHOLDER CO-SALE RIGHTS
3.1
(a) If Titan proposes to sell or transfer any Titan Shares,
then Titan shall promptly give written notice (the "Notice") to the Company and
to each of the Stockholders at least 20 days prior to the closing of such sale
or transfer. The Notice shall describe in reasonable detail the proposed sale or
transfer including, without limitation, the number of Titan Shares to be sold or
transferred, the nature of such sale or transfer, the consideration to be paid,
and the name and address of each prospective purchaser or transferee. In the
event that the sale or transfer is being made pursuant to the provisions of
Section 3.2 hereof, the Notice shall state under which paragraph and
subparagraph the sale or transfer is being made.
(b) Each Stockholder shall have the right, exercisable upon
written notice to Titan within 15 days after receipt of the Notice, to
participate in such sale on the same terms and conditions specified in the
Notice (each such Stockholder a "Participant"). To the extent that one or more
of the Stockholders exercise such right of participation in accordance with the
terms and conditions set forth below, the number of Titan Shares that Titan may
sell in the transaction shall be correspondingly reduced.
(c) Each Stockholder may sell all or any part of that number
of Cayenta Shares equal to the product obtained by multiplying (i) the aggregate
number of Titan Shares covered by the Notice by (ii) a fraction, the numerator
of which is the number of Cayenta Shares owned by the Stockholder at the time of
the sale or transfer and the denominator of which is the total number of Titan
shares and Cayenta Shares owned by Titan and the Stockholders, respectively, at
the time of the sale or transfer.
(d) Each Participant shall effect its participation in the
sale by promptly delivering to Titan for transfer to the prospective purchaser
one or more certificates, properly endorsed for transfer, which represent the
type and number of Cayenta Shares which such Participant elects to sell.
<PAGE>
(e) The stock certificate or certificates that the Participant
delivers to Titan pursuant to paragraph 3.1(d) shall be transferred to the
prospective purchaser in consummation of the sale of the Common Stock pursuant
to the terms and conditions specified in the Notice, and Titan shall
concurrently therewith remit to such Participant that portion of the sale
proceeds to which such Participant is entitled by reason of its participation in
such sale. To the extent that any prospective purchaser, or purchasers,
prohibits such assignment or otherwise refuses to purchase Cayenta Shares or
other securities from a Participant exercising its rights of co-sale hereunder,
Titan shall not sell to such prospective purchaser or purchasers any Titan
Shares unless and until, simultaneously with such sale, Titan shall purchase
such Cayenta Shares or other securities from such Participant.
(f) The exercise or non-exercise of the rights of the
Participants hereunder to participate in one or more sales of Titan Shares made
by Titan shall not adversely affect their rights to participate in subsequent
sales of Titan Shares subject to paragraph 3.1(a).
(g) If none of the Stockholders elects to participate in the
sale of Titan Shares subject to the Notice, Titan may, not later than sixty (60)
days following delivery to the Company and each of the Stockholders of the
Notice, enter into an agreement providing for the closing of the transfer of the
Titan Shares covered by the Notice within thirty (30) days of such agreement on
terms and conditions not more favorable to the transferor than those described
in the Notice. Any proposed transfer on terms and conditions more favorable than
those described in the Notice, as well as any subsequent proposed transfer of
any of the Titan Shares by Titan, shall again be subject to the co-sale rights
of the Stockholders and shall require compliance by Titan with the procedures
described in this Section 3.1.
3.2 EXEMPT TRANSFERS
(a) Notwithstanding the foregoing, the provisions of Sections
3.1(b) through 3.1(g) shall not apply to (i) any pledge of Titan Shares made
pursuant to a bona fide loan transaction that creates a mere security interest,
including any security interest in existence on the date of this Agreement; or
(ii) any transfer of Titan Shares to an affiliate of Titan; provided that (A)
Titan shall inform the Stockholders of such pledge or transfer prior to
effecting it and (B) the pledgee or transferee shall furnish the Stockholders
with a written agreement to be bound by and comply with all provisions of
Section 3. Such transferred Titan Shares shall remain "Titan Shares" hereunder,
and such pledgee or transferee shall be treated as "Titan" for purposes of this
Agreement.
(b) Notwithstanding the foregoing, the provisions of Section 3
shall not apply to the sale of any Titan Shares (i) to the public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"); (ii) to the Company, or (iii) if prior to such sale, Titan
held less than 5% of the Company's outstanding capital stock.
3.3 PROHIBITED TRANSFERS
(a) In the event Titan should sell any Titan Shares in
contravention of the co-sale rights of the Stockholders under this Agreement (a
"Prohibited Transfer"), each Stockholder,
<PAGE>
in addition to such other remedies as may be available at law, in equity or
hereunder, shall have the put option provided below, and Titan shall be bound
by the applicable provisions of such option.
(b) In the event of a Prohibited Transfer, each Stockholder
shall have the right to sell to Titan the type and number of Cayenta Shares
equal to the number of Cayenta Shares each Stockholder would have been entitled
to transfer to the purchaser had the Prohibited Transfer under Section 3(c)
hereof been effected pursuant to and in compliance with the terms hereof. Such
sale shall be made on the following terms and conditions:
(i) The price per share at which the Cayenta Shares
are to be sold to Titan shall be equal to the price per share paid by the
purchaser to Titan in the Prohibited Transfer. Titan shall also reimburse each
Stockholder for any and all fees and expenses, including legal fees and
expenses, incurred pursuant to the exercise or the attempted exercise of the
Stockholder's rights under Section 3.
(ii) Within 90 days after the later of the dates on
which the Stockholder (A) received notice of the Prohibited Transfer or (B)
otherwise became aware of the Prohibited Transfer, each Stockholder shall, if
exercising the option created hereby, deliver to Titan the certificate or
certificates representing Cayenta Shares to be sold, each certificate to be
properly endorsed for transfer.
(iii) Titan shall, upon receipt of the certificate or
certificates for the Cayenta Shares to be sold by a Stockholder, pursuant to
this Section 3.3, pay the aggregate purchase price therefor and the amount of
reimbursable fees and expenses, as specified in subparagraph 3.3(b)(i), in cash
or by other means acceptable to the Stockholder.
(iv) Notwithstanding the foregoing, any attempt by
Titan to transfer Titan Shares in violation of Section 3 hereof shall be void
and the Company agrees it will not effect such a transfer nor will it treat any
alleged transferee as the holder of such Titan Shares without the written
consent of a majority in interest of the Stockholders.
3.4 LEGEND
(a) Each certificate representing Titan Shares now or
hereafter owned by Titan or issued to any person in connection with a transfer
pursuant to this Section 3 hereof shall be endorsed with the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN INVESTOR RIGHTS AGREEMENT BY AND
BETWEEN THE STOCKHOLDER, THE CORPORATION AND CERTAIN HOLDERS
OF STOCK OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION."
<PAGE>
(b) Titan agrees that the Company may instruct its transfer
agent to impose transfer restrictions on the Titan Shares represented by
certificates bearing the legend referred to in Section 3.4(a) above to enforce
the provisions of this Agreement and the Company agrees to promptly do so. The
legend shall be removed when the rights under this Section 3 expire pursuant to
the terms of this Agreement.
SECTION 4. STOCKHOLDER RIGHTS OF FIRST REFUSAL
4.1 SUBSEQUENT OFFERINGS. Each Stockholder shall have a right of first
refusal to purchase its PRO RATA share of all Equity Securities, as defined
below, that the Company may, from time to time, propose to sell and issue after
the date of this Agreement, other than the Equity Securities excluded by Section
4.6 hereof. Each Stockholder's PRO RATA share is equal to the ratio of (a) the
number of Cayenta Shares which such Stockholder is deemed to be a holder
immediately prior to the issuance of such Equity Securities to (b) the total
number of shares of the Company's outstanding Common Stock (including all shares
of Common Stock issued or issuable upon exercise of any outstanding warrants or
options) immediately prior to the issuance of the Equity Securities. The term
"Equity Securities" shall mean (i) any Common Stock, Preferred Stock or other
security of the Company, (ii) any security convertible, with or without
consideration, into any Common Stock, Preferred Stock or other security
(including any option to purchase such a convertible security), (iii) any
security carrying any warrant or right to subscribe to or purchase any Common
Stock, Preferred Stock or other security or (iv) any such warrant or right.
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity
Securities, it shall give each Stockholder written notice of its intention,
describing the Equity Securities, the price and the terms and conditions upon
which the Company proposes to issue the same. Each Stockholder shall have
fifteen (15) days from the giving of such notice to agree to purchase its PRO
RATA share of the Equity Securities for the price and upon the terms and
conditions specified in the notice by giving written notice to the Company and
stating therein the quantity of Equity Securities to be purchased.
Notwithstanding the foregoing, the Company shall not be required to offer or
sell such Equity Securities to any Stockholder who would cause the Company to be
in violation of applicable federal securities laws by virtue of such offer or
sale.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If the Stockholders
fail to exercise in full the rights of first refusal, the Company shall have
ninety (90) days thereafter to sell the Equity Securities in respect of which
the Stockholder's rights were not exercised, at a price and upon general terms
and conditions materially no more favorable to the purchasers thereof than
specified in the Company's notice to the Stockholders pursuant to Section 4.2
hereof. If the Company has not sold such Equity Securities within ninety (90)
days of the notice provided pursuant to Section 4.2, the Company shall not
thereafter issue or sell any Equity Securities, without first offering such
securities to the Stockholders in the manner provided above.
4.4 SALE WITHOUT NOTICE. In lieu of giving notice to the Stockholders
prior to the issuance of Equity Securities as provided in Section 4.2, the
Company may elect to give notice to the Stockholders within thirty (30) days
after the issuance of Equity Securities. Such notice shall describe the type,
price and terms of the Equity Securities. Each Stockholder shall have twenty
<PAGE>
(20) days from the date of receipt of such notice to elect to purchase its PRO
RATA share of Equity Securities (as defined in Section 4.1, and calculated
before giving effect to the sale of the Equity Securities to the purchasers
thereof). The closing of such sale shall occur within sixty (60) days of the
date of notice to the Stockholders.
4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL; AMENDMENT. The rights of first
refusal of each Stockholder under this Section 4 may be transferred to the same
parties, subject to the same restrictions as any transfer of registration rights
pursuant to Section 2.9. The rights of first refusal established by this Section
4 may be amended, or any provision waived with the written consent of
Stockholders holding a majority of the Registrable Securities held by all
Stockholders.
4.6 EXCLUDED SECURITIES. The rights of first refusal established by
this Section 4 shall have no application to any of the following Equity
Securities:
(a) shares of Common Stock (and/or options, warrants or other
Common Stock purchase rights issued pursuant to such options, warrants or other
rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to the Company or any subsidiary, pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board of Directors;
(b) stock issued pursuant to any rights or agreements
outstanding as of the date of this Agreement, options and warrants outstanding
as of the date of this Agreement; and stock issued pursuant to any such rights
or agreements granted after the date of this Agreement; PROVIDED that the rights
of first refusal established by this Section 4 applied with respect to the
initial sale or grant by the Company of such rights or agreements;
(c) any Equity Securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition or similar business
combination;
(d) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company;
(e) any Equity Securities issued pursuant to any equipment
leasing arrangement, or debt financing from a bank or similar financial
institution;
(f) any Equity Securities that are issued by the Company
pursuant to a registration statement filed under the Securities Act; and
(g) shares of the Company's Common Stock or Preferred Stock
issued in connection with strategic transactions involving the Company and other
entities, such as (i) joint ventures, manufacturing, marketing or distribution
arrangements or (ii) technology transfer, licensing or development arrangements;
PROVIDED that such strategic transactions and the issuance of shares therein,
shall have been determined by the Company's Board of Directors to be a strategic
transaction for purposes of this subsection.
SECTION 5. RIGHTS OF FIRST AND SECOND REFUSAL ON SALE OF CAYENTA SHARES
<PAGE>
5.1 SALE OF CAYENTA SHARES. The Company shall have a right of first
refusal to purchase any Cayenta Shares that any Stockholder (or a permitted
assignee) proposes to sell or transfer to any third party after the date of this
Agreement. Titan shall have a right of second refusal to purchase any Cayenta
Shares that any Stockholder (or a permitted assignee) proposes to sell to any
third party after the date of this Agreement.
5.2 EXERCISE OF RIGHT OF FIRST REFUSAL. If a Stockholder proposes to
sell or transfer any Cayenta Shares, such Stockholder shall give the Company
written notice of its intention, describing the price and the terms and
conditions upon which such Stockholder proposes to sell or transfer the same.
The Company shall have fifteen (15) days from the giving of such notice to agree
to purchase any or all of such Cayenta Shares for the price and upon the terms
and conditions specified in the notice by giving written notice to such
Stockholder and stating therein the quantity of such Cayenta Shares to be
purchased.
5.3 EXERCISE OF RIGHT OF SECOND REFUSAL. If the Company does not
exercise its right of first refusal to purchase all such Cayenta Shares, the
Stockholder shall give Titan written notice of its intention to sell all
remaining Cayenta Shares it desires to sell for the price and on the terms and
conditions upon which such Stockholder set forth in the notice to the Company
delivered pursuant to Section 5.2. Titan shall have fifteen (15) days from the
giving of such notice to agree to purchase such remaining Cayenta Shares for the
price and upon the terms and conditions specified in the notice by giving
written notice to such Stockholder and stating therein the quantity of such
Cayenta Shares to be purchased.
5.4 SALE OF CAYENTA SHARES TO OTHER PERSONS. If the Company fails to
exercise its right of first refusal in full and if Titan fails to exercise its
right of second refusal in full, the Stockholder shall have ninety (90) days
from the notice delivered to Titan pursuant to Section 5.3 to sell or transfer
such Cayenta Shares in respect of which the Company's or Titan's rights were not
exercised, at a price and upon general terms and conditions materially no more
favorable to the purchasers thereof than specified in the Stockholder's notices
delivered pursuant to Section 5.2 hereof and Section 5.3 hereof. If the
Stockholder has not sold such Cayenta Shares within ninety (90) days of the
notice provided pursuant to Section 5.3, the Stockholder shall not thereafter
sell or transfer any Cayenta Shares, without first offering such securities to
the Company and Titan in the manner provided above.
5.5 TRANSFER OF RIGHTS OF FIRST REFUSAL; AMENDMENT. The right of first
refusal of the Company and the right of second refusal of Titan under this
Section 5 may be transferred to affiliates of the Company by the Company and
affiliates of Titan by Titan. The rights of first refusal established by this
Section 5 may be amended, or any provision waived with the written consent of
the Company and Titan.
5.6 EXEMPT TRANSFER. Notwithstanding anything to the contrary herein,
each Stockholder may transfer any part or all of its Cayenta Shares to a member
of such Stockholder's immediate family or a trust, limited liability company,
partnership or other entity established for the benefit of such Stockholder or
an immediate family member of such Stockholder or to an employee of Stockholder
provided that each such transferee is an accredited investor as defined in
Regulation D under the Securities Act; PROVIDED, HOWEVER, (i) the transferor
shall, within ten (10) days after such transfer, furnish to the Company written
notice of the name and address of
<PAGE>
such transferee or assignee and (ii) such transferee shall agree to be
subject to all restrictions set forth in this Agreement.
5.7 LEGEND
(a) Each certificate representing Cayenta Shares now or
hereafter owned by any Stockholder or issued to any person in connection with a
transfer pursuant to this Section 5 hereof shall be endorsed with the following
legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN INVESTOR RIGHTS AGREEMENT BY AND
BETWEEN THE STOCKHOLDER, THE CORPORATION AND CERTAIN HOLDERS
OF STOCK OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION."
(b) Each Stockholder agrees that the Company may instruct its
transfer agent to impose transfer restrictions on the Cayenta Shares represented
by certificates bearing the legend referred to in Section 5.7(a) above to
enforce the provisions of this Agreement and the Company agrees to promptly do
so. The legend shall be removed when the rights under this Section 5 expire
pursuant to the terms of this Agreement.
SECTION 6. TERMINATION OF RIGHTS
The rights set forth in Sections 3, 4 and 5 of this Agreement shall not
apply to, and shall terminate upon the earlier of (i) the effective date of the
registration statement pertaining to the Initial Offering or (ii) (A) a sale,
lease or other disposition of all or substantially all of the assets of the
Company, (B) a merger or consolidation in which the Company is not the surviving
corporation or (C) a reverse merger in which the Company is the surviving
corporation but the shares of Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise. The registration rights set forth in
Section 2 of this Agreement shall terminate in accordance with Section 2.6
hereof, and the Company agrees to promptly remove any legends related to the
rights set forth in Sections 3,4 and 5 hereof from all applicable stock
certificates.
SECTION 7. MISCELLANEOUS
7.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
7.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the
<PAGE>
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate
or instrument.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities or Titan Shares from time
to time; PROVIDED, HOWEVER, that prior to the receipt by the Company of adequate
written notice of the transfer of any Registrable Securities specifying the full
name and address of the transferee, the Company may deem and treat the person
listed as the holder of such Registrable Securities in its records as the
absolute owner and holder of such Registrable Securities for all purposes,
including the payment of dividends or any redemption price.
7.4 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto, the Stock
Purchase Agreement and the other documents delivered pursuant thereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
7.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
7.6 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may
be amended or modified only upon the written consent of the Company, Titan and
the holders of at least a majority of the Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of
the Company and Titan and the rights of the Holders under this Agreement may be
waived only with the written consent of the holders of at least a majority of
the Registrable Securities.
7.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any party hereto upon any
breach, default or noncompliance of the any other party under this Agreement
shall impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval of
any kind or character on any party's part of any breach, default or
noncompliance under the Agreement or any waiver on such party's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to any
party hereto, shall be cumulative and not alternative.
7.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (c) five (5) days after having been sent by registered or certified mail,
<PAGE>
return receipt requested, postage prepaid, or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the signature pages hereof or
Exhibit A hereto or at such other address as such party may designate by ten
(10) days advance written notice to the other parties hereto.
7.9 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
7.10 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.11 COUNTERPARTS. This Agreement may be executed by facsimile and in
any number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this INVESTOR
RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY:
CAYENTA.COM, INC.
By:
-------------------------------
THE TITAN CORPORATION
By:
-------------------------------
STOCKHOLDERS:
- ------------------------------------ ---------------------------------
- ------------------------------------ ---------------------------------
- ------------------------------------ ---------------------------------
- ------------------------------------ ---------------------------------
- ------------------------------------ ---------------------------------
- ------------------------------------ ---------------------------------
INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. GENERAL....................................................................1
1.1 Definitions..........................................................1
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER.....................................2
2.1 Restrictions on Transfer.............................................2
2.2 Form S-3 Registration................................................4
2.3 Piggyback Registrations..............................................5
2.4 Expenses of Registration.............................................6
2.5 Obligations of the Company...........................................7
2.6 Termination of Registration Rights...................................8
2.7 Delay of Registration; Furnishing Information........................8
2.8 Indemnification......................................................8
2.9 Assignment of Registration Rights...................................10
2.10 Amendment of Registration Rights....................................10
2.11 "Market Stand-Off" Agreement; Agreement to Furnish Information......11
2.12 Rule 144 Reporting..................................................11
SECTION 3. STOCKHOLDER CO-SALE RIGHTS................................................12
3.2 Exempt Transfers....................................................13
3.3 Prohibited Transfers................................................13
3.4 Legend..............................................................14
SECTION 4. STOCKHOLDER RIGHTS OF FIRST REFUSAL.......................................14
4.1 Subsequent Offerings................................................14
4.2 Exercise of Rights..................................................15
4.3 Issuance of Equity Securities to Other Persons......................15
4.4 Sale Without Notice.................................................15
4.5 Transfer of Rights of First Refusal; Amendment......................15
4.6 Excluded Securities.................................................15
SECTION 5. RIGHTS OF FIRST AND SECOND REFUSAL ON SALE OF
CAYENTA..............................................................16
5.1 Sale of Cayenta Shares..............................................16
5.2 Exercise of Right of First Refusal..................................16
</TABLE>
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
5.3 Exercise of Right of Second Refusal.................................16
5.4 Sale of Cayenta Shares to Other Persons.............................17
5.5 Transfer of Rights of First Refusal; Amendment......................17
5.6 Exempt Transfer.....................................................17
SECTION 6. TERMINATION OF RIGHTS................................................17
SECTION 7. MISCELLANEOUS........................................................17
7.1 Governing Law.......................................................17
7.2 Survival............................................................17
7.3 Successors and Assigns..............................................18
7.4 Entire Agreement....................................................18
7.5 Severability........................................................18
7.6 Amendment and Waiver................................................18
7.7 Delays or Omissions.................................................18
7.8 Notices.............................................................18
7.9 Attorneys' Fees.....................................................19
7.10 Titles and Subtitles................................................19
7.11 Counterparts........................................................19
</TABLE>
ii.
<PAGE>
An extra section break has been inserted above this paragraph. Do not delete
this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.
<PAGE>
EXHIBIT A
SCHEDULE OF HOLDERS OF CAYENTA SHARES
<TABLE>
<CAPTION>
- --------------------------------------------- --------------------------
STOCKHOLDERS SHARES
- --------------------------------------------- --------------------------
- --------------------------------------------- --------------------------
<S> <C>
SCOTT E. PYNES 4,250,000
- --------------------------------------------- --------------------------
- --------------------------------------------- --------------------------
JERRY L. MCMILLAN 252,344
- --------------------------------------------- --------------------------
- --------------------------------------------- --------------------------
KENNETH R. SAWYER 15,802
- --------------------------------------------- --------------------------
- --------------------------------------------- --------------------------
ANDREAS SEEMULLER 89,335
- --------------------------------------------- --------------------------
- --------------------------------------------- --------------------------
HENRY J. EYRING 54,164
- --------------------------------------------- --------------------------
- --------------------------------------------- --------------------------
VERN R. CHRISTENSEN 19,914
- --------------------------------------------- --------------------------
- --------------------------------------------- --------------------------
GREGORY C. ESTY 4,228
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- --------------------------------------------- --------------------------
BATCHELDER & PARTNERS, INC. 44,664
- --------------------------------------------- --------------------------
- --------------------------------------------- --------------------------
E. SCOTT ANDERSON 6,109
- --------------------------------------------- --------------------------
- --------------------------------------------- --------------------------
GUY M. CAMERON 5,597
- --------------------------------------------- --------------------------
- --------------------------------------------- --------------------------
MARNIE NUTTALL-MARTINEZ ---
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- --------------------------------------------- --------------------------
RANDALL CROCKER 5,331
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- --------------------------------------------- --------------------------
PAUL SCHWEET
- --------------------------------------------- --------------------------
- --------------------------------------------- --------------------------
STUART CLIFTON 13,327
- --------------------------------------------- --------------------------
- --------------------------------------------- --------------------------
MARK S. HOWLETT 13,860
- --------------------------------------------- --------------------------
- --------------------------------------------- --------------------------
C. BURTON STOHL 534
- --------------------------------------------- --------------------------
- --------------------------------------------- --------------------------
MARLON R. BERRETT 1,685
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- --------------------------------------------- --------------------------
PACIFIC MEZZANINE FUND, L.P. 148,183
- --------------------------------------------- --------------------------
- --------------------------------------------- --------------------------
TOTAL 4,925,077
- --------------------------------------------- --------------------------
</TABLE>
A-1
<PAGE>
TITAN SOFTWARE SYSTEMS CORPORATION
1997 STOCK OPTION PLAN
ADOPTED SEPTEMBER 16, 1997
APPROVED BY SOLE SHAREHOLDER SEPTEMBER 16, 1997
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees, Directors and Consultants of the Company and any Affiliate may be
given an opportunity to benefit from increases in value of the common stock of
the Company ("Common Stock") through the granting of (i) Incentive Stock Options
and (ii) Nonstatutory Stock Options.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants of the Company, to
secure and retain the services of new Employees, Directors and Consultants of
the Company and any Affiliate and to provide incentives for such persons to
exert maximum efforts for the success of the Company and any Affiliate.
(c) The Company intends that the Options issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either Incentive Stock Options and Nonstatutory Stock Options. All Options shall
be separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent or subsidiary corporation, whether now
or hereafter existing, as those terms are defined in Sections 424(e) and (f),
respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means Titan Software Systems Corporation, a Delaware
corporation.
1.
<PAGE>
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee or who are not compensated for their services
as Directors.
(g) "CONTINUOUS SERVICE" means that the Optionee's service with the
Company or its Affiliate is not interrupted or terminated. The Optionee's
Continuous Service shall not be deemed to have terminated merely because of a
change in the capacity in which the Optionee renders service to the Company
or its Affiliate as an Employee, Consultant or Director, provided that there
is no interruption or termination of the Optionee's Continuous Service. For
example, a change in status from an Employee of the Company to a Consultant
or a Director of an Affiliate of the Company will not constitute an
interruption of Continuous Service as an Employee. The Board or the Chief
Executive Officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the
case of any leave of absence approved by the Board or the Chief Executive
Officer of the Company, including sick leave, military leave, or any other
personal leave or transfers between the Company, its affiliates or their
successors. Unless waived by the Board, in its sole discretion, Continuous
Service shall be considered terminated in the case of any transfer between
the Company and any other subsidiary of the Company's parent, The Titan
Corporation, that is not also a subsidiary of the Company.
(h) "COVERED EMPLOYEE" means the Chief Executive Officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to shareholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(i) "DIRECTOR" means a member of the Board of Directors of the Company
or an Affiliate.
(j) "DISABILITY" means the permanent and total disability of the
Optionee within the meaning of Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
"employment" by the Company or an Affiliate.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows (and in each case prior to the
Listing Date, in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations):
2.
<PAGE>
(i) If the Common Stock is listed on any established stock
exchange, or traded on the NASDAQ National Market or the NASDAQ SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in Common Stock) on the trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(p) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who either
(i) is not a current Employee or Officer of the Company or its parent or
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or subsidiary for services rendered as a consultant or in
any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "OFFICER" means (i) prior to the Listing Date, any person
designated by the Company as an officer and (ii) from and after the Listing
Date, a person who is an officer of the Company within the meaning of Section 16
of the Exchange Act and the rules and regulations promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
3.
<PAGE>
(t) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(u) "OPTIONEE" means a person to whom an Option is granted pursuant to
the Plan.
(v) "OUTSIDE DIRECTOR" means a Director of the Company who either (i)
is not a current employee of the Company or an "affiliated corporation" (within
the meaning of Treasury regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in any
capacity other than as a Director, or (ii) is otherwise considered an "outside
director" for purposes of Section 162(m) of the Code.
(w) "PLAN" means this Titan Software Systems Corporation 1997 Stock
Option Plan.
(x) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(y) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Options; when and how each Option shall
be granted; whether an Option will be an Incentive Stock Option or a
Nonstatutory Stock Option; the provisions of each Option granted (which need not
be identical), including the time or times when a person shall be permitted to
receive stock pursuant to an Option; and the number of shares with respect to
which an Option shall be granted to each such person.
(ii) To construe and interpret the Plan and Options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan
4.
<PAGE>
or in any Option Agreement, in a manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section
12.
(iv) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a Committee or
Committees of one or more members of the Board. In the discretion of the Board,
a Committee may consist solely of two or more Outside Directors, in accordance
with Code Section 162(m), or solely of two or more Non-Employee Directors, in
accordance with Rule 16b-3. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board (and references in this Plan to the
Board shall thereafter be to the Committee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be adopted
from time to time by the Board. The Board may abolish the Committee at any time
and revest in the Board the administration of the Plan. Notwithstanding anything
in this Section 3 to the contrary, the Board or the Committee may delegate to a
committee of one or more members of the Board the authority to grant Options to
eligible persons who (1) are not then subject to Section 16 of the Exchange Act
and/or (2) are either (i) not then Covered Employees and are not expected to be
Covered Employees at the time of recognition of income resulting from such
Option, or (ii) not persons with respect to whom the Company wishes to comply
with Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 11 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Options shall
not exceed in the aggregate two million five hundred thousand (2,500,000)
shares of Common Stock. If any Option shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in
full, the stock not acquired under such Option shall revert to and again
become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
(c) Prior to the Listing Date, the total number of shares issuable upon
exercise of all outstanding Options and the total number of shares provided for
under any stock bonus or similar plan of the Company shall at no time exceed the
applicable percentage as calculated in accordance with the conditions and
exclusions of Section 260.140.45 of
5.
<PAGE>
Title 10 of the California Code of Regulations, based on the shares of the
Company which are outstanding at the time the calculation is made.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees of the
Company and its Affiliates. Nonstatutory Options may be granted to Employees,
Directors and Consultants of the Company and its Affiliates.
(b) Prior to the Listing Date, no person shall be eligible for the
grant of an Option if, at the time of grant, such person owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates unless the exercise price of such Option is
at least one hundred ten percent (110%) of the Fair Market Value of such stock
at the date of grant and the Option is not exercisable after the expiration of
five (5) years from the date of grant. After the Listing Date this provision
shall apply only to Incentive Stock Options.
(c) Subject to the provisions of Section 11 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Options
covering more than five hundred thousand (500,000) shares of the Common Stock in
any calendar year. This subsection 5(c) shall not apply prior to the Listing
Date and, following the Listing Date, shall not apply until (i) the earliest of:
(A) the first material modification of the Plan (including any increase to the
number of shares reserved for issuance under the Plan in accordance with Section
4); (B) the issuance of all of the shares of Common Stock reserved for issuance
under the Plan; (C) the expiration of the Plan; or (D) the first meeting of
shareholders at which directors are to be elected that occurs after the close of
the third calendar year following the calendar year in which occurred the first
registration of an equity security under Section 12 of the Exchange Act; or (ii)
such other date required by Section 162(m) of the Code and the rules and
regulations promulgated thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
6.
<PAGE>
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board, at the time of the grant of the Option, (A) by
delivery to the Company of other Common Stock, (B) according to a deferred
payment or other arrangement (which may include, without limiting the generality
of the foregoing, the use of other Common Stock) with the person to whom the
Option is granted or to whom the Option is transferred pursuant to subsection
6(d), or (C) in any other form of legal consideration that may be acceptable to
the Board; provided, however, that at any time that the Company is incorporated
in Delaware, then payment of the Common Stock's "par value," as defined in the
Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(d) TRANSFERABILITY. Prior to the Listing Date, an Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Option is
granted only by such person. A Nonstatutory Stock Option (but not an Incentive
Stock Option) that is granted after the Listing Date may be transferred to the
extent provided in the Option Agreement; provided that if the Option Agreement
does not expressly permit the transfer of a Nonstatutory Stock Option, the
Nonstatutory Stock Option shall not be transferable except by will, by the laws
of descent and distribution or pursuant to a domestic relations order satisfying
the requirements of Rule 16 of the Exchange Act and shall be exercisable during
the lifetime of the person to whom the Option is granted only by such person or
any transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
7.
<PAGE>
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. Prior to the Listing Date and
to the extent required by applicable law, the vesting provisions of individual
Options may vary, but Options granted to persons other than officers, directors
and consultants (within the meaning of Section 260.140.41 of Title 10 of the
California Code of Regulations) in each case will provide for vesting of at
least twenty percent (20%) per year of the total number of shares subject to the
Option although vesting may be subject to reasonable conditions such as
continued employment. The provisions of this subsection 6(e) are subject to any
Option provisions governing the maximum number of shares as to which an Option
may be exercised.
(f) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionee's
Continuous Service terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Service (or such longer or shorter
period specified in the Option Agreement, which shall not be less than thirty
(30) days unless such termination is for cause), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, after termination,
the Optionee does not exercise his or her Option within the time specified in
the Option Agreement, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that, if the exercise
of the Option following the termination of the Optionee's Continuous Service
(other than upon the Optionee's death or disability) would be prohibited at any
time solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option as described in
subsection 6(a) or (ii) the expiration of a period of three (3) months after the
termination of the Optionee's Continuous Service during which the exercise of
the Option would not be in violation of such registration requirements (if such
provisions would result in an extension of the time during which the Option may
be exercised beyond the period described in the first paragraph of this
subsection 6(f)).
8.
<PAGE>
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Service terminates as a result of the Optionee's disability, the Optionee may
exercise his or her Option (to the extent that the Optionee was entitled to
exercise it at the date of termination), but only within such period of time
ending on the earlier of (i) the date twelve (12) months following such
termination (or such longer or shorter period specified in the Option Agreement,
which, prior to the Listing Date, in no event shall be less than six (6)
months), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Service, the Option may be exercised (to the extent the
Optionee was entitled to exercise the Option at the date of death or such longer
period specified in the Option) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date twelve (12) months following the date of death (or such longer or shorter
period specified in the Option Agreement, which, prior to the Listing Date, in
no event shall be less than six (6) months), or (ii) the expiration of the term
of such Option as set forth in the Option Agreement. If, at the time of death,
the Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time before the Optionee's Continuous
Service terminates to exercise the Option as to any part or all of the shares
subject to the Option prior to the full vesting of the Option. Any unvested
shares so purchased may be subject to a repurchase right in favor of the Company
or to any other restriction the Board determines to be appropriate. If the
repurchase option described in this subsection 6(i) shall give the Company the
right to repurchase the shares upon termination of service at less than the fair
market value of the shares to be repurchased on the date of termination of
service, the right to repurchase shall lapse at the rate of at least twenty
percent (20%) of the shares per year over five (5) years from the date the
Option is granted (without respect to the date the Option was exercised or
became exercisable). The right to
9.
<PAGE>
repurchase shall be exercised for cash or cancellation of purchase money
indebtedness for the shares within (A) ninety (90) days of termination of
Continuous Service or (B) such longer period as may be agreed to by the
Company and the Optionee (for example, for purposes of satisfying the
requirements of Section 1202(c)(3) of the Code (regarding "qualified small
business stock")), and the repurchase right must terminate when the Company's
securities become publicly traded within the meaning of Section 260.140.41 of
Title 10 of the California Code of Regulations. Options held by an officer,
director or consultant of the Company or an Affiliate within the meaning of
Section 260.140.41 of Title 10 of the California Code of Regulations may be
subject to additional or greater restrictions.
(j) RIGHT OF REPURCHASE. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to
repurchase all or any part of the vested shares exercised pursuant to the
Option. If the repurchase option described in this subsection 6(j) shall give
the Company the right to repurchase the shares upon termination of service at
less than the fair market value of the shares to be repurchased on the date of
termination of service, the right to repurchase shall lapse at the rate of at
least twenty percent (20%) of the shares per year over five (5) years from the
date the Option is granted (without respect to the date the Option was exercised
or became exercisable). The right to repurchase shall be exercised for cash or
cancellation of purchase money indebtedness for the shares within (A) ninety
(90) days of termination of Continuous Service or (B) such longer period as may
be agreed to by the Company and the Optionee (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code (regarding
"qualified small business stock")), and the repurchase right must terminate when
the Company's securities become publicly traded within the meaning of Section
260.140.41 of Title 10 of the California Code of Regulations. Options held by an
officer, director or consultant of the Company or an Affiliate within the
meaning of Section 260.140.41 of Title 10 of the California Code of Regulations
may be subject to additional or greater restrictions.
(k) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionee of the
intent to transfer all or any part of the shares exercised pursuant to the
Option. Except as expressly provided in this subsection 6(k), such right of
first refusal shall otherwise comply with any applicable provisions of the
Bylaws of the Company. The right of first refusal provision described in this
subsection 6(k) shall be subject to the following limitations: Such right of
first refusal shall be exercised by the Company no more than thirty (30) days
following receipt of notice of the Optionee's intent to transfer shares and
shall be exercised as to all the shares the Optionee intends to transfer unless
the Optionee consents to exercise for less than all the shares offered. The
purchase of the shares following exercise shall be completed within thirty (30)
days of the Company's receipt of notice of the Optionee's
10.
<PAGE>
intent to transfer shares, or such longer period of time as has been offered
by the person to whom the Optionee intends to transfer the shares, or as may
be agreed to by the Company and the Optionee(for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code (regarding
"qualified small business stock").
(l) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionee to a further Option (a "Re-Load Option") in
the event the Optionee exercises the Option evidenced by the Option Agreement,
in whole or in part, by surrendering other shares of Common Stock in accordance
with this Plan and the terms and conditions of the Option Agreement. Any such
Re-Load Option (i) shall be for a number of shares equal to the number of shares
surrendered as part or all of the exercise price of such Option; (ii) shall have
an expiration date which is the same as the expiration date of the Option the
exercise of which gave rise to such Re-Load Option; and (iii) shall have an
exercise price which is equal to one hundred percent (100%) of the Fair Market
Value of the Common Stock subject to the Re-Load Option on the date of exercise
of the original Option. Notwithstanding the foregoing, a Re-Load Option which is
an Incentive Stock Option and which is granted to a 10% shareholder (as
described in subsection 5(b)), shall have an exercise price which is equal to
one hundred ten percent (110%) of the Fair Market Value of the stock subject to
the Re-Load Option on the date of exercise of the original Option and shall have
a term which is no longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; PROVIDED, HOWEVER, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 10(e) of the Plan and in Section 422(d) of the
Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load
Option shall be subject to the availability of sufficient shares under
subsection 4(a) and shall be subject to such other terms and conditions as the
Board may determine which are not inconsistent with the express provisions of
the Plan regarding the terms of Options.
7. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board shall have the authority to effect, at any time and from
time to time, (i) the repricing of any outstanding Options under the Plan and/or
(ii) with the consent of any adversely affected holders of Options, the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of stock. The exercise price per share shall be not
less than that specified under the Plan for newly granted Options.
11.
<PAGE>
Notwithstanding the foregoing, the Board may grant an Option with an exercise
price lower than that set forth above if such Option is granted as part of a
transaction to which Section 424(a) of the Code applies.
(b) Shares subject to an Option canceled under this Section 7 shall
continue to be counted against the maximum award of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The repricing of an Option
under this Section 7, resulting in a reduction of the exercise price, shall be
deemed to be a cancellation of the original Option and the grant of a substitute
Option; in the event of such repricing, both the original and the substituted
Options shall be counted against the maximum awards of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The provisions of this
subsection 7(b) shall be applicable only to the extent required by Section
162(m) of the Code.
8. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep available
at all times the number of shares of stock required to satisfy such Options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Options; provided, however, that this undertaking
shall not require the Company to register under the Securities Act the Plan, any
Option or any stock issued or issuable pursuant to any such Option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such Options unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(a) Prior to the Listing Date and subject to any applicable provisions
of the California Corporate Securities Law of 1968 and related regulations
relied upon as a condition of issuing securities pursuant to the Plan, the Board
shall have the power to accelerate the time at which an Option may first be
exercised or the time during which an Option or any part thereof will vest,
notwithstanding the provisions in the Option stating the time at which it may
first be exercised or the time during which it will vest.
12.
<PAGE>
(b) Neither an Employee, Director or a Consultant nor any person to
whom an Option is transferred in accordance with the Plan shall be deemed to be
the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Option unless and until such person has satisfied all
requirements for exercise of the Option pursuant to its terms.
(c) Prior to the Listing Date and to the extent required by applicable
law, throughout the term of any Option, the Company shall deliver to the holder
of such Option, not later than one hundred twenty (120) days after the close of
each of the Company's fiscal years during the term of such Option, a balance
sheet and an income statement. This subsection 10(c) shall not apply (i) after
the Listing Date, or (ii) when issuance is limited to key employees whose duties
in connection with the Company assure them access to equivalent information.
(d) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee, Consultant or other holder of
Options any right to continue in the employ of the Company or any Affiliate or
to continue serving as a Consultant or a Director, or shall affect the right of
the Company or any Affiliate to terminate the employment of any Employee with or
without notice and with or without cause, or the right to terminate the
relationship of any Consultant pursuant to the terms of such Consultant's
agreement with the Company or Affiliate or service as a Director pursuant to the
Company's Bylaws and, prior to the Listing Date and to the extent required by
applicable law, the provisions of the corporate law of the state in which the
Company is incorporated.
(e) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(f) The Company may require any person to whom an Option is granted, or
any person to whom an Option is transferred in accordance with the Plan, as a
condition of exercising or acquiring stock under any Option, (1) to give written
assurances satisfactory to the Company as to such person's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters, and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (2) to give written assurances satisfactory
to the Company stating that such person is acquiring the stock subject to the
Option for such person's own account and not with any present intention of
selling or
13.
<PAGE>
otherwise distributing the stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (i)
the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act, or (ii) as to any particular requirement,
a determination is made by counsel for the Company that such requirement need
not be met in the circumstances under the then applicable securities laws.
The Company may, upon advice of counsel to the Company, place legends on
stock certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including,
but not limited to, legends restricting the transfer of the stock.
(g) To the extent provided by the terms of an Option Agreement, the
person to whom an Option is granted may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of stock under an
Option by any of the following means (in addition to the Company's right to
withhold from any compensation paid to such person by the Company) or by a
combination of such means: (1) tendering a cash payment; (2) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the participant as a result of the exercise or acquisition of stock
under the Option; or (3) delivering to the Company owned and unencumbered shares
of the Common Stock of the Company.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Option, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the maximum
number of shares subject to award to any person during any calendar year
pursuant to subsection 5(c), and the outstanding Options will be appropriately
adjusted in the class(es) and number of shares and price per share of stock
subject to such outstanding Options. Such adjustments shall be made by the
Board, the determination of which shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a "transaction not involving the receipt of consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the
14.
<PAGE>
merger are converted by virtue of the merger into other property, whether in
the form of securities, cash or otherwise; or (4) after the Listing Date, the
acquisition by any person, entity or group within the meaning of Section
13(d) or 14(d) of the Exchange Act, or any comparable successor provisions
(excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or any Affiliate of the Company) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act, or comparable successor rule) of securities of the Company representing
at least fifty percent (50%) of the combined voting power entitled to vote in
the election of directors, then (i) any surviving corporation or acquiring
corporation shall assume any Options outstanding under the Plan or shall
substitute similar Options (including an award to acquire the same
consideration paid to the shareholders in the transaction described in this
subsection 11(b)) for those outstanding under the Plan, or (ii) in the event
any surviving corporation or acquiring corporation refuses to assume such
Options or to substitute similar Options for those outstanding under the
Plan, (A) with respect to Options held by persons whose Continuous Service
has not terminated, and subject to any applicable provisions of the
California Corporate Securities Law of 1968 and related regulations relied
upon as a condition of issuing securities pursuant to the Plan, the vesting
of such Options (and, if applicable, the time during which such Options may
be exercised) shall be accelerated prior to such event and the Options
terminated if not exercised (if applicable) after such acceleration and at or
prior to such event, and (B) with respect to any other Options outstanding
under the Plan, such Options shall be terminated if not exercised (if
applicable) prior to such event.
12. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 11 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company to the extent shareholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any NASDAQ or
securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for shareholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible Employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the
15.
<PAGE>
regulations promulgated thereunder relating to Incentive Stock Options and/or
to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(d) Rights under any Option granted before amendment of the Plan shall
not be impaired by any amendment of the Plan unless (i) the Company requests the
consent of the person to whom the Option was granted and (ii) such person
consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Options; provided, however, that the rights under any Option
shall not be impaired by any such amendment unless (i) the Company requests the
consent of the person to whom the Option was granted and (ii) such person
consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on the day before the tenth (10th)
anniversary of the date the Plan is adopted by the Board or approved by the
shareholders of the Company, whichever is earlier. No Options may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Option was granted.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the date adopted by the Board, but
no Options granted under the Plan shall be exercised unless and until the Plan
has been approved by the shareholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board.
16.
<PAGE>
The Titan Corporation
Amended and Restated
1995 Employee Stock Purchase Plan
Effective July 1, 1998
Table of Contents
Section 1. Definitions
Section 2. Establishment of the Plan
Section 3. Eligible Employees
Section 4. Enrollment
Section 5. Duration of Offer; Offering Periods
Section 6. Shares to be Offered
Section 7. Subscription Price
Section 8. Amount of Contribution; Method of Payment
Section 9. Purchase of Sales
Section 10. Withdrawal from the Plan
Section 11. Termination of Employment
Section 12. Transferability
Section 13. Application of Funds
Section 14. Adjustment of and Changes in the Stock
Section 15. Amendment or Discontinuance of the Plan
Section 16. Administrative
Section 17. Employee's Rights
Section 1. Definitions
As used in this 1995 Employee Stock Purchase Plan of The Titan Corporation,
the following terms shall have the meanings respectively assigned to them below:
a. "Board" shall mean the Board of Directors of Titan.
b. "Code" shall mean the Internal Revenue Code of 1986, as amended.
c. "Committee" shall mean the Compensation, Stock Option and Pension
Committee of the Board.
d. "Eligible Employee" shall mean a person who is eligible under the
provisions of Section 3 to participate in the Plan.
e. "Market Value" means, as of a particular date, (i) if the Stock is
listed on an exchange, the closing price of the Stock on such date on
such exchange, (ii) if the Stock is quoted through the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ")
National Market System or any successor thereto, the closing price of
the Stock on such date and (iii) if the Stock is quoted through NASDAQ
(but not on
<PAGE>
the National Market System) or otherwise publicly traded, the average
of the closing bid and asked prices of the Stock on such date. In the
event that the Stock is not traded on the date as of which Market
Value is to be determined, Market Value shall be determined as of the
next preceding trading day.
f. "Participant" shall mean an Eligible Employee who has elected to
participate in the Plan by filing a subscription agreement in
accordance with the terms of the Plan.
g. "Employer" shall mean Titan and any Related Corporation which has been
designated in writing by the Committee as such.
h. "Offering Period" shall mean such periods during which Stock will be
offered to Participants as set forth in Section 5.
i. "Plan" shall mean The Titan Corporation 1995 Employee Stock Purchase
Plan, as amended and restated.
j. "Plan Account" shall mean the account kept by Titan for each
Participant in accordance with the provisions of Section 9.
k. "Purchase Date" shall mean the dates specified in Section 9, on which
stock is purchased or deemed purchased for the Participants' accounts.
l. "Regular Earnings" shall mean the part of the Participant's
compensation used to determine his or her allowable contribution
according to the provisions of Section 8.
m. "Related Corporation" shall mean any corporation which is or during
the term of the Plan becomes a parent corporation of Titan, as defined
in Section 424(e) of the Code, or a subsidiary corporation of Titan,
as defined in Section 424(f) of the Code.
n. "Stock" shall mean the Common Stock, $0.01 par value, of Titan, or
such other securities as may be substituted for such Stock in
accordance with Section 14.
o. "Subscription Price" shall mean the price per share as determined in
Section 7, to be paid by the Participants for Stock acquired under the
Plan.
p. "Titan" shall mean The Titan Corporation, a Delaware corporation.
<PAGE>
q. "Designated Broker" shall mean the broker designate by the Board or
the Committee to hold the shares purchased pursuant to this Plan for
the benefit of the Participants.
Section 2. Establishment of the Plan
This Plan shall be known as The Titan Corporation 1995 Employee Stock
Purchase Plan. The purpose of the Plan is to encourage ownership of Stock by
employees of Titan and any Related Corporations, and to provide an additional
incentive for the employees to promote the success of the business of Titan and
any Related Corporations. The Plan is intended to meet the requirements of an
"Employee Stock Purchase Plan" as defined in Section 423 of the Code.
Section 3. Eligible Employees
(a) All individuals who, on the last day on which Stock is traded before a
Offering Period begins, are employees of an Employer shall be deemed to be
eligible to participate in the Plan, except that any employee (i) who has not as
of such date completed ninety (90) days of employment, (ii) whose customary
employment is for less than twenty (20) hours per week or less than five (5)
months per year or (iii) who is an officer of Titan (as defined in Rule 16a-1
promulgated under the Securities Exchange Act of 1934) shall not be an Eligible
Employee. For purposes determining the 90 day period specified in (i)
hereinabove, any period of employment within the five years immediately
preceding the submission of the subscription agreement may be considered.
(b) A person who is otherwise an Eligible Employee shall not be granted any
right to purchase Stock under the Plan to the extent (i) it would, if exercised,
cause the person to own shares of Stock (including shares which would be owned
if all outstanding options to purchase Stock owned by such person were
exercised) in excess of five percent (5%) of the total combined voting power of
<PAGE>
all classes of stock of Titan or of any Related Corporation, or (ii) it causes
such person to have purchase rights under all employee stock purchase plans of
Titan and any Related Corporation which exceed $25,000 of Market Value of Stock
(determined as of the first day of the Offering Period) for each calendar year
in which such right is outstanding. For this purpose a right to purchase Stock
accrues when it first becomes exercisable during the calendar year. In
determining whether the stock ownership of an Eligible Employee equals or
exceeds the five percent (5%) limit set forth above, the rules of Section 424(d)
of the Code (relating to attribution of stock ownership) shall apply, and Stock
which the employee may purchase under outstanding options shall be treated as
Stock owned by the employee.
Section 4. Enrollment
Any person who is an Eligible Employee who desires to subscribe for the
purchase of Stock for the following Offering Period must submit a subscription
agreement to the Committee at least ten business days prior to the beginning of
such Offering Period. Once enrolled, an Eligible Employee will participate in
the Plan for the entire Offering Period until he or she terminates his or her
participation or ceases to be an Eligible Employee. Upon the expiration of an
Offering Period, the Participants of that particular Offering Period will be
automatically enrolled in the first Offering Period beginning following such
expiration. If a Participant ceases to be an Eligible Employee, his or her
participation shall cease immediately and the amount credited to the
Participant's Plan Account will be refunded in cash. If a Participant desires to
change his or her rate of contribution the Participant may do so effective after
the next following Purchase Date by filing a new subscription agreement at least
ten business days prior to such Purchase Date; provided, however, a Participant
may decrease his or her rate of contribution once between Purchase Dates (but
<PAGE>
not below one percent (1%) of Regular Earnings as that term is defined in
Section 8) by filing an amended subscription agreement at least ten business
days prior to the desired effective date of such decrease.
Section 5. Duration of Offer; Offering Periods
This Plan shall be in effect from January 1, 1996 through and including
December 31, 2005. Offering Periods shall be of two year duration and begin
every January 1 and July 1 until the expiration of the Plan, or such other
period which is designated by the Board as a Offering Period. The first two year
Offering Period shall begin on July 1, 1998 and expire on June 30, 2000; the
second two year Offering Period shall begin on January 1, 1999 and expire on
December 31, 2000; succeeding Offering Periods shall be deemed Offering Periods
without need of further Board action unless and until contrary action shall have
been taken by the Board prior to the beginning of what would otherwise be a
Offering Period.
Section 6. Shares to be Offered
The total number of shares to be made available under this Plan is Five
Hundred Thousand (500,000) authorized and unissued shares, treasury shares of
Stock or shares acquired by the Designated Broker on behalf of the Plan, subject
to any adjustments pursuant to Section 14 of the Plan. Subject to any
adjustments pursuant to Section 14 of the Plan, the aggregate number of shares a
Participant may purchase under the Plan on each Purchase Date shall not exceed
the result of $12,500 divided by the Market Value of the shares on the last
trading day before the first day of the Offering Period, and then rounded down,
if necessary, to the nearest whole number. In the event that all of the Stock
made available under the Plan is subscribed prior to the expiration of the Plan,
the Plan may be terminated in accordance with Section 15 of the Plan. Titan
shall, at all
<PAGE>
times during which subscriptions are outstanding, reserve and keep available
shares of Stock sufficient to satisfy such subscriptions, and shall pay all fees
and expenses incurred by Titan in connection therewith.
Section 7. Subscription Price
The "Subscription Price" for each share of Stock shall be eighty-five
percent (85%) of the lesser of (i) the Market Value of such share on the first
day of the Offering Period or (ii) the Market Value of such share on the
Purchase Date.
Section 8. Amount of Contribution; Method of Payment
Except as otherwise provided herein, the Subscription Price will be payable
by the Participant only by means of payroll deduction. The minimum deduction
shall be no less than one percent (1%) of the Participant's Regular Earnings,
and the maximum deduction shall be no more than ten percent (10%) of such
Participant's Regular Earnings. "Regular Earnings" means the total salary, bonus
and overtime paid to a Participant during the Offering Period, but excluding
fringe benefits and any other form of remuneration. Payroll deductions will
commence with the first pay check issued during the Offering Period and will
continue with each pay check throughout the entire Offering Period except for
pay periods for which the Participant receives no compensation (i.e.,
uncompensated personal leave, leave of absence, etc.). A Participant may change
his or her rate of contribution during an Offering Period only as provided in
Section 4 above. Accumulated payroll deductions held by Titan in Plan Accounts
shall not bear interest, nor shall Titan be obligated to segregate the same from
any of its other assets.
Section 9. Purchase of Shares
<PAGE>
(a) Titan will maintain a Plan Account in the name of each Participant. At
the close of each pay period, the amount deducted from the Participant's Regular
Earnings will be credited to the Participant's Plan Account. During the Offering
Period, every December 31 and June 30 will be designated Purchase Dates. On each
Purchase Date, the amount then in the Participant's Plan Account will be divided
by the Subscription Price for such Offering on such Purchase Date and the number
of whole shares which result will be credited within a reasonable time to the
Participant's account with the broker designated by the committee. Any amount
representing a fractional share and remaining in the Participant's Plan Account
after deducting the amount required to pay for the number of shares issued will
be deemed to be an advance payment of the Subscription Price for the next
Purchase Date but will not otherwise reduce the amount a Participant may
contribute pursuant to Section 8 during the Offering Period. Any amount
representing a fractional share and remaining in the Participant's Plan Account
after deducting the amount required to pay for the number of shares issued on
the last Purchase Date of the Offering Period will be applied to the
Participants' Plan Account for the next Offering Period, but will not otherwise
reduce the amount a Participant may contribute to Section 8 during such
following Offering Period. In the event the number of shares of Stock subscribed
for under all active Offerings exceeds the remaining number of shares available
for sale under the Plan, the available shares shall be allocated among the
Participants in proportion to their Plan Account balances at the next following
Purchase Date. Any amount remaining in a Participant's Plan Account will be
refunded in cash, without interest.
<PAGE>
(b) Shares of Stock purchased on any Purchase Date shall be delivered to a
broker designated by the Committee to hold shares for the benefit of the
Participants. As determined by the Committee from time to time, such shares
shall be delivered as physical certificates or by means of a book entry system.
Although the Participant may direct the broker to sell such shares at any time
(subject to the restrictions of Section 12 of the Plan and applicable securities
laws), the shares must be held with the Designated Broker until 24 months after
the first day of the Offering Period during which the shares were purchased.
Following such 24-month period, a Participant may transfer his or her shares to
another broker or to any other person (including the Participant) but all costs
incident to such transfer shall be paid by the Participant.
Section 10. Withdrawal from the Plan
A Participant may withdraw from the Plan at any time prior to the 15th
business day before the next following Purchase Date by submitting a written
request to the Company at least three business days prior to the effective date
of withdrawal. At the time of withdrawal the amount credited to the
Participant's Plan Account will be refunded in cash, without interest. A
Participant who withdraws from the Plan during an Offering Period may not enroll
again in the Plan until the next Offering Period. A Participant's withdrawal
during one Offering Period does not prevent the Participant from re-enrolling
during subsequent Offering Periods.
Section 11. Termination of Employment
Termination of employment for any reason including death shall be treated
as an automatic withdrawal as set forth in Section 10. A transfer from one
Employer to another Employer shall not be treated as a termination of
employment. For purposes of this Section 11, a Participant shall be deemed to be
employed throughout any leave of absence for military service, illness or other
<PAGE>
bona fide purpose which does not exceed the longer of ninety days or the period
during which the Participant's re-employment rights are guaranteed by statute
(including without limitation the Veterans Re-employment Rights Act or similar
statute relating to military service) or by contract. If the Participant does
not return to active employment prior to the termination of such period, his or
her employment shall be deemed to have ended on the ninety-first day of such
leave of absence, or on the first day following expiration of such longer period
guaranteed by statute or by contract as provided above.
Section 12. Transferability
(a) Except for transfers by will or under the laws of descent and
distribution, (i) neither the payroll deduction credited to a Participant's Plan
Account nor an Eligible Employee's right to purchase Stock under this Plan may
be sold, assigned, transferred, pledged, or otherwise disposed of or encumbered,
and any such action taken by the Participant or Eligible Employee, or any claim
asserted by another party in respect of such right or interest, shall be void
and (ii) rights to purchase Stock under this Plan may be exercised only by an
Eligible Employee.
(b) Shares of Stock purchased under the Plan may not be assigned,
transferred, pledged or otherwise disposed of until after completion of six full
calendar months following the Purchase Date at which the shares of Stock were
acquired. Thereafter the shares of Stock may be sold or otherwise transferred
subject to the restrictions of Section 9 (b); provided that the foregoing
restrictions will lapse with respect to any Participant in the event of the
death of such Participant.
<PAGE>
Section 13. Application of Funds
All funds received or held by Titan under the Plan are not held in trust
and may be used for any corporate purpose.
Section 14. Adjustment of and Changes in the Stock
In the event that the shares of Stock shall be changed into or exchanged
for a different number or kind of shares of stock or other securities of Titan
or of another corporation (whether by reason of merger, consolidation,
recapitalization, stock split, combination of shares, or otherwise), or if the
number of shares of Stock shall be increased through a stock split or the
payment of a stock dividend, then there shall be substituted for or added to
each share of Stock theretofore reserved for sale under the Plan, the number and
kind of shares of stock or other securities into which each outstanding share of
Stock shall be so changed, or for which each such share shall be exchanged, or
to which each such share shall be entitled, as the case may be, or the number or
kind of securities which may be sold under the Plan and the purchase price per
share shall be appropriately adjusted consistent with such change in such manner
as the Board may deem equitable to prevent dilution or enlargement of rights
granted to, or available for, Eligible Employees. Similarly, if the number of
shares of Stock shall be decreased through a reverse stock split or otherwise,
the number of securities and purchase price per share shall be proportionally
adjusted.
Section 15. Amendment or Discontinuance of the Plan
The Board shall have the right to amend, modify or terminate the Plan at
<PAGE>
any time without notice, provided that without the approval of the Company's
stockholders no such amendment shall increase the total number of shares of
Stock subject to the Plan, change the formula by which the price at which the
shares of Stock shall be sold is determined, or change the class of employees
eligible to participate in the Plan. Without limiting the generality of the
foregoing but subject to the foregoing proviso, the Board may amend the Plan
from time to time to increase or decrease the length of any future Offering
Periods (e.g. to an annual period), but not in excess of the maximum period
allowable for the Plan to meet the requirements of Section 423 of the Code, and
to make all required conforming changes to the Plan. In the event that, after
the initial Offering Period, there occurs a dissolution or liquidation of the
Company, the plan shall terminate, and each Participant shall have the amount in
his or her Plan Account refunded in cash, without interest.
Section 16. Administrative
The Plan shall be administered by the Board. The Board shall have authority
to interpret the Plan, to determine when and how stock of the Company shall be
offered and the provisions of each such Offering to prescribe, amend and rescind
rules and regulations relating to the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan. Any interpretation or
construction of any provision of the Plan by the Board shall be final and
conclusive on all persons. The Board may delegate all or any portion of its
authority with respect to the Plan to the Committee, and thereafter until such
delegation is revoked by the Board all powers under the Plan delegated to the
Committee shall be exercised by the Committee.
Section 17. Employee's Rights
<PAGE>
Nothing in this Plan shall prevent Titan or any Related Corporation from
terminating any employee's employment. No employee shall have any rights as a
stockholder until full payment has been made for the shares of Stock for which
he or she has subscribed.
<PAGE>
SUPPLEMENTAL RETIREMENT PLAN FOR EXECUTIVES
MASTER PLAN DOCUMENT
SEPTEMBER 1, 1990
AS AMENDED
JANUARY 1, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Purpose ..................................................................... 1
Article 1 - DEFINITIONS ..................................................... 1
Article 2 - ELIGIBILITY ..................................................... 3
2.1 Selection By Committee .................................................. 3
2.2 Enrollment Requirements ................................................. 3
Article 3 - DEFERRAL COMMITMENTS ............................................ 3
3.1 Minimum Deferral ........................................................ 3
3.2 Maximum Deferral ........................................................ 3
3.3 Withholding of Deferral Amounts ......................................... 3
3.4 Company Contribution .................................................... 3
3.5 Annual Rate ............................................................. 3
3.6 Interest Crediting ...................................................... 4
3.7 Default ................................................................. 4
3.8 Deferral Penalty in the Event of Default ................................ 4
3.9 Waiver of Default and Grant of Suspension ............................... 4
3.10 Termination of Participation ........................................... 4
Article 4 - PRERETIREMENT PAYMENTS .......................................... 4
4.1 Preretirement Payments .................................................. 4
4.2 Hardship Payments ....................................................... 5
Article 5 - RETIREMENT BENEFIT .............................................. 5
5.1 Retirement Benefit ...................................................... 5
5.2 Rate of Interest ........................................................ 5
5.3 Duration of Benefits .................................................... 5
Article 6 - Survivor Benefit ................................................ 6
6.1 Preretirement Survivor Benefit .......................................... 6
6.2 Amount .................................................................. 6
6.3 Post-retirement Survivor Benefit ........................................ 6
6.4 Eligibility ............................................................. 6
6.5 Suicide ................................................................. 6
-i-
<PAGE>
<CAPTION>
PAGE
----
<S> <C>
Article 7 - TERMINATION BENEFIT ............................................. 7
7.1 Eligibility ............................................................. 7
7.2 Termination Before Normal Retirement .................................... 7
7.3 Plan Participation Crediting ............................................ 7
7.4 Payment Schedule ........................................................ 8
7.5 Termination After Age Sixty (60) ........................................ 8
Article 8 - DISABILITY BENEFIT .............................................. 8
8.1 Definition .............................................................. 8
8.2 Benefit ................................................................. 8
Article 9 - BENEFICIARY ..................................................... 9
9.1 Beneficiary ............................................................. 9
9.2 Beneficiary Designation ................................................. 9
9.3 Change of Beneficiary ................................................... 9
9.4 Employer Acknowledgment ................................................. 9
9.5 Undefined Beneficiary ................................................... 9
9.6 Discharge of Obligation ................................................. 9
Article 10 - LEAVE OF ABSENCE ............................................... 9
10.1 Paid Leave of Absence .................................................. 9
10.2 Unpaid Leave of Absence ................................................ 9
10.3 Discharge of Obligation ................................................ 9
Article 11 - EMPLOYER LIABILITY ............................................ 10
11.1 General Assets ........................................................ 10
11.2 Employer's Liability .................................................. 10
11.3 Limitation of Obligation .............................................. 10
11.4 Participation Cooperation ............................................. 10
Article 12 - NO GUARANTEE OF EMPLOYMENT .................................... 10
12.1 No Guarantee of Employment ............................................ 10
Article 13 - TERMINATION OF PARTICIPATION .................................. 10
13.1 Written Notice ........................................................ 10
Article 14 - TERMINATION, AMENDMENT OR MODIFICATION OF THE PLAN ............ 10
14.1 Company Termination of Plan ........................................... 10
14.2 Plan Amendment ........................................................ 11
14.3 Termination ........................................................... 11
14.4 Beneficiary Entitlement ............................................... 11
14.5 Hostile Takeovers ..................................................... 11
-ii-
<PAGE>
<CAPTION>
PAGE
----
<S> <C>
Article 15 - OTHER BENEFITS AND AGREEMENTS ................................. 11
15.1 Coordination With Other Benefits ...................................... 11
Article 16 - RESTRICTIONS ON ALIENATION OF BENEFITS ........................ 11
16.1 No Right of Transfer .................................................. 11
Article 17 - ADMINISTRATION OF THE PLAN .................................... 12
17.1 Committee Administration .............................................. 12
17.2 Committee Authority ................................................... 12
17.3 Committee Indemnity ................................................... 12
17.4 Employer's Obligations to the Committee ............................... 12
17.5 Committee Discretion in Payment Schedule .............................. 12
Article 18 - MISCELLANEOUS ................................................. 13
18.1 Notice ................................................................ 13
18.2 Successors ............................................................ 13
18.3 Governing Law ......................................................... 13
18.4 Pronouns .............................................................. 13
</TABLE>
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<PAGE>
SUPPLEMENTAL RETIREMENT PLAN
PURPOSE
The purpose of this Plan is to provide specified benefits to a select group
of key employees who contribute materially to the continued growth,
development and future business success of The Titan Corporation and its
subsidiaries.
ARTICLE 1
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the context, the
following phrases or terms shall have the following indicated meanings:
1.1 "Account Balance" shall mean the current sum of Participant and Company
contributions and interest earnings thereon, attributable to a
Participant's individual account.
1.2 "Annual Deferral" shall mean that portion of a Participant's Base Annual
Salary that a Participant elects to have and is deferred, in accordance
with Article 3, for any one Plan Year. In the event of Retirement,
Disability, death or a Termination of Employment prior to the end of a
Plan Year, such year's Annual Deferral shall be the actual amount
withheld prior to such event.
1.3 "Base Annual Salary" shall mean the yearly compensation paid to an
Executive, excluding bonuses, commissions, overtime, and non-monetary
awards for employment services to the Company.
1.4 "Bonus" shall mean the individual Management By Objective (MBO) Bonus
paid annually to eligible employees.
1.5 "Beneficiary" shall mean the person or persons, or the estate of a
Participant, entitled to receive any benefits under this Plan upon the
death of a Participant.
1.6 "Committee" shall mean the Compensation Committee of the Board of
Directors or an administrative committee appointed by the Compensation
Committee to manage and administer the Plan in accordance with the
provisions of this Plan.
-1-
<PAGE>
1.7 "Company" shall mean The Titan Corporation and its subsidiaries.
1.8 "Deferral Amount" shall mean the sum of all a Participant's Annual
Deferrals, excluding the Company contribution, and excluding interest.
1.9 "Disability" shall mean a period of disability during which a
Participant is permanently and totally disabled.
1.10 "Employer" shall mean the Company and any subsidiary having one or more
Executives who are eligible to participate in the Plan and have been
selected by the Committee to participate. Where the context dictates,
the term "Employer" as used herein refers to the particular Employer
which has entered into a Plan Agreement with a specific Participant.
1.11 "Executive" shall mean any person who is in the regular full-time
employment of the Company, or one of its subsidiaries as determined by
the personnel policies and practices of the Company or the subsidiary.
1.12 "Normal Retirement Date" shall be the first day of the month in which
the Participant attains 1) his or her sixty-second (62) birthday or 2)
six (6) years of Plan participation, whichever is later.
1.13 "Participant" shall mean any Executive who elects to participate in the
Supplemental Retirement Plan, signs a Plan Agreement and Beneficiary
Designation form, and is accepted into the Plan.
1.14 "Plan" shall mean the Supplemental Retirement Plan of the Employer
which is defined by this instrument and by each Plan Agreement.
1.15 "Plan Agreement" shall mean the form of written agreement which is
entered into from time to time, by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant shall
provide for the entire benefit to which such Participant is entitled
under the Plan, and the Plan Agreement bearing the latest date shall
govern such entitlement.
1.16 The "Plan Year" shall begin on January 1 of each year and continue
through December 31 of the same year except that the first Plan Year
will begin the first day of the month that follows the date on which
the eligible Participant is permitted to enter the Plan and completes
and signs Plan enrollment forms.
1.17 "Termination of Employment" shall mean the cessation of employment,
voluntarily or involuntarily, excluding retirement, disability or death.
1.18 "Treasury Rate" shall mean the effective yield on constant-maturity
three-year U.S. Treasury Notes as of the close of the first business
day of each month of October that precedes Plan anniversary date.
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<PAGE>
1.19 "Year of Service" shall be determined consistent with the definition of
year of service in The Titan Corporation 401(k) Retirement Plan and
shall mean any year in which the Participant does or would qualify for
a year of service as therein defined.
ARTICLE 2
ELIGIBILITY
2.1 SELECTION BY COMMITTEE. The Committee shall have the sole discretion to
determine the Executives who are eligible to become Participants, in
accordance with the purpose of the Plan. In addition, plan
participation is contingent upon the satisfactory underwriting of
insurance coverage on each Participant's life.
2.2 ENROLLMENT REQUIREMENTS. As a condition of participation, each
Participant so selected shall complete, execute and return to the
Committee a Plan Agreement and Beneficiary Designation, and comply with
further conditions as may be established by the Committee.
ARTICLE 3
DEFERRAL COMMITMENTS
3.1 MINIMUM DEFERRAL. The Participant may defer no less than $2,000 per
Plan Year.
3.2 MAXIMUM DEFERRAL. Each year, the Participant may defer no more than
the percentage of Base Annual Salary permitted by the Selection
Committee, at its sole discretion. This percentage will be communicated
prior to the beginning of each Plan Year in which an Annual Deferral is
made.
3.3 WITHHOLDING OF ANNUAL DEFERRALS. The amount of Base Annual Salary
elected to be deferred pursuant to the Plan Agreement of a Participant
shall be withheld from the Participant's salary or fees in equal
amounts over the deferral period.
3.4 COMPANY CONTRIBUTION. Each year, the Company will contribute to each
Participant's account an amount equal to the Participant's salary
deferral (excluding bonus deferral). The Company matching contribution
will be credited to each Participant's Account Balance on the last day
of each Plan Year (December 31) so long as the Participant is an
employee and an active Participant in the Plan as of that date.
3.5 ANNUAL RATE. The Treasury Rate will be declared annually for each Plan
Year and shall be fixed as of the first business day in October of the
year that precedes the Plan Year. Subject to the provisions and
limitations of the Plan, the account will accrue annual interest at a
crediting rate equal to the Treasury Rate plus three percent (3.0%)
from the date of Plan
-3-
<PAGE>
inception. For purposes of any retirement distributions from the
Participant's Supplemental Retirement Plan account, the Treasury Rate
that applies for the current Plan Year and the preceding five (5) Plan
Years will be averaged and used to calculate the interest for benefit
payments.
3.6 INTEREST CREDITING. Interest shall be credited yearly on the Account
Balance as though the total Deferral Amount for that Plan Year was made
at the beginning of the Plan Year. In the event of mid-year termination,
the basis for that year's interest crediting rate will be a fraction of
the full year's interest crediting rate, based on the number of
completed months of employment rendered by the Participant in the year
of termination.
3.7 DEFAULT. Default occurs when the Participant does not fulfill all
deferral commitments to the Plan under the Participant's Plan Agreement.
Termination of Employment is not considered a default. A Participant who
has a Termination of Employment will receive Termination benefits, as
set forth in Article 7.
3.8 DEFERRAL PENALTY IN THE EVENT OF DEFAULT. In the event of default by a
Participant on a deferral commitment, the Participant may not defer any
portion of his/her Base Annual Salary or Bonus for the following twelve
(12) months.
3.9 WAIVER OF DEFAULT AND GRANT OF SUSPENSION. The Committee may, at its
discretion, waive any default penalty set forth in Section 3.8 upon
request of the Participant. The Committee may also, at its sole
discretion, grant a suspension of a Participant's deferral commitment
for such time as the Committee may deem necessary if it finds that the
Participant has suffered an unforseeable financial emergency. For
purposes of this Plan, an unforeseeable financial emergency is an
unexpected need for cash arising from an illness, casualty loss, sudden
financial reversal, transfer of place of employment, or other such
unforeseeable occurrence.
3.10 TERMINATION OF PARTICIPATION. A Participant may terminate participation
in the Plan at any time by giving the Employer written notice of such
termination not less than thirty (30) days prior to the anniversary date
of the execution of the most recent Plan Agreement of the Participant.
Benefits to a Participant who elects to terminate Plan
participation shall be paid in accordance with the terms of the Plan.
ARTICLE 4
PRERETIREMENT PAYMENTS
4.1 PRERETIREMENT PAYMENTS. Participants who make contributions to the Plan
prior to attaining age 56 may elect to receive preretirement payments
from the Plan. The Company contribution will remain as part of the
Account Balance to be paid in accordance with the terms of the Plan.
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<PAGE>
In connection with each election to make an Annual Deferral, a
Participant may elect to receive a future preretirement payment from the
Plan with respect to that Annual Deferral. The preretirement payment
shall be a lump sum payment in an amount equal to the Annual Deferral
plus interest credited at the Treasury Rate plus three percent (3%). The
preretirement payment shall be made within 60 days of the first day of
the Plan Year that is six years after the effective date of the Annual
Deferral election.
4.2 HARDSHIP PAYMENTS. If the Participant experiences an unforeseeable
financial emergency as described in Section 3.9, the Participant may
petition the Administrative Committee to receive a preretirement payment
from the Plan. The amount requested may not exceed the sum of total
Deferral Amounts. If, subject to the sole discretion of the
Administrative Committee, the petition is approved, payment shall be
distributed within 60 days of the date of approval and the Participant
shall be subject to taxation on the amount received. For the Plan Year
in which the payment is made, all interest that would otherwise have
accrued on the amount withdrawn shall be forfeited.
ARTICLE 5
RETIREMENT BENEFIT
5.1 RETIREMENT BENEFIT. If a Participant retires from employment with the
Company on or after the attainment of age sixty-two (62) or six (6)
years of Plan participation, whichever is later, and if the Plan
Agreement has been kept in force, the Employer will pay the Participant an
amount per month based on the Account Balance, credited with interest,
minus the preretirement payments made pursuant to Article 4.
5.2 RATE OF INTEREST. If the Participant remains with the Company until
Normal Retirement, his or her Account Balance will have accumulated
interest at a compounded interest rate equal to the Treasury Rate plus
three percent (3.0%).
5.3 DURATION OF BENEFITS. Payments shall commence on the last day of the
month determined to be the month wherein the Participant reaches his/her
Normal Retirement Date. Payments shall be monthly, for 60 months,
unless a longer period of time is permitted by the Company and is
elected by the Participant at least three years prior to the beginning
of the period during which deferrals are made.
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<PAGE>
ARTICLE 6
SURVIVOR BENEFIT
6.1 PRERETIREMENT SURVIVOR BENEFIT. If a Participant dies BEFORE retirement
and the Plan Agreement is in effect at the time, the Employer will pay a
Survivor's benefit to the designated Beneficiary.
6.2 AMOUNT. The amount of the preretirement survivor benefit will be equal
to the Account Balance at the time of death. Said amount shall be paid
in a lump sum or, if the Account Balance exceeds $25,000, over a period
of time as described in Section 7.4 with the unpaid balance being
credited at the Treasury Rate plus three percent (3.0%).
6.3 POST-RETIREMENT SURVIVOR BENEFIT. If the Participant dies AFTER Normal
Retirement, and after Retirement benefit payments have commenced, the
Beneficiary will receive any unpaid installments due the Participant,
with the unpaid balance being credited at the Treasury Rate plus three
percent (3.0%). Payments shall continue on a monthly basis until the
payout period in effect is complete.
6.4 ELIGIBILITY. The obligation of the Employer to pay the Survivor benefit
(whether in a lump sum or over a number of months) shall exist only if:
a. at the time of death, the Participant was an employee, totally
disabled, or was on an authorized leave of absence;
b. the Participant was NOT in default as described in Section 3.7, in
which event that Survivor benefit shall be limited to the
Participant's portion of the Account Balance plus interest earnings
thereon (excluding the Company Contribution and interest earnings
thereon);
c. the Plan Agreement had been kept in force until the time of death;
d. the Participant's death was determined not to be from a bodily or
mental cause or causes, the information about which was withheld, or
knowingly concealed, or falsely provided by the Participant, when
requested by the Employer to furnish evidence of good health;
e. proof of death in such form as determined acceptable by the
Committee is furnished.
6.5 SUICIDE. In the event of a Participant's suicide within the first two
(2) years of Plan participation, the Employer shall be obligated to
return the Deferral Amounts only, without interest, and no other
Survivor benefit shall be payable.
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<PAGE>
ARTICLE 7
TERMINATION BENEFITS
7.1 ELIGIBILITY. This benefit applies if the Participant terminates
employment with the Employer for reasons other than death, Disability,
or Normal Retirement.
7.2 TERMINATION BEFORE NORMAL RETIREMENT. A Participant who terminates
employment with the Employer for reason other than death or Disability
before reaching Normal Retirement will receive his/her Deferral Amounts,
with interest according to the crediting schedule contained in Section
7.3. However, no interest will be credited on partial year deferrals in
the year of termination. The Participant will also be entitled to a
percentage of the Company's matching contributions based on years of
service as described below.
<TABLE>
<CAPTION>
YEARS OF SERVICE PERCENTAGE OF COMPANY
COMPLETED CONTRIBUTIONS VESTED
------------------ ---------------------
<S> <C>
Less than 2 0%
2, but less than 3 25%
3, but less than 4 50%
4, but less than 5 75%
5 or more 100%
</TABLE>
In addition, the Participant will receive a percentage of the interest
earnings on the Company contribution, in accordance with the schedule
contained in Section 7.3.
7.3 PLAN PARTICIPATION CREDITING. The interest crediting schedule is as
follows:
<TABLE>
<CAPTION>
NUMBER OF PLAN YEARS INTEREST CREDITING RATE
COMPLETED PRIOR TO -----------------------------------------------
TERMINATION PARTICIPANT DEFERRALS COMPANY CONTRIBUTIONS
-------------------- --------------------- ---------------------
<S> <C> <C>
Less than 4 Treasury Rate -0-
4 but less than 5 Treasury Rate + 1% Treasury Rate + 1%
5 but less than 6 Treasury Rate + 2% Treasury Rate + 2%
6 or more Treasury Rate + 3% Treasury Rate + 3%
</TABLE>
-7-
<PAGE>
7.4 PAYMENT SCHEDULE. Payout of the Account Balance will be according to
the following schedule:
<TABLE>
<CAPTION>
ACCOUNT BALANCE PAYOUT
------------------------------------------------------------------------------------
<S> <C>
Less than $25,000 Paid in a Lump Sum within 90 days of termination
------------------------------------------------------------------------------------
$25,000 and more Paid over 60 months with interest on unpaid balance
credited at the Treasury Rate
Initial payment to be paid within 90 days of termination
------------------------------------------------------------------------------------
</TABLE>
7.5 TERMINATION AFTER AGE SIXTY (60). Participants who have more than
$25,000 in their Account Balance AND who are at least age sixty (60),
may elect to leave their Account Balance with the Company until the full
Retirement benefit crediting has been achieved [six (6) years of Plan
participation or age sixty-two (62), whichever is later]. However, the
Account Balance may be left only if such an election is made at the time
of initial plan enrollment. For those electing to leave the Account
Balance, distributions will begin to be paid out when Retirement benefit
crediting is achieved. Distributions will be made over 60 months, unless
otherwise elected at least three years prior to the period during which
deferrals were made, with the unpaid balance credited at the Treasury
Rate plus three percent (3.0%).
ARTICLE 8
DISABILITY BENEFIT
8.1 DEFINITION. Evidence of Disability is determined by the guidelines
governing the Employer's group long-term disability plan.
8.2 BENEFIT. If the Participant becomes eligible for the Disability
benefit before his or her Normal Retirement, the Participant's Account
Balance will be fully vested and will continue to accumulate interest
with benefits to be paid when he or she reaches the preretirement
payment or Normal Retirement dates as previously elected.
-8-
<PAGE>
ARTICLE 9
BENEFICIARY
9.1 BENEFICIARY. All payments made by the Employer under the Plan shall be
made to the Participant during his or her lifetime. If the Participant
dies prior to completion of all payments, then all subsequent payments
shall be made to the Beneficiary(ies) named in the Beneficiary
Designation form.
9.2 BENEFICIARY DESIGNATION. A Participant shall designate his or her
Beneficiary to receive benefits under the Plan by completing the
appropriate Beneficiary Designation form.
9.3 CHANGE OF BENEFICIARY. A Participant shall have the right to change
the Beneficiary by submitting to the Committee a change of Beneficiary
request in the form prescribed by the Committee.
9.4 EMPLOYER ACKNOWLEDGEMENT. No change of Beneficiary shall be effective
until acknowledged in writing by the Employer.
9.5 UNDEFINED BENEFICIARY. If the Employer has any doubt as to the proper
Beneficiary to receive payments pursuant to this Plan, it shall have the
right to withhold such payments until the matter is finally adjudicated.
9.6 DISCHARGE OF OBLIGATION. Payment made by the Employer in accordance
with this Plan shall fully discharge the Employer from all further
obligations with respect to such payment.
ARTICLE 10
LEAVE OF ABSENCE
10.1 AUTHORIZED LEAVE OF ABSENCE. If a Participant is authorized by the
Employer for any reason to take a leave of absence from employment,
such Participant shall be required to maintain the original level of
deferrals to order to keep the Plan Agreement in force, except as
provided in Article 8.
10.2 FAILURE TO CONTINUE PAYMENTS. Failure to make such payment may cause
the Plan Agreement to terminate. A thirty (30) day notice of intention
to terminate said agreement shall be sent by the Administrative
Committee to the Participant.
10.3 DISCHARGE OF OBLIGATION. Upon termination of an agreement, neither party
shall have any further obligation to the other party under the
agreement, after the Termination benefit has been paid.
-9-
<PAGE>
ARTICLE 11
EMPLOYER LIABILITY
11.1 GENERAL ASSETS. Amounts payable to a Participant shall be paid from
the general assets of the Employer exclusively.
11.2 EMPLOYER'S LIABILITY. The Employer's liability for the payment of
benefits shall be defined only by this Master Plan Document, and
confirmed by the Plan Agreement entered into between the Employer and a
Participant.
11.3 LIMITATION OF OBLIGATION. The Employer shall have no obligation to a
Participant under the Plan, except as expressly provided for in the
Plan.
11.4 PARTICIPANT COOPERATION. The Participant must cooperate with the
Employer in furnishing all information requested by the Employer in
order to facilitate the payment of benefits. Such information may
include taking a physical examination, or other actions.
ARTICLE 12
NO GUARANTEE OF EMPLOYMENT
12.1 NO GUARANTEE OF EMPLOYMENT. Nothing herein shall constitute a contract
of continuing employment between the Employer and the Executive.
ARTICLE 13
TERMINATION OF PARTICIPATION
13.1 WRITTEN NOTICE. A Participant may terminate participation in the Plan
at any time by giving the Employer written notice of such termination
not less than thirty (30) days prior to the beginning of the Plan Year.
ARTICLE 14
TERMINATION, AMENDMENT OR MODIFICATION OF THE PLAN
14.1 COMPANY TERMINATION OF PLAN. The Employer reserves the right to
terminate this Plan. In the event of Plan termination, the
Participants' Deferral Amounts shall be paid out according to the
schedules defined in Article 7.
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<PAGE>
14.2 PLAN AMENDMENT. The Employer reserves the right to totally or
partially amend or modify this Plan at any time. Regardless of any
amendment or modification, the Participant will receive at least one
hundred percent (100%) of his or her cumulative Deferral Amounts, plus
interest, plus vested company match and earnings thereon.
14.3 TERMINATION. The Employer reserves the right to terminate the Plan
Agreement of any Participant at the time of termination of service.
14.4 BENEFICIARY ENTITLEMENT. The Committee shall take no action to
terminate the Plan with respect to a Participant's Beneficiary after
entitlement to any benefits under this Plan has occurred.
14.5 HOSTILE TAKEOVERS. In the event of hostile or non-negotiated takeover
or acquisition by another company, the Account Balance of this Plan may
become due and payable to all Participants, at the option of the
management of the Titan Corporation.
ARTICLE 15
OTHER BENEFITS AND AGREEMENTS
15.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are in
addition to any other benefits available to such Participant under any
other plan or program for employees of the Employer. The Plan shall
supplement and shall not supersede, modify or amend any other such plan
or program except as may otherwise be expressly provided.
ARTICLE 16
RESTRICTIONS ON ALIENATION OF BENEFITS
16.1 NO RIGHT OF TRANSFER. No right or benefit under the Plan shall be
subject to alienation, sale, assignment or encumbrance.
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<PAGE>
ARTICLE 17
ADMINISTRATION OF THE PLAN
17.1 COMMITTEE ADMINISTRATION. The general administration of this Plan, as
well as construction and interpretation thereof, shall be the
responsibility of the Compensation Committee of the Board of Directors
or, if otherwise established in writing, by an administrative
Committee, the number of members of which shall be designated and
appointed from time to time by, and shall serve at the pleasure of, the
Board of Directors of the Employer.
17.2 COMMITTEE AUTHORITY. Subject to the Plan, the Committee shall from
time to time establish rules, forms and procedures for the
administration of the Plan. Except as otherwise expressly provided,
the Committee shall have the exclusive right to interpret the Plan and
to decide any and all matters arising thereunder. The Committee's
decisions shall be conclusive and binding upon all persons having or
claiming to have any right or interest under the Plan.
17.3 COMMITTEE INDEMNITY. No member of the Committee shall be liable for
any act or omission of any other member of the Committee, nor for any
act or omission on his own part, excepting his own willful misconduct.
The Employer shall indemnify, and save harmless each member of the
Committee against any and all expenses and liabilities arising out of
his membership on the Committee, with the exception of expenses and
liabilities arising out of his own willful misconduct.
17.4 EMPLOYER'S OBLIGATIONS TO THE COMMITTEE. To enable the Committee to
perform its functions, the Employer shall supply full and timely
information to the Committee on all matters relating to the
compensation of all Participants, their retirement, death or other
cause for Termination of Employment, and such other pertinent facts as
the Committee may require.
17.5 COMMITTEE DISCRETION IN PAYMENT SCHEDULE. The Committee, of its own
accord or upon petition by the Participant or Participant's
Beneficiary, shall have the power, at its sole discretion, to change
the manner and timing of payments to be made to a Participant or
Participant's Beneficiary from that elected by the Participant.
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<PAGE>
ARTICLE 18
MISCELLANEOUS
18.1 NOTICE. Any notice given under the Plan shall be in writing and shall
be mailed to:
The Titan Corporation
Administrative Committee
c/o Chief Financial Officer
Supplemental Retirement Plan
3033 Science Park Road
San Diego, California 92121
18.2 SUCCESSORS. The Plan shall be binding upon the Employer and its
respective successors or assigns, and upon a Participant, Participant's
Beneficiary, assigns, heirs, executors and administrators.
18.3 GOVERNING LAW. The Plan and Plan Agreement shall be governed by and
construed under the laws of the State of California, as in effect at
the time of their adoptions and execution, respectively.
18.4 PRONOUNS. Masculine pronouns wherever used shall include femine
pronouns and the singular shall include the plural.
IN WITNESS WHEREOF the Employer has signed this Plan this 17th day of
December, 1993.
Employer:
THE TITAN CORPORATION
By: /s/ [Illegible]
----------------------------------------
(Signature)
Title: SR VP CFO
----------------------------------------
(Officer of Company)
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<PAGE>
AMENDMENT
TO
THE TITAN CORPORATION SUPPLEMENTAL RETIREMENT PLAN
FOR KEY EXECUTIVES
The Titan Corporation Supplemental Retirement Plan For Key Executives is
hereby amended in the following particulars, effective May 18, 1995:
1. Section 14.5 of the existing Plan is hereby deleted and replaced
with new section 14.5 which shall read as follows:
"14.5 CHANGE IN CONTROL Notwithstanding any other provisions of this
Plan, upon any Change in Control (as defined hereinbelow) the Account
Balance of each Participant shall become fully vested (including,
without limitation for purposes of Section 7.2) and, at the
Participant's discretion, shall be due and payable in a lump-sum within
ninety days of such Participant's termination of employment from
Employer and the applicable interest crediting rate under Section 7.3
shall be the maximum rate provided therein (Treasury Rate plus 3%). The
term "Change in Control" shall mean (a) any "person" (as such term is
used in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of
1934) becomes the beneficial owner (as such term is used in Section
13(d)(1) of the Securities Exchange Act of 1934), directly or
indirectly, of securities of the Company representing at least 25% of
the combined voting power of the then outstanding securities of the
Company; (b) during any period of twenty-four (24) consecutive months,
individuals who at the beginning of such period constituted the Board
cease for any reason to constitute at least a majority thereof, unless
the election, or the nomination for election, of each new director was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of the period; (c) all or
substantially all of the Company's assets are sold as an entirety to
any person or related group of persons; or (d) the Company is merged
with or into another corporation or another corporation is merged into
the Company with the effect that
<PAGE>
immediately after such transaction the stockholders of the Company
immediately prior to such transaction hold less than a majority in
interest of the total voting power entitled to vote in the election of
directors, managers or trustees of the entity surviving such
transaction.
<PAGE>
TITAN INFORMATION SYSTEMS CORPORATION
NONSTATUTORY STOCK OPTION
EXEMPT FROM QUALIFICATION UNDER
SECTION 25102(o) OF THE
CALIFORNIA CORPORATIONS CODE
__________________, Optionee:
Titan Information Systems Corporation (the "Company"), pursuant to its
1997 Stock Option Plan (the "Plan"), has granted to you, the optionee named
above, an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is not intended to qualify as and will not be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the employees,
directors and consultants of the Company and its Affiliates and is intended to
comply with the provisions of Rule 701 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"). The grant of this option and the issuance of shares upon the
exercise of this option are also intended to be exempt from the securities
qualification requirements of the California Corporations Code pursuant to
Section 25102(o) of that code. Defined terms not explicitly defined in this
agreement but defined in the Plan shall have the same definitions as in the
Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is ____________________ (______).
2. VESTING.
(a) VESTING SCHEDULE. Subject to the limitations contained
herein, 1/4th of the shares will vest (become exercisable) on ____________, 19__
(12 months after the date of the grant) and 1/4th of the shares will then vest
each year thereafter until either (i) the termination for any reason of your
Continuous Service to the Company or an Affiliate (as defined in the Plan) or
(ii) this option becomes fully vested.
(b) ACCELERATION OF VESTING UPON A "CHANGE IN CONTROL."
Notwithstanding subsection 2(a), if within two (2) years of the date of grant of
this option there is (i) a sale by Titan Corporation, the Company's parent
company, of all, or more
1.
<PAGE>
than fifty percent (50%), of the capital stock of the Company or (ii) a sale
of all, or substantially all, of the assets of the Company (a "Change in
Control" for purposes of this option), then fifty percent (50%) of the then
unvested shares subject to this option will vest (become exercisable) prior
to such Change in Control.
(c) ACCELERATION OF VESTING UPON DEATH. Notwithstanding
subsection 2(a), if your termination of Continuous Service is due to your death
or your death occurs within three (3) months following your termination of
Continuous Service, then an additional number of shares equal (to the nearest
whole share) to the lesser of (i) 1/4th of the total number of shares of Common
Stock initially subject to this option as specified in Section 1 or (ii) the
remaining number of unvested shares will vest (become exercisable).
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is
_______________________ ($____) per share, being not less than 85% of the fair
market value of the Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per share
is due in full upon exercise of all or any part of each installment which has
accrued to you. You may elect, to the extent permitted by applicable statutes
and regulations, to make payment of the exercise price under one of the
following alternatives:
(i) Payment of the exercise price per share in cash
(including check) at the time of exercise;
(ii) Provided that at the time of exercise the
Company's Common Stock is publicly traded and quoted regularly in the Wall
Street Journal, payment pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company
or the receipt of irrevocable instructions to pay the aggregate exercise
price to the Company from the sales proceeds;
(iii) Provided that at the time of exercise the
Company's Common Stock is publicly traded and quoted regularly in the Wall
Street Journal, payment by delivery of already-owned shares of Common Stock,
held for the period required to avoid a charge to the Company's reported
earnings, and owned free and clear of any liens, claims, encumbrances or
security interests, which Common Stock shall be valued at its fair market
value on the date of exercise; or
(iv) Payment by a combination of the methods of
payment permitted by subsection 3(b)(i) through 3(b)(iii) above.
2.
<PAGE>
4. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act.
6. TERM. The term of this option commences on __________, 19__, the
date of grant, and expires at midnight on ______________________ (the
"Expiration Date," which date shall be no more than ten (10) years from date
this option is granted), unless this option expires sooner as set forth below or
in the Plan. In no event may this option be exercised on or after the Expiration
Date. This option shall terminate prior to the Expiration Date of its term as
follows: three (3) months after the termination of your Continuous Service
unless one of the following circumstances exists:
(a) Your termination of Continuous Service is due to your
Disability. This option will then expire on the earlier of the Expiration Date
set forth above or twelve (12) months following such termination of Continuous
Service.
(b) Your termination of Continuous Service is due to your
death or your death occurs within three (3) months following your termination of
Continuous Service. This option will then expire on the earlier of the
Expiration Date set forth above or twelve (12) months after your death.
(c) If during any part of such three (3) month period you may
not exercise your option solely because of the condition set forth in Section 5
above, then your option will not expire until the earlier of the Expiration Date
set forth above or until this option shall have been exercisable for an
aggregate period of three (3) months after your termination of Continuous
Service.
However, this option may be exercised following termination of
Continuous Service only as to that number of shares as to which it was
exercisable on the date of termination of Continuous Service under the
provisions of Section 2 of this option.
7. EXERCISE.
(a) This option may be exercised, to the extent specified
above, by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as
3.
<PAGE>
the Company may then require pursuant to the Plan four (4) business days
prior to the effective date of purchase of the shares.
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any
exercise of this option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of this option;
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares acquired upon
such exercise; and
(ii) the Company (or a representative of the
underwriters) may, in connection with the first underwritten registration of the
offering of any securities of the Company under the Securities Act, require that
you not sell or otherwise transfer or dispose of any shares of Common Stock or
other securities of the Company during such period (not to exceed one hundred
eighty (180) days) following the effective date (the "Effective Date") of the
registration statement of the Company filed under the Securities Act as may be
requested by the Company or the representative of the underwriters. You further
agree that the Company may impose stop-transfer instructions with respect to
securities subject to the foregoing restrictions until the end of such period.
8. TRANSFERABILITY. This option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise this
option.
9. COMPANY'S OPTION TO REPURCHASE SHARES. Upon the termination of your
Continuous Service for any reason prior to the Listing Date (as defined in the
Plan), the Company shall have the option to repurchase all (but not less than
all) of the shares of stock which you have purchased pursuant to exercise of the
option and which you then hold (including any shares properly purchased
following such termination of Continuous Service). The repurchase price payable
by the Company if it exercises its repurchase option shall be the most recent
appraised value of the shares of stock to be repurchased, as determined by the
most recent appraisal value. The Company's repurchase option shall be
exercisable by giving written notice (accompanied by payment for the shares) to
you within ninety (90) calendar days after the later of such termination of
Continuous Service or a proper purchase of shares following such termination of
Continuous Service.
"Listing Date" is defined in the Plan as the first date upon which any
security of the Company is listed (or approved for listing) upon notice of
issuance on any securities exchange, or designated (or approved for designation)
upon notice of issuance as a
4.
<PAGE>
national market security on an interdealer quotation system if such
securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California
Corporate Securities Law of 1968.
10. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) Prior to the Listing Date, there can be no valid transfer
(as hereinafter defined) of any shares of stock purchased on exercise of the
option, or any interest in such shares, by any holder of such shares or
interests unless such transfer is solely for cash consideration and is made in
compliance with the following provisions:
(i) Before there can be a valid transfer of any
shares or any interest therein, the record holder of the shares to be
transferred (the "Offered Shares") shall give written notice (by registered or
certified mail) to the Company. Such notice shall specify the identity of the
proposed transferee, the cash price offered for the Offered Shares by the
proposed transferee and the other terms and conditions of the proposed transfer.
The date such notice is mailed shall be hereinafter referred to as the "notice
date" and the record holder of the Offered Shares shall be hereinafter referred
to as the "Offeror."
(ii) For a period of thirty (30) calendar days after
the notice date, the Company shall have the option to purchase all (but not less
than all) of the Offered Shares at the purchase price and on the terms set forth
in subsection 10(a)(iii). This option shall be exercisable by the Company by
mailing (by registered or certified mail) written notice of exercise to the
Offeror prior to the end of said thirty (30) days.
(iii) The price at which the Company may purchase the
Offered Shares pursuant to the exercise of such option shall be the cash price
offered for the Offered Shares by the proposed transferee (as set forth in the
notice required under subsection 10(a)(i). The Company's notice of exercise of
such option shall be accompanied by full payment for the Offered Shares and,
upon such payment by the Company, the Company shall acquire full right, title
and interest to all of the Offered Shares.
(iv) If, and only if, the option given pursuant to
subsection 10(a)(ii) is not exercised, the transfer proposed in the notice given
pursuant to subsection 10(a)(i) may take place; provided, however, that such
transfer must, in all respects, be exactly as proposed in said notice except
that such transfer may not take place either before the tenth (10th) calendar
day after the expiration of said 30-day option exercise period or after the
ninetieth (90th) calendar day after the expiration of said 30-day option
exercise period, and if such transfer has not taken place prior to said
ninetieth (90th) day, such transfer may not take place without once again
complying with subsection 10(a).
5.
<PAGE>
(b) As used in this Section 10, the term "transfer" means any
sale, encumbrance, pledge, gift or other form of disposition or transfer of
shares of the Company's stock or any legal or equitable interest therein;
provided, however, that the term "transfer" does not include a transfer of such
shares or interests by will or by the applicable laws of descent and
distribution or a gift of such shares if the donee agrees to be bound by the
provisions of this Section 10.
(c) None of the shares of the Company's stock purchased on
exercise of the option shall be transferred on the Company's books nor shall the
Company recognize any such transfer of any such shares or any interest therein
unless and until all applicable provisions of this Section 10 have been complied
with in all respects. The certificates of stock evidencing shares of stock
purchased on exercise of the option shall bear an appropriate legend referring
to the transfer restrictions imposed by this Section 10 and to the repurchase
option provided for in Section 9.
11. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company
or an Affiliate, or of the Company or an Affiliate to continue your employment.
In addition, nothing in this option shall obligate the Company or any Affiliate
of the Company, or their respective shareholders, Board of Directors, officers
or employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate.
12. NOTICES. Any notices provided for in this option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by the Company to you, five (5) days after deposit
in the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company in care of its Secretary.
13. GOVERNING PLAN DOCUMENT. This option is subject to all the
provisions of the Plan, a copy of which is attached hereto and its provisions
are hereby made a part of this option, including without limitation the
provisions of Section 6 of the Plan relating to option provisions, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of this option and those of the
Plan, the provisions of the Plan shall control.
Dated the ____ day of __________________, 19__.
Very truly yours,
TITAN INFORMATION SYSTEMS CORPORATION
6.
<PAGE>
By
--------------------------------------------
Secretary of the Company, duly authorized on
behalf of the Board of Directors
ATTACHMENTS:
Titan Information Systems Corporation 1997 Stock Option Plan
Notice of Exercise
7.
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the
attachments referenced therein and understands that all rights and liabilities
with respect to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option,
it sets forth the entire understanding between the undersigned optionee and the
Company and its Affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock option plans of the Company, and (ii) the following agreements only:
NONE
------------
(Initial)
OTHER
--------------------
--------------------
--------------------
---------------------------
OPTIONEE
Address:
-------------------
-------------------
8.
<PAGE>
CAYENTA.COM, INC.
INCENTIVE STOCK OPTION
EXEMPT FROM QUALIFICATION UNDER
SECTION 25102(o) OF THE
CALIFORNIA CORPORATIONS CODE
_____________________, Optionee:
Cayenta.com, Inc., (the "Company"), pursuant to its 1997 Stock Option
Plan (the "Plan"), has granted to you, the optionee named above, an option to
purchase shares of the common stock of the Company ("Common Stock"). This option
is intended to qualify as an "Incentive Stock Option" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the employees,
directors and consultants of the Company and its Affiliates and is intended to
comply with the provisions of Rule 701 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"). The grant of this option and the issuance of shares upon the
exercise of this option are also intended to be exempt from the securities
qualification requirements of the California Corporations Code pursuant to
Section 25102(o) of that code. Defined terms not explicitly defined in this
agreement but defined in the Plan shall have the same definitions as in the
Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total
number of shares of Common Stock subject to this option is _____________
(_________).
2. VESTING.
(a) VESTING SCHEDULE. Subject to the limitations
contained herein, 1/4 of the shares will vest (become exercisable) on
__________________ (12 months after the date of the grant) and 1/4 of the
shares will then vest each year thereafter until either (i) the termination
for any reason of your Continuous Service to the Company or an Affiliate (as
defined in the Plan) or (ii) this option becomes fully vested.
(b) ACCELERATION OF VESTING UPON A "CHANGE IN CONTROL."
Notwithstanding subsection 2(a), if within two (2) years of the date of grant
of this option there is (i) a sale by Titan Corporation, the Company's parent
company, of all, or more than fifty percent (50%), of the capital stock of
the Company or (ii) a sale of all, or substantially all, of the assets of the
Company (a "Change in Control" for purposes of this option), then fifty
percent (50%) of the then unvested shares subject to this option will vest
(become exercisable) prior to such Change in Control.
(c) ACCELERATION OF VESTING UPON DEATH. Notwithstanding
subsection 2(a), if your termination of Continuous Service is due to your
death or your death occurs within
<PAGE>
three (3) months following your termination of Continuous Service, then an
additional number of shares equal (to the nearest whole share) to the lesser
of (i) 1/4th of the total number of shares of Common Stock initially subject
to this option as specified in Section 1 or (ii) the remaining number of
unvested shares will vest (become exercisable).
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is
thirty-six cents ($0.36) per share, being not less than the fair market value
of the Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per
share is due in full upon exercise of all or any part of each installment
that has accrued to you. You may elect, to the extent permitted by applicable
statutes and regulations, to make payment of the exercise price under one of
the following alternatives:
(i) Payment of the exercise price per share in
cash (including check) at the time of exercise;
(ii) Provided that at the time of exercise the
Company's Common Stock is publicly traded and quoted regularly in the Wall
Street Journal, payment pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board that prior to the issuance of Common
Stock, results in either the receipt of cash (or check) by the Company or the
receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds;
(iii) Provided that at the time of exercise the
Company's Common Stock is publicly traded and quoted regularly in the Wall
Street Journal, payment by delivery of already-owned shares of Common Stock,
held for the period required to avoid a charge to the Company's reported
earnings, and owned free and clear of any liens, claims, encumbrances or
security interests, which Common Stock shall be valued at its fair market
value on the date of exercise; or
(iv) Payment by a combination of the methods of
payment permitted by subsection 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES. This option may not be exercised for any
number of shares that would require the issuance of anything other than whole
shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, this option may not be exercised unless the shares
issuable upon exercise of this option are then registered under the
Securities Act or, if such shares are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the
registration requirements of the Securities Act.
6. TERM. The term of this option commences on August 11, 1999,
the date of grant, and expires at midnight on August 11, 2009 (the
"Expiration Date") which date shall be no more than ten (10) years from date
this option is granted), unless this option expires sooner as set
<PAGE>
forth below or in the Plan. In no event may this option be exercised on or
after the Expiration Date. This option shall terminate prior to the
Expiration Date of its term as follows: three (3) months after the
termination of your Continuous Service unless one of the following
circumstances exists:
(a) Your termination of Continuous Service is due to
your Disability. This option will then expire on the earlier of the
Expiration Date set forth above or twelve (12) months following such
termination of Continuous Service. You should be aware that if your
disability is not considered a permanent and total disability within the
meaning of Section 422(c)(6) of the Code, and you exercise this option more
than three (3) months following the date of your termination of employment,
your exercise will be treated for tax purposes as the exercise of a
"nonstatutory stock option" instead of an "incentive stock option."
(b) Your termination of Continuous Service is due to
your death or your death occurs within three (3) months following your
termination of Continuous Service. This option will then expire on the
earlier of the Expiration Date set forth above or twelve (12) months after
your death.
(c) If during any part of such three (3) month period
you may not exercise your option solely because of the condition set forth in
Section 5 above, then your option will not expire until the earlier of the
Expiration Date set forth above or until this option shall have been
exercisable for an aggregate period of three (3) months after your
termination of Continuous Service.
However, this option may be exercised following termination of
Continuous Service only as to that number of shares as to which it was
exercisable on the date of termination of Continuous Service under the
provisions of Section 2 of this option.
In order to obtain the federal income tax advantages associated with
an "incentive stock option," the Code requires that at all times beginning on
the date of grant of the option and ending on the day three (3) months before
the date of the option's exercise, you must be an employee of the Company or
an Affiliate of the Company, except in the event of your death or permanent
and total disability. The Company has provided for continued vesting or
extended exercisability of your option under certain circumstances for your
benefit, but cannot guarantee that your option will necessarily be treated as
an "incentive stock option" if you provide services to the Company or an
Affiliate of the Company as a consultant or exercise your option more than
three (3) months after the date your employment with the Company and all
Affiliates of the Company terminates.
7. EXERCISE.
(a) This option may be exercised, to the extent
specified above, by delivering a notice of exercise (in a form designated by
the Company) together with the exercise price to the Secretary of the
Company, or to such other person as the Company may designate, during regular
business hours, together with such additional documents as the Company may
then require pursuant to the Plan four (4) business days prior to the
effective date of purchase of the shares.
<PAGE>
(b) By exercising this option, you agree that:
(i) as a precondition to the completion of any
exercise of this option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1)the exercise of this
option; (2)the lapse of any substantial risk of forfeiture to which the
shares are subject at the time of exercise; or (3)the disposition of shares
acquired upon such exercise;
(ii) you will notify the Company in writing within
fifteen (15) days after the date of any disposition of any of the shares of
the Common Stock issued upon exercise of this option that occurs within two
(2) years after the date of this option grant or within one (1) year after
such shares of Common Stock are transferred upon exercise of this option; and
(iii) the Company (or a representative of the
underwriters) may, in connection with the first underwritten registration of
the offering of any securities of the Company under the Securities Act,
require that you not sell or otherwise transfer or dispose of any shares of
Common Stock or other securities of the Company during such period (not to
exceed one hundred eighty (180) days) following the effective date (the
"Effective Date") of the registration statement of the Company filed under
the Securities Act as may be requested by the Company or the representative
of the underwriters. You further agree that the Company may impose
stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such period.
8. TRANSFERABILITY. This option is not transferable, except by
will or by the laws of descent and distribution, and is exercisable during
your life only by you. Notwithstanding the foregoing, by delivering written
notice to the Company, in a form satisfactory to the Company, you may
designate a third party who, in the event of your death, shall thereafter be
entitled to exercise this option.
9. COMPANY'S OPTION TO REPURCHASE SHARES. Upon the termination
of your Continuous Service for any reason prior to the Listing Date (as
defined in the Plan), the Company shall have the option to repurchase all
(but not less than all) of the shares of stock that you have purchased
pursuant to exercise of the option and that you then hold (including any
shares properly purchased following such termination of Continuous Service).
The repurchase price payable by the Company if it exercises its repurchase
option shall be the most recent appraised value of the shares of stock to be
repurchased, as determined by the most recent appraisal value. The Company's
repurchase option shall be exercisable by giving written notice (accompanied
by payment for the shares) to you within ninety (90) calendar days after the
later of such termination of Continuous Service or a proper purchase of
shares following such termination of Continuous Service.
"Listing Date" is defined in the Plan as the first date upon which
any security of the Company is listed (or approved for listing) upon notice
of issuance on any securities exchange, or designated (or approved for
designation) upon notice of issuance as a national market security on an
interdealer quotation system if such securities exchange or interdealer
quotation system has been certified in accordance with the provisions of
Section 25100(o) of the California Corporate Securities Law of 1968.
<PAGE>
10. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) Prior to the Listing Date, there can be no valid
transfer (as hereinafter defined) of any shares of stock purchased on
exercise of the option, or any interest in such shares, by any holder of such
shares or interests unless such transfer is solely for cash consideration and
is made in compliance with the following provisions:
(i) Before there can be a valid transfer of any
shares or any interest therein, the record holder of the shares to be
transferred, (the "Offered Shares") shall give written notice (by registered
or certified mail) to the Company. Such notice shall specify the identity of
the proposed transferee, the cash price offered for the Offered Shares by the
proposed transferee and the other terms and conditions of the proposed
transfer. The date such notice is mailed shall be hereinafter referred to as
the "notice date" and the record holder of the Offered Shares shall be
hereinafter referred to as the "Offeror."
(ii) For a period of thirty (30) calendar days
after the notice date, the Company shall have the option to purchase all (but
not less than all) of the Offered Shares at the purchase price and on the
terms set forth in subsection 10(a)(iii). This option shall be exercisable by
the Company by mailing (by registered or certified mail) written notice of
exercise to the Offeror prior to the end of said thirty (30) days.
(iii) The price at which the Company may purchase
the Offered Shares pursuant to the exercise of such option shall be the cash
price offered for the Offered Shares by the proposed transferee (as set forth
in the notice required under subsection 10(a)(i). The Company's notice of
exercise of such option shall be accompanied by full payment for the Offered
Shares and, upon such payment by the Company, the Company shall acquire full
right, title and interest to all of the Offered Shares.
(iv) If, and only if, the option given pursuant to
subsection 10(a)(ii) is not exercised, the transfer proposed in the notice
given pursuant to subsection 10(a)(i) may take place; provided, however, that
such transfer must, in all respects, be exactly as proposed in said notice
except that such transfer may not take place either before the tenth (10th)
calendar day after the expiration of said 30-day option exercise period or
after the ninetieth (90th) calendar day after the expiration of said 30-day
option exercise period, and if such transfer has not taken place prior to
said ninetieth (90th) day, such transfer may not take place without once
again complying with subsection 10(a).
(b) As used in this Section 10, the term "transfer"
means any sale, encumbrance, pledge, gift or other form of disposition or
transfer of shares of the Company's stock or any legal or equitable interest
therein; provided, however, that the term "transfer" does not include a
transfer of such shares or interests by will or by the applicable laws of
descent and distribution or a gift of such shares if the donee agrees to be
bound by the provisions of this Section 10.
(c) None of the shares of the Company's stock purchased
on exercise of the option shall be transferred on the Company's books nor
shall the Company recognize any such transfer of any such shares or any
interest therein unless and until all applicable provisions of this Section
10 have been complied with in all respects. The certificates of stock
evidencing shares of stock purchased on exercise of the option shall bear an
appropriate legend referring to
<PAGE>
the transfer restrictions imposed by this Section 10 and to the repurchase
option provided for in Section 9.
11. OPTION NOT A SERVICE CONTRACT. This option is not an
employment contract and nothing in this option shall be deemed to create in
any way whatsoever any obligation on your part to continue in the employ of
the Company or an Affiliate, or of the Company or an Affiliate to continue
your employment. In addition, nothing in this option shall obligate the
Company or any Affiliate of the Company, or their respective shareholders,
Board of Directors, officers or employees to continue any relationship that
you might have as a Director or Consultant for the Company or Affiliate.
12. NOTICES. Any notices provided for in this option or the
Plan shall be given in writing and shall be deemed effectively given upon
receipt or, in the case of notices delivered by the Company to you, five (5)
days after deposit in the United States mail, postage prepaid, addressed to
you at the address specified below or at such other address as you hereafter
designate by written notice to the Company in care of its Secretary.
13. GOVERNING PLAN DOCUMENT. This option is subject to all the
provisions of the Plan, a copy of which is available upon request, and its
provisions are hereby made a part of this option, including without
limitation the provisions of Section 6 of the Plan relating to option
provisions, and is further subject to all interpretations, amendments, rules
and regulations that may from time to time be promulgated and adopted
pursuant to the Plan. In the event of any conflict between the provisions of
this option and those of the Plan, the provisions of the Plan shall control.
Dated August 23, 1999.
Very truly yours,
CAYENTA.COM, INC.
By
-----------------------------------------------
President of the Company, duly authorized on
behalf of the Board of Directors
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and
understands that all rights and liabilities with respect to this option are
set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this
option, it sets forth the entire understanding between the undersigned
optionee and the Company and its Affiliates regarding the acquisition of
stock in the Company and supersedes all prior oral and written agreements on
that subject with the exception of the options previously granted and
delivered to the undersigned under stock option plans of the Company.
-------------------------------------
OPTIONEE
-------------------------------------
Street Address
-------------------------------------
City and State
-------------------------------------
Social Security Number
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement is effective as of 1-1-99 between David P.
Porreca ("Executive") and Titan Software Systems Corporation ("Employer").
1. RECITALS
1.1. Titan Software Systems Corporation ["TSS"], a subsidiary of The
Titan Corporation shall purchase the assets of of Transnational Partners II
LLC ["TNPII"]. The asset purchase by TSS of TNPII is a condition precedent
to all the terms and conditions set forth hereinafter.
1.2. Employer desires assurance of the association and services of
Executive in order to obtain and retain his experience, abilities, and
knowledge, and is therefore willing to engage his services on the terms and
conditions set forth below.
1.3. Executive desires to become an employee of the Employer and is
willing to do so on the terms and conditions as hereinafter set forth
simultaneous upon the asset purchase by TSS.
2. TERM OF EMPLOYMENT
2.1. Subject to earlier termination as provided for in this Agreement,
Executive shall be employed for a term which commences on the date of the
asset purchase by TSS and ends on December 31, 2001, provided, however, that
Executive and Employer may, by mutual agreement, extend the term of
employment for an additional one year from the anniversary date. The
incentive compensation under subparagraph 8.1 shall be the same for the
extended year as for the year 2001.
PLACE OF EMPLOYMENT
3.1 Unless the parties agree otherwise in writing during the
employment term, Executive shall perform services that he is required to
perform under this Agreement at the main corporate office of TSS located
within San Diego County; provided, however, that Employer may
1
<PAGE>
from time to time require Executive to travel temporarily to other locations
on Employer's business.
4. EMPLOYEE'S DUTIES AND AUTHORITY
4.1. Employer shall employ Executive as Chief Executive Officer.
Executive shall have the full power and authority to manage and conduct all
the business of Employer, subject to the directions and policies of the
Employer and its Board of Directors as they may be, from time to time, stated
either orally or in writing. Executive shall not, however, take any of the
following actions on behalf of the Employer without the express written
approval of the Board of Directors:
A. Expend funds or capital equipment in excess of budgeted
expenditures for any quarter;
B. Exercise any discretionary authority or control over the
management of any employee welfare or pension benefit plan or over the
disposition of the assets of any such plan.
5. RESTRICTION ON OUTSIDE BUSINESS ACTIVITIES
5.1. During his employment, Executive shall devote the necessary
business time and energy, and his expert ability to the business interests of
the Employer. In no event shall Executive expend less than 40 hours per week
working on Employer's business interests. Executive's primary business
interests shall be coincidental with his Employer's interests during the term
of this Agreement.
5.2. Employer acknowledges that Executive has ownership interests and
business activities in Component Arts and Business Information Solutions, both
of which are customers of Sempra. Employer likewise acknowledges that
Component Arts is a subcontractor of TNPII. All dealings between Component
Arts and Business Information Solutions shall
2
<PAGE>
be arm's length transactions. With the exception of the above-delineated
business relationships, Executive agrees that during the term of this
Agreement, Executive will not hold any position as an owner, officer,
employee, or any other title in any other business enterprise if such business
enterprise is a customer or supplier of Employer; a competitor of Employer; or
will interfere with the proper discharge of the Executive's duties for
Employer or involve obligations which conflict with the Employer's interests.
6. COVENANT NOT TO COMPETE DURING EMPLOYMENT TERM
6.1. During the employment term, Executive shall not, directly or
indirectly, whether as a partner, employee, creditor, shareholder or otherwise,
promote, participate or engage in any activity or other business competitive
with the Employer's business. For one year following Executive's separation
from employment with Employer, Executive shall not, directly or indirectly,
whether as a partner, employee, creditor, shareholder or otherwise, promote,
participate or engage in any activity or other business competitive with the
Employer's business in the Counties of San Diego, Orange, and Los Angeles
located in the State of California. Executive shall, at all times, comport
his conduct in such a manner so as not to violate any provisions of the
Uniform Trade Secrets Act as legislated in the State of California.
7. BASE SALARY
7.1. During the term of this Agreement, Employer agrees to pay Executive
a base salary of $350,000.00 per year in accordance with Employer's ordinary
and usual payroll practices.
7.2. Employer's Board of Directors may review Executive's base salary
and additional benefits then being paid to Executive not less frequently than
every 12 months. Following such
3
<PAGE>
review, the Board may in its discretion increase (but shall not be permitted
to decrease) Executive's base salary or any other benefits.
8. INCENTIVE COMPENSATION
8.1. In addition to the base salary provided for in Paragraph 7.1, the
following incentive compensation shall be paid as enumerated in this
subparagraph. On or before 1/1/2000 Employer shall pay to Executive as
incentive compensation for calendar year 1999, the sum of $300,000.00 provided
that the revenue for TSS for calendar year 1999 equals or exceeds the sum of
$40,000,000.00 and the estimated earnings before income taxes [EBIT] for that
calendar year reaches or exceeds the sum of $7,000,000.00. In any event,
Executive shall be paid a minimum of eighty percent of the $300,000.00
incentive compensation for 1999, providing the estimated earnings before taxes
for the calendar year 1999 equals or exceeds the sum of $6,000,000.00. On or
before 1/1/2001, Employer shall pay the Executive for calendar year 2000, the
sum of $300,000.00, provided that the revenue for TSS for calendar year 2000
equal or exceeds the sum of $50,000,000.00 and the EBIT for that calendar
year reaches or exceeds the sum of $10,000,000.00. On or before 1/1/2002,
Employer shall pay to Executive as incentive compensation for the calendar
year 2000, the sum of $300,000.00 provided that the revenue for TSS for
calendar year 2000 equal or exceeds the sum of $60,000,000.00 and the EBIT for
that calendar year reaches or exceeds $13,000,000.00. The incentive
compensation shall be prorated during any part of any calendar year in which
the Executive is employed for fewer than a full calendar year by dividing the
$300,000.00 incentive bonus by 12.
9. ADDITIONAL BENEFITS
9.1 During the employment term, Executive shall be entitled to receive
all other
4
<PAGE>
benefits of employment generally available to the Employer's other executive
and managerial employees. Notwithstanding the provision of such benefits, at
Executive's option, Employer shall reimburse Executive, on a timely basis,
for actual payments and premiums incurred by Executive, for Executive's
Guardian health and dental insurance covering Executive and his spouse; for
disability insurance through Standard Insurance Company or a substitute
insurer which pays no less than $10,000.00 a month to Executive in the event
that he becomes disabled; and Executive's life insurance in the face amount
of $500,000.00, less the difference in any amount of money Employer would
have paid if the benefits had been provided through Employer's benefits
program.
9.2. Employer shall pay for Executive's an annual membership, payable
periodically, in the University Club located in San Diego, California.
Employer shall be responsible for paying the annual fee and monthly dues of
said membership, expenses, and any assessments related to being a member of
the University Club.
10. AUTOMOBILE ALLOWANCE
10.1. During the employment terms, Employer shall provide Executive with
an automobile allowance in the sum of $600.00 per month. Executive shall be
responsible for all expenses relating to the ownership or lease of Executive's
automobile, insurance thereon, and repairs and maintenance.
11. RETIREMENT BENEFITS
11.1. Employer shall allow Executive to participate in Employer's 401K
plan and any other plan which may from time to time be provided through the
Employer.
5
<PAGE>
12. STOCK OPTIONS
12.1. Employer shall provide Executive with a stock option plan pursuant
to which Executive shall be granted options to purchase 125,000 shares of TSS
in equal numbers of shares prorated over 3 years at the estimated strike price
of $.36 per share adjusted for any splits or stock dividends, subject to Board
approval.
12.2 Executive and Employer acknowledge that Executive shall acquire
1,290,000 preferred shares of TSS stock at the time of the acquisition by TSS
of the assets of Transnational Partners II LLC.
12.3. Employer likewise acknowledges that Executive will be issued stock
options pursuant a stock option agreement with Titan Corporation providing
Executive with the options to purchase 30,000 shares of Titan Corporation
pursuant to a 4 year vesting program at a price which will be the selling
price of Titan Corporation stock as of the closing date of the aforesaid
acquisition by TSS. All provisions of Employer's existing Stock Option Plan,
including any changes as may from time-to-time be made, shall inure to the
benefit of Executive.
13. VACATION
13.1. Executive shall be entitled to 4 weeks of paid time off for each
12 month period, which shall accrue on a prorata basis from the date
employment commences under this Agreement. Vacation time will continue to
accrue so long as Executive's total accrued vacation does not exceed 500
hours.
14. EXPENSE REIMBURSEMENT
14.1. During the employment term, to the extent that such expenditures
satisfy the criteria under the Internal Revenue Code for deductibility by
Employer (whether or not fully
6
<PAGE>
deductible) for federal income tax purposes as ordinary and necessary
business expenses, Employer shall reimburse Executive promptly for reasonable
business expenses, including, but not necessarily limited to, first class air
travel, entertainment, parking, business meetings, professional dues,
professional journals, and all other reasonable expenses incurred by
Executive in the course of his job duties and responsibilities as Chief
Executive Officer, made and substantiated in accordance with the policies and
procedures established from time to time by Employer with respect to
Employer's other executive and managerial employees.
15. EMPLOYER'S OWNERSHIP OF INTANGIBLES
15.1. All processes, inventions, patents, copyrights, trademarks, and
other intangible rights that may be conceived or developed by Executive
either alone or with others, during the term of the Executive's employment,
whether or not conceived or developed during Executive's working hours, and
with respect to which the equipment, supplies, facilities, or trade secret
information of Employer was used, or that relate at the time of conception or
reduction to practice of the invention to the business of the Employer or to
the Employer's actual or demonstrably anticipated research and development, or
that result from any work performed by Executive for Employer, shall be the
sole property of Employer. Executive shall disclose to Employer all
inventions conceived during the term of employment, whether or not the
property of Employer under the terms of the preceding sentence, provided that
such disclosures shall be received by Employer in confidence. Executive shall
execute all documents, including patent applications and assignments,
required by Employer to establish Employer's rights under this Section.
16. INDEMNIFICATION BY EMPLOYER
16.1. Employer shall, to the maximum extent permitted by law, indemnify
and hold
7
<PAGE>
Executive harmless for any acts or decisions made in good faith while
performing services in the ordinary and regular course of business for
Employer. To the same extent Employer will pay and subject to any legal
limitations, advance all expenses, including reasonable attorneys' fees and
costs of court approved settlements, actually and necessarily incurred by
Executive in connection with the defense of any action, suit or proceeding
and in connection with any appeal, which has been brought against Executive
by reason of his service as an officer or agent of the Employer.
16.2. Employer shall use its best efforts to obtain coverage for
Executive (provided it may be obtained at a reasonable cost) under any
liability insurance policy or policies now in force or hereafter obtained
during the term of this Agreement that cover the officers of Employer having
comparable or lesser status and responsibility.
17. TERMINATION OF AGREEMENT
17.1. Employer may terminate this Agreement at any time without notice
if the Executive commits any material act of dishonesty, discloses
confidential information, is guilty of gross carelessness or misconduct, or
unjustifiably neglects his duties under this Agreement, or acts in a way that
has a direct, substantial, or an adverse affect on Employer's reputation. In
the event of employment termination without notice for any of the aforestated
reasons, at the time of termination Employer must provide Executive with the
specific written ground(s) for termination and each and every substantial
fact supporting said ground or grounds for termination.
17.2. Executive may terminate this Agreement by giving Employer 6 months
prior written notice of resignation.
17.3. This Agreement shall be terminated by Executive's voluntary
retirement, which retirement shall be effective on the last day of any fiscal
year, provided that day occurs after
8
<PAGE>
Executive's 65th birthday, and provided 6 months prior written notice of the
retirement shall be given by the Executive to Employer.
17.4. If at the end of any calendar month during the initial term or
renewal term of this Agreement, Executive is and has been for the 6
consecutive full calendar months then ending, or for 80% or more of the
normal working days during the 6 consecutive full calendar months then
ending, unable due to mental or physical illness or injury to perform his
duties under this Agreement in his normal and regular manner, this Agreement
shall then be terminated.
17.5. If Executive dies during the initial term or during any renewal
term of this Agreement, this Agreement shall be terminated on the last
calendar month of his death, subject to the provisions of this Agreement
concerning compensation, benefits, and stock options.
18. AGREEMENT SURVIVES COMBINATION OR DISSOLUTION
18.1. This Agreement shall not be terminated by Employer's voluntary or
involuntary dissolution or by any merger in which Employer is not the
surviving or resulting corporation, or any transfer of all or substantially
all of Employer's assets. In the event of any such merger or transfer of
assets, the provisions of this Agreement shall be binding on and inure to the
benefit of the surviving business entity or the business entity to which such
assets will be transferred at the sole discretion of Executive.
19. MISCELLANEOUS PROVISIONS
19.1. This Agreement contains the entire agreement between the parties
and supercedes all prior oral and written agreements, with the exception of
those agreements which underlie the acquisition by TSS of the assets of
Transnational Partners II LLC, understandings, commitments, and practices
between them, including all prior employment agreements, whether or not fully
performed
9
<PAGE>
by Executive before the date of this Agreement. No oral modifications,
express or implied, may alter or vary the terms of this Agreement. No
amendments to this Agreement may be made except by a writing signed by both
parties. Only the Board of Directors of TSS is authorized to alter or vary
the terms of this Agreement by a superceding written agreement.
19.2. The formation, construction, and performance of this Agreement
shall be construed in accordance with the laws of the State of California.
Venue shall lie exclusively within the County of San Diego in the State of
California.
19.3. Any controversy or claim arising out of or relating to this
Agreement, or breach of this Agreement, shall be resolved by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment on the award rendered by the arbitrators may be
entered in any court in the County of San Diego, State of California having
jurisdiction. Employer shall pay the arbitrators' fees and filing fees
required to undertake the arbitration up to and including $20,000.00. All
arbitration fees and costs in excess of $20,000.00 shall be borne equally by
the parties.
19.4. Any notice to Employer required or permitted under this Agreement
shall be given in writing to Employer, either by personal service or by
registered or certified mail, postage pre-paid, addressed to the Chairman of
the Board of Directors, at its then principle place of business. Any such
notice to Executive shall be given in a like manner and, if mailed, shall be
addressed to Executive in care of his home address then shown in the
Employer's files. For the purpose of determining compliance with any time
limit in this Agreement, notice shall be deemed to have been duly given on
the date of service, if served personally on the party to whom the notice is
to be given, or, on the
10
<PAGE>
second business day after mailing, if mailed to the party to whom the notice
is to be given in the manner provided in this Section.
19.4. If any provision of this Agreement is held invalid or
unenforceable, the remainder of this Agreement shall nevertheless remain in
full force and effect. If any provision is held invalid or unenforceable with
respect to the particular circumstances, it shall nevertheless remain in full
force and effect in all other circumstances.
Executed by the parties as of the day and year first above written.
/s/ David P. Porreca Dated: Jan. 12, 1999
- ----------------------------- ----------------------------
DAVID P. PORRECA
Executive
Titan Software Systems Corporation
By: /s/ Gene W. Ray Dated: 1/12/99
-------------------------- ---------------------------
Employer
11
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement is effective as of January 1, 1999 between
Gregory Smith ("Executive") and Titan Software Systems Corporation
("Employer").
1. RECITALS
1.1. Titan Software Systems Corporation ["TSS"], a subsidiary of The
Titan Corporation shall purchase the assets of Transnational Partners 11 LLC
["TNPII"] The asset purchase by TSS of TNPII is a condition precedent to all
the terms and conditions set forth hereinafter.
1.2 Employer desires assurance of the association and services of
Executive in order to obtain and retain his experience, abilities, and
knowledge, and is therefore willing to engage his services on the terms and
conditions set forth below.
1.3. Executive desires to become an employee of the Employer and is
willing to do so on the terms and conditions as hereinafter set forth
simultaneous upon the asset purchase by TSS.
2. TERM OF EMPLOYMENT
2.1. Subject to earlier termination as provided for in this
Agreement, Executive shall be employed for a term which commences on the date
of the asset purchase by TSS and ends on December 31, 2001; provided,
however, that Executive and Employer may, by mutual agreement, extend the
term of employment for an additional one year from the anniversary date. The
incentive compensation under subparagraph 8.1 shall be the same for the
extended year as for the year 2001.
PLACE OF EMPLOYMENT
3.1 Unless the parties agree otherwise in writing during the
employment term, Executive shall perform services that he is required to
perform under this Agreement at the main corporate office of TSS located
within San Diego County; provided, however, that Employer may
1
<PAGE>
from time to time require Executive to travel temporarily to other locations
on Employer's business.
4. EMPLOYEE'S DUTIES AND AUTHORITY
4.1 Employer shall employ Executive as Chief Technology Officer,
Executive shall have the full power and authority to manage and conduct all
the business of Employer, subject to the directions and policies of the
Employer and its Board of Directors as they may be, from time to time,
stated either orally or in writing. Executive shall not, however, take any of
the following actions on behalf of the Employer without the express written
approval of the Board of Directors:
A. Expend funds or capital equipment in excess of budgeted
expenditures for any quarter,
13. Exercise any discretionary authority or control over the
management of any employee welfare or pension benefit plan or over the
disposition of the assets of any such plan.
5. RESTRICTION ON OUTSIDE BUSINESS ACTIVITIES
5.1. During his employment, Executive shall devote the necessary
business time and energy, and his expert ability to the business interests of
the Employer. In no event shall Executive expend less than 40 hours per week
working on Employer's business interests. Executive's primary business
interests shall be coincidental with his Employer's interests during the term
of this Agreement.
5.2. Employer acknowledges that Executive has ownership interests and
business activities in Component Arts and Business Information Solutions,
both of which are customers of Sempra. Employer likewise acknowledges that
Component Arts is a subcontractor of TNPII. Both Employer and Executive
contemplate these relationships will continue during the term of this
Agreement and thereafter and that all dealings between Component Arts and
Business Information Solutions shall
2
<PAGE>
be arm's length transactions. With the exception of the above-delineated
business relationships, Executive agrees that during the term of this
Agreement, Executive will not hold any position as an owner, officer,
employee, or any other title in any other business enterprise if such
business enterprise is a customer or supplier of Employer; a competitor of
Employer; or will interfere with the proper discharge of the Executive's
duties for Employer or involve obligations which conflict with the Employer's
interests.
6. COVENANT NOT TO COMPETE DURING EMPLOYMENT TERM
6.1. During the employment term Executive shall not, directly or
indirectly whether as a partner, employee, creditor, shareholder or
otherwise, promote, participate or engage in any activity or other business
competitive with the Employer's business. For one year following Executive's
separation from employment with Employer, Executive shall not, directly or
indirectly, whether as a partner, employee, creditor, shareholder or
otherwise, promote, participate or engage in any activity or other business
competitive with the Employer's business in the Counties of San Diego,
Orange, and Los Angeles located the State of California. Executive shall, at
all times, comport his conduct in such a manner so as not to violate any
provisions of the Uniform Trade Secrets Act as legislated in the State of
California.
7. BASE SALARY
7.1. During the term of this Agreement Employer agrees to pay Executive
a base salary of $225,000.00 per year in accordance with Employer's ordinary
and usual payroll practices.
7.2. Employer's Board of Directors may review Executive's base salary
and additional benefits then being paid to Executive not less frequently than
every 12 months. Following such
3
<PAGE>
review, the Board may In its discretion increase (but shall not be permitted
to decrease) Executive's base salary or any other benefits.
8. INCENTIVE COMPENSATION
8.1. In addition to the base salary provided for in Paragraph 7.1, the
following incentive compensation shall be paid as enumerated in this
subparagraph. On or before 1/1/2000 Employer shall pay to Executive as
incentive compensation for calendar year 1999, the sum of $225,000.00
provided that the revenue for TSS for calendar year 1999 equals or exceeds
the sum of $40,000,000.00 and the estimated earnings before income taxes
[EBIT] for that calendar year reaches or exceeds the sum of $7,000,000.00. In
any event, Executive shall be paid a minimum of eighty percent of the
$225,000 incentive compensation for 1999, providing the estimated earnings
before taxes for the calendar year 1999 equals or exceeds the sum of
$6,000,000.00. On or before 1/1/2001, Employer shall pay the Executive for
calendar year 2000, the sum of $225,000, provided that the revenue for TSS
for calendar year 2000 equal or exceeds the sum of $50,000,000.00 and the
EBIT for that calendar year reaches or exceeds the sum of $10,000,000.00. On
or before 1/1/2002, Employer shall pay to Executive as incentive compensation
for the calendar year 2000, the sum of $225,000 provided that the revenue for
TSS for calendar year 2000 equal or exceeds the sum of $60,000,000.00 and the
EBIT for that calendar year reaches or exceeds $13,000,000.00. The incentive
compensation shall be prorated during any part of any calendar year in which
the Executive is employed for fewer than a full calendar year by dividing the
$225,000 incentive bonus by 12.
9. ADDITIONAL BENEFITS
9.1. During the employment term, Executive shall be entitled to receive
all other
4
<PAGE>
benefits of employment generally available to the Employer's other executive
and managerial employees. Notwithstanding the provision of such benefits, at
Executive's option, Employer shall reimburse Executive, on a timely basis,
for actual payments and premiums incurred by Executive, for Executive's
Guardian health and dental insurance covering Executive, his spouse, and his
dependent children; for disability insurance through Standard Insurance
Company or a substitute insurer which pays no less than $ 10,000.00 a month
to Executive in the event that he becomes disabled; and for Executive's life
insurance in the face amount of $500,000.00, less the difference in any
amount of money Employer would have paid if the benefits had been provided
through Employer's benefits program.
9.2. Employer shall pay for Executive's an annual corporate membership
in the University Club located in San Diego, California Employer shall be
responsible for paying the annual dues of said membership, expenses, and any
assessments related to being a member of the University Club.
10. AUTOMOBILE ALLOWANCE
10.1. During the employment terms, Employer shall provide Executive with
an automobile allowance in the sum of $600.00 per month. Executive shall be
responsible for all expenses relating to the ownership or lease of
Executive's automobile, insurance thereon, and repairs and maintenance.
11. RETIREMENT BENEFITS
11.1. Employer shall allow Executive to participate in Employer's 401K
plan and any other plan which may from time to time be provided through the
Employer.
12. STOCK OPTIONS
12.1. Employer shall provide Executive with a stock option plan pursuant
to which Executive shall be granted options to purchase 125,000 shares of TSS
in equal numbers of
5
<PAGE>
shares prorated over 3 years at the estimated strike price of $.36 per share
adjusted for any splits or stock dividends, subject to Board approval.
12.2. Executive and Employer acknowledge that Executive shall acquire
862,960 preferred shares of TSS stock at the time of the acquisition by TSS
of the assets of Transnational Partners II LLC.
12.3. Employer likewise acknowledges that Executive will be issued
stock options pursuant a stock option agreement with Titan Corporation
providing Executive with the options to purchase 30,000 shares of Titan
Corporation pursuant to a 4 year vesting program at a price which will be the
selling price of Titan Corporation stock as of the closing date of the
aforesaid acquisition by TSS. All provisions of Employer's existing Stock
Option Plan, including any changes as may, from time to time, be made, shall
inure to the benefit of Executive.
13. VACATION
13.1. Executive shall be entitled to 4 weeks of paid time off for each
12 month period, which shall accrue on a prorata basis from the date
employment commences under this Agreement. Vacation time will continue to
accrue so long as Executive's total accrued vacation does not exceed 500
hours.
14. EXPENSE REIMBURSEMENT
14.1. During the employment term, to the extent that such expenditures
satisfy the criteria under the Internal Revenue Code for deductibility by
Employer (whether or not fully deductible) for federal income tax purposes as
ordinary and necessary business expenses, Employer shall reimburse Executive
promptly for reasonable business expenses, including, but not necessarily
limited to, first class air travel, entertainment, parking, business
meetings, professional dues,
6
<PAGE>
professional journals, and all other reasonable expenses incurred by
Executive in the course of his job duties and responsibilities as Chief
Executive Officer, made and substantiated in accordance with he policies and
procedures established from time to time by Employer with respect to
Employer's other executive and managerial employees.
15. EMPLOYER'S OWNERSHIP OF INTANGIBLES
15.1. All processes, inventions, patents, copyrights, trademarks, and
other intangible rights that may be conceived or developed by Executive
either alone or with others, during the term of the Executive's employment,
whether or not conceived or developed during Executive's working hours, and
with respect to which the equipment, supplies, facilities, or trade secret
information of Employer was used, or that relate at the time of conception or
reduction to practice of the invention to the business of the Employer or to
the Employer's actual or demonstrably anticipated research and development,
or that result from any work performed by Executive for Employer, shall be
the sole property of Employer. Executive shall disclose to Employer all
inventions conceived during the term of employment, whether or not the
property of Employer under the terms of the preceding sentence, provided
that such disclosures shall be received by Employer in confidence, Executive
shall execute all documents, including patent applications and assignments,
required by Employer to establish Employer's rights under this Section.
16. INDEMNIFICATION BY EMPLOYER
16.1. Employer shall, to the maximum extent permitted by law, indemnify
and hold Executive harmless for any acts or decisions made in good faith
while performing services in the ordinary and regular course of business for
Employer. To the same extent Employer will pay and subject to any legal
limitations, advance all expenses, including reasonable attorneys' fees and
costs
7
<PAGE>
of court approved settlements, actually and necessarily incurred by Executive
in connection with the defense of any action, suit or proceeding and in
connection with any appeal, which has been brought against Executive by
reason of his service as an officer or agent of the Employer.
16.2. Employer shall use its best efforts to obtain coverage for
Executive (provided it may be obtained at a reasonable cost) under any
liability insurance policy or policies now in force or hereafter obtained
during the term of this Agreement that cover the officers of Employer having
comparable or lesser status and responsibility.
17. TERMINATION OF AGREEMENT
17.1. Employer may terminate this Agreement at any time without notice
if the Executive commits any material act of dishonesty, discloses
confidential information, is guilty of gross carelessness or misconduct, or
unjustifiably neglects his duties under this Agreement, or acts in a way that
has a direct, substantial, or an adverse affect on Employer's reputation. In
the event of employment termination without notice for any of the aforestated
reasons, at the time of termination Employer must provide Executive with the
specific written ground(s) for termination and each and every substantial
fact supporting said ground or grounds for termination.
17.2. Executive may terminate this Agreement by giving Employer 6 months
prior written notice of resignation.
17.3. This Agreement shall be terminated by Executive's voluntary
retirement, which retirement shall be effective on the last day of any fiscal
year, provided that day occurs after Executive's 65th birthday, and provided 6
months prior written notice of the retirement shall be given by the Executive
to Employer.
8
<PAGE>
17.4. If at the end of any calendar month during the initial term or
renewal term of this Agreement, Executive is and has been for the 6
consecutive full calendar months then ending, or for 80% or more of the
normal working days during the 6 consecutive full calendar months then
ending, unable due to mental or physical illness or injury to perform his
duties under this Agreement in his normal and regular manner, this Agreement
shall then be terminated.
17.5. If Executive dies during the initial term or during any renewal
term of this Agreement, this Agreement shall be terminated on the last
calendar month of his death, subject to the provisions of this Agreement
concerning compensation, benefits, and stock options.
18. AGREEMENT SURVIVES COMBINATION OR DISSOLUTION
18.1. This Agreement shall not be terminated by Employer's voluntary or
involuntary dissolution or by any merger in which Employer is not the
surviving or resulting corporation, or any transfer of all or substantially
all of Employer's assets. In the event of any such merger or transfer of
assets, the provisions of this Agreement shall be binding on and inure to the
benefit of the surviving business entity or the business entity to which such
assets will be transferred at the sole discretion of Executive.
19. MISCELLANEOUS PROVISIONS
19.1. This Agreement contains the entire agreement between the parties
and supercedes all prior oral and written agreements, with the exception of
those agreements which underlie the acquisition by TSS of the assets of
Transnational Partners II LLC, understandings, commitments, and practices
between them, including all prior employment agreements, whether or not fully
performed by Executive before the date of this Agreement. No oral
modifications, express or implied, may alter or vary the terms of this
Agreement. No amendments to this Agreement may be made except by a
9
<PAGE>
writing signed by both parties. Only the Board of Directors of TSS is
authorized to alter or vary the terms of this Agreement by a superceding
written agreement.
19.2. The formation, construction, and performance of this Agreement
shall be construed in accordance with the laws of the State of California.
Venue shall lie exclusively within the County of San Diego in the State of
California.
19.3. Any controversy or claim arising out of or relating to this
Agreement, or breach of this Agreement, shall be resolved by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment on the award rendered by the arbitrators may be
entered in any court in the County of San Diego, State of California having
jurisdiction. Employer shall pay the arbitrators' fees and filing fees
required to undertake the arbitration, up to and including $20,000.00. All
arbitration fees and costs in excess of $20,000.00 shall be borne equally by
the parties.
19.4. Any notice to Employer required or permitted under this Agreement
shall be given in writing to Employer, either by personal service or by
registered or certified mail, postage pre-paid, addressed to the Chairman of
the Board of Directors, at its then principal place of business. Any such
notice to Executive shall be given in a like manner and, if mailed, shall be
addressed to Executive in care of his home address then shown in the
Employer's files. For the purpose of determining compliance with any time
limit in this Agreement, notice shall be deemed to have been duly given on
the date of service, if served personally on the party to whom the notice is
to be given, or, on the second business day after mailing, if mailed to the
party to whom the notice is to be given in the manner provided in this
Section.
10
<PAGE>
19.4. If any provision of this Agreement is held invalid or
unenforceable, the remainder of this Agreement shall nevertheless remain in
full force and effect. If any provision is held invalid or unenforceable
with respect to the particular circumstances, it shall nevertheless remain in
full force and effect in all other circumstances.
Executed by the parties as of the day and year first above written.
/s/ GREGORY SMITH Dated: January 12, 1999
-------------------------------- ------------------------
GREGORY SMITH
Executive
Titan Software Systems Corporation
By: /s/ GENE W. RAY Dated: January 12, 1999
-------------------------------- -----------------------
Employer
11
<PAGE>
THE POINT OF INTEGRATION
October 26, 1999
William G. Atkinson
4993 Sandshore Court
San Diego, CA 92130
Dear Bill:
I am pleased to offer you the position of Vice President, Sales and Marketing
for Titan Corporation's Cayenta.com subsidiary ("Cayenta.com"), reporting
directly to David Porreca, President and CEO of Cayenta.com. I am confident that
you will make a significant contribution to the growth and success of
Cayenta.com. I believe you will be provided with a challenging and gratifying
work environment conducive to the development and fulfillment of your
professional objectives.
Your role as Vice President, Sales and Marketing will be to develop new business
opportunities with significant corporate market leaders in telecommunications,
transportation, energy, and the commercial and residential services sector. Your
duties will include marketing strategy, branding and imaging, sales force
development, and sales/professional services delivery.
Your salary on an annualized basis will be $105.77 hr. Titan has an excellent
fringe benefit package including medical, dental and vision plans, life
insurance, 401(k) retirement plan, and paid time off (PTO) policy. PTO starts at
160 hours per year, plus holidays. As part of Titan's effort to maintain a drug
free workplace, you will be required to complete a drug screen following
acceptance of this offer. This offer is contingent upon completion of the drug
screen and negative test results. Please understand that your acceptance of
this offer does not constitute the creation of a contract of employment. This
later is a statement of Titan's desire to employ you with the understanding that
your employment may be discontinued at the will of either party by notice to the
other. This letter supersedes any prior verbal representations that may have
been made to you.
Titan would like to offer you options on 5,000 shares of Titan Corporation
common stock subject to Board of Directors approval. In addition, you will be
offered stock options of 75,000 shares of Cayenta.com common stock at a price to
be determined by the Board of Directors. The stock will vest over four years
from the date of grant, also subject to approval of the Board of Directors.
In addition, for each major customer you develop that leads to $10 Million in
revenue, you will receive additional stock options of 5,000 shares of
Cayenta.com common stock per referenceable customer, and options of 1,000 shares
per each $5 Million in revenue
225 Broadway Suite 1500
San Diego CA 92101
888 Cayenta 619 228 2100 fax 619 228 2180
<PAGE>
that these clients generate per annum thereafter, which will vest on the date of
grant and are subject to the approval of the Board of Directors.
Bill, I am really excited about offering you this opportunity to help me grow
Cayenta into a world-class, highly successful internet services public company.
As you can hopefully see in this offer, Gene Ray and I both believe that you
have unlimited energy, intellect, and capability to serve in this key executive
position. We know, together, we can rapidly grow Cayenta and make its
shareholder value significant, rewarding, and meaningful for all.
This employment position is effective November 1st, 1999. To accept this
opportunity, sign in the space below by close of business October 31st, 1999.
Sincerely,
/s/ David P. Porreca
David P. Porreca
President & CEO
Accepted and Agreed to
This 31st day of October, 1999
Signed /s/ William Atkinson
--------------------------------
William Atkinson
<PAGE>
Exhibit 10.10
December 6, 1999
Edward Lake
3762-A Balboa Terrace
San Diego, CA 92117
Dear Ed:
I am pleased to offer you the position of Senior Vice President, Chief
Financial Officer for Titan Corporation's Cayenta.com subsidiary
("Cayenta.com"), reporting directly to David Porreca, President and CEO of
Cayenta.com. I am confident that you will make a significant contribution to
the growth and success of Cayenta.com. I believe you will be provided with a
challenging and gratifying work environment conducive to the development and
fulfillment of your professional objectives.
Your role as Chief Financial Officer will be to fulfill the usual financiary
responsibilities of that office but also to assist the CEO in building,
staffing operations and financing a world-class Total Services Provider
corporation that will have a successful initial public offering (IPO), and
develop into the leader in the TSP marketplace.
Your salary on an annualized basis will be $250,000.00. Titan has an
excellent fringe benefit package including medical, dental and vision plans,
life insurance, 401(k) retirement plan, and paid time off (PTO) policy. PTO
starts at 160 hours per year, plus holidays. As part of Titan's effort to
maintain a drug free workplace, you will be required to complete a drug
screen following acceptance of this offer. This offer is contingent upon
completion of the drug screen and negative test results. Please understand
that your acceptance of this offer does not constitute the creation of a
contract of employment. This letter is a statement of Titan's desire to
employ you with the understanding that your employment may be discontinued at
the will of either party by notice to the other. This letter supersedes any
prior verbal representations that may have been made to you.
Ed, in addition, you will be eligible to participate in the Titan Deferred
Compensation Plan a the 5% level, and will be asked to develop a Cayenta
bonus compensation plan for presentation to the Cayenta Board of Directors.
If terminated within the first two years, you would receive, as requested, one
year of base salary at the then current rate plus medical benefits for one
year.
Titan will offer you 100,000 shares of Cayenta.com common stock at a price to
be determined by the Board of Directors. The stock will vest over four years
from the date of grant, also subject to approval of the Board of Directors.
<PAGE>
Ed, I am really excited about offering you this opportunity to help me grow
Cayenta into a world-class, highly successful internet services public
company. As you can hopefully see in this offer, Gene Ray and I both believe
that you have unlimited energy, intellect, and capability to serve in this key
executive position. We know, together, we can rapidly grow Cayenta and make
its shareholder value significant, rewarding, and meaningful for all.
This employment position is effective December 18, 1999.
Sincerely,
/s/ DAVID P. PORRECA
David P. Porreca
President & CEO
Accepted and Agreed to
This _______ day of ________, 1999
Signed /s/ EDWARD LAKE
---------------
Edward Lake
<PAGE>
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this __________ day of
__________, 20__ by and between Cayenta, Inc., a Delaware corporation (the
"Corporation"), and __________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in
__________ capacity as __________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as __________ of
the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
__________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
__________ of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; PROVIDED,
HOWEVER, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold
harmless and indemnify Agent to the fullest extent authorized or permitted by
the provisions of the Bylaws and the Code, as the same may be amended from time
to time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
1.
<PAGE>
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent
by the Corporation under the non-exclusivity provisions of the Code and
Section 43 of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent solely for an
accounting of profits made from the purchase or sale by Agent of securities of
the Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
(b) on account of Agent's conduct that is established by a
final judgment as knowingly fraudulent or deliberately dishonest or that
constituted willful misconduct;
(c) on account of Agent's conduct that is established by a
final judgment as constituting a breach of Agent's duty of loyalty to the
Corporation or resulting in any personal profit or advantage to which Agent was
not legally entitled;
(d) for which payment is actually made to Agent under a valid
and collectible insurance policy or under a valid and enforceable indemnity
clause, bylaw or agreement, except in respect of any excess beyond payment under
such insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect,
both the Corporation and Agent have been advised that the Securities and
Exchange Commission believes that indemnification for liabilities arising under
the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof)
initiated by Agent, or any proceeding by Agent against the Corporation or its
directors, officers, employees or other agents, unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the Corporation, (iii) such indemnification is
provided by the Corporation, in its sole discretion, pursuant to the powers
2.
<PAGE>
vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Agent becomes legally obligated to
pay in connection with any action, suit or proceeding referred to in Section 3
hereof even if not entitled hereunder to indemnification for the total amount
thereof, and the Corporation shall indemnify Agent for the portion thereof to
which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, the Corporation may, at
its option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless
(i) the employment of counsel by Agent has been authorized by the Corporation,
(ii) Agent shall have reasonably concluded, and so notified the Corporation,
that there is an actual conflict of interest between the Corporation and Agent
in the conduct of the defense of such action or (iii) the Corporation shall not
in fact have employed counsel to assume the defense of such action, in each of
which cases the fees and expenses of Agent's separate counsel shall be at the
expense of the Corporation. The Corporation shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of the
Corporation or as to which Agent shall have made the conclusion provided for in
clause (ii) above; and
3.
<PAGE>
(c) the Corporation shall not be liable to indemnify Agent
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or advances
is denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. Agent, in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, PROVIDED THAT the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of
Directors or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of Agent is proper
in the circumstances, nor an actual determination by the Corporation (including
its Board of Directors or its stockholders) that such indemnification is
improper shall be a defense to the action or create a presumption that Agent is
not entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.
4.
<PAGE>
(b) The Corporation shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
(i) upon delivery if delivered by hand to the party to whom such communication
was directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to:
CAYENTA, INC.
225 BROADWAY, SUITE 1500
SAN DIEGO, CA 92101
or to such other address as may have been furnished to Agent by the Corporation.
5.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
CAYENTA, INC.
By:
-----------------------------
Title:
--------------------------
AGENT
--------------------------------
Address:
--------------------------------
--------------------------------
6.
<PAGE>
===============================================================================
OFFICE SPACE LEASE
between
SAN DIEGO 225 RPFIII LIMITED LIABILITY COMPANY
as LANDLORD
and
THE TITAN CORPORATION,
a Delaware corporation
as TENANT
===============================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
1. BASIC LEASE PROVISIONS ......................................... 1
1.1 Parties ................................................... 1
1.2 Building .................................................. 1
1.3 Premises: ................................................. 1
1.4 Permitted Use of the Premises ............................. 1
1.5 Basic Rent ................................................ 1
1.6 Tenants Operating Expense Percentage ...................... 1
1.7 Tenants Expense Stop Base ................................. 1
1.8 Term ...................................................... 2
1.9 Option To Extend Lease Term ............................... 2
1.10 Security Deposit .......................................... 2
1.11 Landlord's Work ........................................... 2
1.12 Broker(s) ................................................. 2
1.13 Guarantor(s) .............................................. 2
1.14 Parking Spaces ............................................ 2
1.16 Tenant's Initial Liability Insurance Limits ............... 2
1.16 Address for Rental Payments ............................... 2
1.17 Addresses for Notices ..................................... 2
1.18 Attachments ............................................... 3
2. PREMISES AND COMMON AREAS ...................................... 3
2.1 Premises ................................................... 3
2.3 The Common Areas ........................................... 3
3. TERM ........................................................... 4
3.1 Commencement Date .......................................... 4
3.2 Measurement of Lease Term and Expiration Date .............. 4
3.3 Estimated Commencement Date ................................ 4
3.4 Beneficial Occupancy Date .................................. 5
4. TENANT IMPROVEMENTS AND ACCEPTANCE OF PREMISES ................. 5
4.1 Acceptance of Premises ..................................... 5
4.2 Tenant Improvements ........................................ 5
5. RENT ........................................................... 5
5.1 Basic Rent ................................................. 5
5.2 Late Charges ............................................... 5
6. ADDITIONAL RENT ................................................ 6
6.1 Obligations to Pay Additional Rent ......................... 6
6.2 Estimated Operating Expenses ............................... 6
6.3 Annual Statement ........................................... 6
6.4 Operating Expenses ......................................... 7
6.5 Tenant's Charges ........................................... 8
8. USE ............................................................ 8
8.1 Use in General ............................................. 8
8.2 Conduct of Business by Tenant .............................. 8
8.3 Hazardous Material ......................................... 9
9. TAXES ON TENANT'S PROPERTY .....................................10
9.1 Payment By Tenant ..........................................10
9.2 Excess Taxes on Tenant Improvements ........................10
10. CONDITION OF PREMISES ..........................................11
10.1 Operating Condition .......................................11
10.2 Compliance With Regulations ...............................11
10.3 Tenant Acceptance .........................................11
10.4 Tenant's Obligations to Maintain ..........................11
10.5 Condition Upon Surrender ..................................12
11. MAINTENANCE AND REPAIRS BY LANDLORD.............................12
12. ALTERATIONS ....................................................12
13. LIENS ..........................................................13
14. ENTRY BY LANDLORD ..............................................13
i
<PAGE>
15. UTILITIES AND SERVICES .........................................14
16. BANKRUPTCY .....................................................14
17. INDEMNITY AND INSURANCE ........................................14
17.1 Tenant's Indemnity ........................................14
17.2 Tenant's Insurance ........................................15
17.3 Tenant's Property .........................................15
17.4 Form of Insurance Policies ................................15
17.5 Evidence of Coverage ......................................16
17.6 Exemption of Landlord From Liability.......................16
17.7 Waiver of Subrogation .....................................16
17.8 Waiver of Damages .........................................16
18. DAMAGE OR DESTRUCTION ..........................................17
18.1 Definitions ...............................................17
18.2 Premises Damage: Premises Building Partial Damage. ........17
(a) Insured Loss ..........................................17
(b) Uninsured Loss ........................................17
18.3 Building Total Destruction: Project Total Destruction .....17
18.4 Damage Near End of Term ...................................17
18.5 Abatement of Rent: Tenant's Remedies ......................18
18.6 Termination: Advance Payments .............................18
18.7 Waiver ....................................................18
18.8 Insurance Limitation ......................................18
19. EMINENT DOMAIN .................................................18
20. DEFAULTS AND REMEDIES ..........................................19
20.1 Tenant's Default ..........................................19
20.2 Landlord's Remedies .......................................20
20.3 Inducement, Recapture and Effect of Breach ................22
20.4 Default By Landlord and Remedies Of Tenant ................22
20.5 Non-waiver Of Default .....................................23
21. ASSIGNMENT AND SUBLETTING ......................................23
21.1 Prohibition of Assignment or Subletting ...................23
21.2 Minimum Requirements for Consent ..........................23
21.3 Submittal Procedure .......................................23
21.4 Continuing Obligation of Tenant ...........................24
21.5 Consent Not Waiver ........................................24
21.6 Financial Information .....................................24
21.7 Consideration .............................................24
21.8 Subleases .................................................24
21.9 Miscellaneous Provisions ..................................25
22. SUBORDINATION AND ESTOPPEL .....................................25
22.1 Subordination .............................................25
22.2 Estoppel ..................................................26
23. BUILDING PLANNING ..............................................26
24. NOTICES ........................................................26
25. BROKERS ........................................................26
26. HOLDING OVER ...................................................26
27. MISCELLANEOUS ..................................................27
27.1 Rules and Regulations ....................................27
27.2 Interpretation ...........................................27
27.3 Successors and Assigns ...................................27
27.4 Surrender of Premises ....................................27
27.5 Attorneys' Fees ..........................................27
27.6 Performance By Tenant ....................................27
27.7 Mortgagee Protection .....................................27
27.8 Waiver ...................................................28
27.9 Identification of Tenant .................................28
27.10 Parking ..................................................28
27.11 Captions, Number, Gender, and Joint and Several Liability.28
27.12 Lease Examination ........................................28
27.13 Time of the Essence ......................................28
27.14 Entire Agreement .........................................28
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27.15 Severability .............................................28
27.16 Recording ................................................29
27.17 Modifications For Lender .................................29
27.18 Payments to Affiliates ...................................29
27.19 Landlord's Inability to Perform ..........................29
27.20 Interest .................................................29
27.21 Authorized Signatory .....................................29
27.22 Covenants and Conditions .................................29
27.23 Reservations of Landlord .................................29
27.24 Quiet Enjoyment ..........................................30
27.25 Amendment ................................................30
27.26 Cumulative Rights ........................................30
27.27 Financial Statements .....................................30
27.28 Waiver of Right to Trial by Jury .........................30
27.29 Signs ....................................................30
27.30 Directory Board ..........................................30
27.31 Non-Discrimination .......................................30
28. Termination Option .............................................30
TABLE OF EXHIBITS
EXHIBIT A DESCRIPTION OF THE PREMISES
EXHIBIT B STANDARDS FOR UTILITIES AND SERVICES
EXHIBIT C RULES AND REGULATIONS
EXHIBIT D LANDLORD'S WORK
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OFFICE SPACE LEASE
This Office Space Lease is dated this 9th day of March, 1999, between
San Diego 225 RPFIII Limited Liability Company, a Delaware limited liability
company ("Landlord") and THE TITAN CORPORATION, a Delaware corporation
("Tenant").
1. BASIC LEASE PROVISIONS.
The following provisions shall be referred to in this Office Space Lease
("Lease") as the "Basic Lease Provisions." The terms set forth in the Basic
Lease Provisions shall be defined terms and shall have a meaning consistent
with the Basic Lease Provisions when used in this Lease. In the event of any
conflict between any Basic Lease Provision and the balance of the Lease, the
latter shall control.
1.1 PARTIES:
(a) LANDLORD: San Diego 225 RPFIII Limited Liability Company, a
Delaware limited liability company
(b) TENANT: The Titan Corporation, a Delaware corporation
1.2 BUILDING:
(a) Address: 225 Broadway, San Diego, CA 92101
(b) Rentable Area: Approximately 330,185 rentable square feet of
office space.
1.3 PREMISES:
(a) Floor: 15th
(b) Suite: 1500
(c) Rentable Area: Approximately 7,150 rentable square feet.
(d) Usable Area: Approximately 5,940 usable square feet.
1.4 PERMITTED USE OF THE PREMISES: General office purposes.
1.5 BASIC RENT:
(a) Schedule of Basic Rent:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
MONTHLY BASIC RENT
PER RENTABLE SQUARE
EFFECTIVE DATES FOOT MONTHLY BASIC RENT ANNUAL BASIC RENT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Months 1 - 12 $1.73 $12,369.50 $148,434.00
- --------------------------------------------------------------------------------------------------------------
Months 13 - 24 $1.83 $13,084.50 $157,014.00
- --------------------------------------------------------------------------------------------------------------
Months 25 - 36 $1.93 $13,799.50 $165,594.00
- --------------------------------------------------------------------------------------------------------------
Months 37 - 46 $2.03 $14,514.50 $174,174.00
- --------------------------------------------------------------------------------------------------------------
Months 47 - 60 $2.13 $15,229.50 $182,754.00
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Basic Rent paid upon execution for the first month's rent:
$12,369.50.
1.6 TENANT'S OPERATING EXPENSE PERCENTAGE: Tenant's Initial Operating
Expense Percentage is 2.17% (the Rentable Area of the Premises divided by the
Rentable Area of the Building, expressed as a percentage).
1.7 TENANT'S EXPENSE STOP BASE: Tenant's Expense Stop Base will be
an amount equal to Tenant's Operating Expense Percentage times the total
actual Operating Expenses for 1999 extrapolated to 95% occupancy. Reference
Year: 1999.
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1.8 TERM:
(a) Length of Term: Sixty (60) months
(b) Estimated Commencement Date: April 1, 1999
1.9 OPTION TO EXTEND LEASE TERM: None.
1.10 SECURITY DEPOSIT: None.
1.11 LANDLORD'S WORK: See Exhibit D.
1.12 BROKER(S):
(a) Landlord's Broker: SENTRE Partners, Inc.
(b) Tenant's Broker: None
1.13 GUARANTOR(S): None
1.14 PARKING SPACES:
(a) Unreserved On-site: One (1) space per 1,000 rentable
square feet located in the Building's
subterranean parking garage.
(b) Unreserved Off-site: One (1) space per 1,000 rentable
square feet located in the Horton
Pacific garage.
1.15 TENANT'S INITIAL LIABILITY INSURANCE LIMITS: (Subject to
Article 17)
(a) Commercial General Liability Insurance: $2,000,000 per
occurrence with general aggregate of $3,000,000 for bodily
injury, personal injury, and property damage.
(b) All Risk Property Insurance: Full replacement.
(c) Employer's Liability: $1,000,000 per occurrence and per
employee.
(d) Worker's Compensation: As required by law.
(e) Automobile Liability: $1,000,000 for bodily injury/property
damage, combined single limit, for all owned, non-owned, and
hired vehicles if applicable.
1.16 ADDRESS FOR RENTAL PAYMENTS:
San Diego 225 RPFIII Limited Liability Company
c/o SENTRE Partners, Inc.
225 Broadway, Suite 1700
San Diego, CA 92101
1.17 ADDRESSES FOR NOTICES:
(a) If to Landlord:
SENTRE Partners, Inc.
225 Broadway, Suite 1700
San Diego, CA 92101
Telephone: (619) 234-5600
Facsimile: (619) 234-7917
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with a copy to:
San Diego 225 RPFIII Limited Liability Company
c/o General Electric Investments Corporation
2029 Century Park East, Suite 1230
Los Angeles, CA 90067
Attn: Portfolio Manager
Telephone: (310) 556-3041
(b) If to Tenant:
To the Premises,
or to:
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121
1.18 ATTACHMENTS: In addition to the Exhibits identified in the
Table of Exhibits, the following documents, if any, are attached to and made
a part of this Lease: None.
2. PREMISES AND COMMON AREAS.
2.1 PREMISES. Landlord leases to Tenant, and Tenant leases from
Landlord, the Premises described in the Basic Lease Provisions substantially
as shown in the drawing attached to this Lease as Exhibit A and by this
reference incorporated herein. The Premises are located in the Building,
which Building, together with the underlying land, landscaping, plaza area,
parking facilities, and other improvements, are referred to in this Lease as
the "Project." This Lease is subject to all of the terms, covenants, and
conditions set forth in the Basic Lease Provisions, the Standard Lease
Provisions, and the Exhibits and/or addenda attached to this Lease. Unless
otherwise provided herein, any statement of square footage set forth in this
Lease, or that may have been used in calculating rental, is an approximation
which Landlord and Tenant agree is reasonable, and the rental based thereon
is not subject to revision whether or not the actual square footage is more
or less.
2.2 RENTABLE AREA. As used herein, the term "rentable area" shall
be computed as follows: (a) rentable area on a single tenancy floor shall
mean the entire area within the exterior walls measured from the inside
surface of outer glass and extending the plane thereof into non-glass areas,
excluding public elevator shafts and elevator machine rooms, public stairs,
fire towers and fire tower courts, and main telephone and electric
switchboards, except where the main telephone and electric switchboards are
leased by a tenant or are a special installation. All air conditioning floors
and other areas within the Building containing equipment, enclosing pipes,
ducts, or shafts shall be apportioned to the leased space that they serve;
and (b) rentable area for a partial floor shall be measured and computed in
the manner described in clause (a) above, except that (i) demising walls
separating two (2) leased premises shall be equally divided between such
leased premises, (ii) corridor walls to the finished corridor side shall be
included in the rentable area of adjacent leased space, (iii) core areas
(including the finished enclosing walls thereof but excluding any part of the
core leased to a tenant) and corridors (excluding the enclosing walls
thereof) shall be apportioned among each leased premises on such floor on the
basis of the rentable area of each such leased premises (exclusive of such
corridor area) in relation to the total rentable area of all of the leased
premises on such floor (exclusive of such corridor area). Based on the
foregoing computation made to a degree of accuracy reasonably satisfactory to
the parties, the Rentable Area of the Premises set forth in Section 1.3(c) of
the Basic Lease Provisions has been mutually agreed upon by the parties, and
shall be conclusive and binding upon them.
2.3 THE COMMON AREAS. The term "Common Areas" refers to the areas
of the Building and the realty in the Project which are designed for the
general, non-exclusive use by the Landlord, Tenant, and other tenants of the
Building and the Project and their respective employees, agents, customers,
invitees, and others, and includes, by way of illustration and not
limitation, entrances and exits, hallways, stairwells, elevators, restrooms,
sidewalks, driveways, parking areas (subject to the right of Landlord or its
parking operator to control access thereto, and to charge for its use),
landscaped areas, and other areas as may be designated as part of the Common
Areas. The Premises shall include the nonexclusive right to use the Common
Areas in common with and subject to the rights of other tenants in the
Building and the Project, and subject to the rules and regulations
established by Landlord. Landlord shall have the right, in Landlord's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and
Common Areas, including, without limitation, changes in the location, size,
shape, number, and appearance thereof, including but not limited to the
lobbies, windows, stairways, air shafts, elevators, escalators, restrooms,
driveways, entrances, parking spaces, parking areas, loading and unloading
areas, ingress,
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egress, direction of traffic, decorative walls, landscaped areas, and
walkways; provided, however, Landlord shall at all times provide the parking
facilities required by applicable law;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(c) To designate other land and improvements outside the
boundaries of the Project to be a part of the Common Areas, provided that
such other land and improvements have a reasonable and functional
relationship to the Project;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs, or alterations to the Project, or any portion thereof,
and,
(f) To do and perform such other acts and make such other
changes in, to, or with respect to the Common Areas and Project as Landlord
may, in the exercise of sound business judgment deem to be appropriate,
3. TERM.
3.1 COMMENCEMENT DATE. The term shall commence on the earliest of
the following three dates, which earliest date shall be referred to in this
Lease as the "Commencement Date":
(a) The Beneficial Occupancy Date (as defined in Section 3.4
below);
(b) The date when Tenant enters or occupies the Premises for
any use other than for purposes of construction of improvements or inspection
of the Premises under construction; or
(c) The Estimated Commencement Date set forth in Section
1.8(b) of the Basic Lease Provisions.
When the Commencement Date is ascertained as above, the term shall
commence and upon request of Landlord, Tenant shall execute a certificate or
memorandum confirming the Commencement Date and the Expiration Date. Upon
termination of this Lease, whether upon expiration of the entire Term of this
Lease or otherwise, Tenant agrees to execute and deliver to Landlord within
ten (10) days after written request therefor any documents reasonably
required by Landlord to confirm or evidence the termination of this Lease.
3.2 MEASUREMENT OF LEASE TERM AND EXPIRATION DATE. The Lease term
shall be for the number of years and/or months set forth in the Basic Lease
Provisions measured from the Commencement Date if such date is the first day
of a calendar month, or otherwise measured from the first day of the first
full calendar month beginning after the Commencement Date, which date shall
be the "Measurement Date" of this Lease. The Lease term shall include any
period of less than one (1) month from the Commencement Date to the first day
of the first full calendar month. The "Expiration Date" shall be the last day
of the last calendar month occurring upon lapse of the number of years and/or
months stated in the Basic Lease Provisions as the Length of Term measured
from the Measurement Date. The period from the Commencement Date through and
including the Expiration Date shall be referred to in this Lease as the
"Term."
3.3 ESTIMATED COMMENCEMENT DATE. The Basic Lease Provisions contain
an Estimated Commencement Date stating the date on which Landlord reasonably
believes the Premises will be available for beneficial occupancy by Tenant.
Landlord shall use all reasonable efforts to make the Premises available on
the Estimated Commencement Date. If for any reason, however, Landlord cannot
deliver possession of the Premises to Tenant on said date, Landlord shall not
be subject to any liability therefor, nor shall such failure affect the
validity of this Lease or the obligations of Tenant hereunder or extend the
Term hereof; but in such case, Tenant shall not be obligated to pay rent or
perform any other obligations of Tenant under the terms of this Lease, except
as may be otherwise provided in this Lease, until possession of the Premises
is delivered to Tenant. If, however, Landlord shall not have delivered
possession of the Premises within one hundred eighty (180) days following
said Estimated Commencement Date for any reason, other than Tenant's delays,
Tenant may, at Tenant's option by notice in writing to Landlord within ten
(10) days thereafter, advise Landlord of Tenant's intent to cancel this
Lease. Within ten (10) days after its receipt of such notice, Landlord shall
submit to Tenant a statement of all costs and expenses incurred or
irrevocably committed by Landlord for non-standard improvements to the
Premises up to the date of Landlord's receipt of Tenant's notice of intent to
cancel. This Lease shall thereafter be canceled and the parties shall be
discharged from all obligations hereunder, if and only if, Tenant reimburses
Landlord for all such costs and expenses as stated in Landlord's notice
within ten (10) days after Tenant's receipt thereof, and Landlord shall
thereupon return any money previously deposited by Tenant. If such written
notice of intent to cancel by Tenant is not timely received by Landlord, or
Tenant's reimbursement for such costs and expenses is not timely
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received by Landlord, as aforesaid, then in either such event Tenant's right
to cancel this Lease hereunder shall terminate and be of no further force or
effect.
3.4 BENEFICIAL OCCUPANCY DATE. The date when the Premises are
delivered for beneficial occupancy shall be the "Beneficial Occupancy Date."
The Premises shall be deemed delivered for beneficial occupancy when all of
the following conditions have been satisfied:
(a) Landlord has placed in operating condition the plumbing,
heating, air conditioning, and electrical systems serving the Premises;
(b) Landlord has substantially completed all of the Landlord's
Work, if any, required to be performed by Landlord pursuant to Exhibit D, if
any; provided, however, that the date of such substantial completion shall
not be advanced by any period of delay which Landlord determines has been
caused by Tenant; and
(c) Any previous tenant or occupants of the Premises have
vacated the Premises.
4. TENANT IMPROVEMENTS AND ACCEPTANCE OF PREMISES.
4.1 ACCEPTANCE OF PREMISES. Landlord's sole obligation with respect
to Tenant improvements shall be to perform Landlord's Work set forth in
Exhibit D. Landlord shall have no other obligation to construct leashold
improvements for Tenant or to repair or refurbish the Premises whatsoever. By
taking possession of the Premises, Tenant will be deemed to have acknowledged
that all work to be performed by Landlord has been satisfactorily completed
except for those minor items which Landlord and Tenant shall agree require
further completion and which items shall be incorporated into a written punch
list executed by Landlord and Tenant prior to the Beneficial Occupancy Date.
Landlord shall use all reasonable efforts to cause the items listed on the
punch list to be completed within a reasonable time. Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any promise,
representation, or warranty with respect to the Premises, the Building, or
the Project, or with respect to the suitability of any part of the Project
for the conduct of Tenant's business unless otherwise set forth in this Lease
or its Exhibits.
4.2 TENANT IMPROVEMENTS. Ali alterations, additions, fixtures, and
improvements including, without limitation, carpeting and all other
improvements made pursuant to Exhibit B, whether temporary or permanent in
character, made in or upon the Premises, either by Tenant or Landlord, shall
immediately become Landlord's property and, at the end of the term hereof,
all such alterations, additions, fixtures, and improvements shall, at
Landlord's option, either remain on the Premises without compensation to
Tenant or be removed by Landlord for Tenant's account, and Tenant shall
reimburse Landlord for the cost of removal (including the cost of repairing
any damage to the Premises or the Building caused by removal and a reasonable
charge for Landlord's overhead) within ten (10) days after receipt of a
statement therefor.
5. RENT.
5.1 BASIC RENT. Tenant shall pay to Landlord the Annual Basic Rent
for the Premises set forth in the Basic Lease Provisions, and other charges
under this Lease, as the same may be increased pursuant to this Lease.
Tenant's obligation to pay rent shall begin on the Beneficial Occupancy Date
and shall continue until all rent due hereunder has been paid. The Monthly
Basic Rent is an amount equal to one-twelfth of the Annual Basic Rent, as
adjusted. The Monthly Basic Rent shall be paid in advance on or before the
first day of each and every calendar month during the Term. If the Beneficial
Occupancy Date occurs on a day other than the first day of a calendar month,
then the rent payable by Tenant to Landlord for the period from the
Beneficial Occupancy Date to the Measurement Date shall be prorated and the
rent for the partial month following the Beneficial Occupancy Date shall be
payable on the Beneficial Occupancy Date. Any rent due for a period other
than a full month will be prorated on a daily basis using a 30 day month. The
rent payable for the first full calendar month of the Term shall be payable
upon execution of this Lease by Tenant. Rent shall be payable without notice,
demand, reduction, or set-off in lawful money of the United States of America
to Landlord or its agent at the address set forth in the Basic Lease
Provisions, or to such other person or such other places as Landlord may from
time to time designate in writing. If (a) any check submitted by Tenant in
payment of rent or any other charge due under this Lease shall be returned
for insufficient funds, or (b) Tenant shall fail to pay when due its rent or
any other charge due under this Lease for two (2) consecutive months or three
(3) times in any twelve (12) month period, then in addition to any other
rights and remedies of Landlord, Landlord may require that Tenant thereafter
pay its basic rent and other charges by cashiers' check and/or pay its basic
rent and other charges in quarterly payments covering three (3) months each,
instead of monthly.
5.2 LATE CHARGES. Tenant hereby acknowledges that the late payment
by Tenant to Landlord of any installment of rent or other payment due under
this Lease will cause Landlord to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain.
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If on more than two (2) occasions in any twelve (12) month period Tenant
fails to pay any installment of rent within ten (10) days of the date due, or
if Tenant fails to make any other payment due under this Lease within ten
(110) days of the date due, then Tenant shall pay to Landlord, as additional
rent, a late charge equal to the greater of five percent (5%) of the amount
due or $100 to compensate Landlord for the extra cost incurred as a result of
such late payment. The parties hereby agree that such late charge represents
a fair and reasonable estimate of the costs Landlord will incur by reason of
late payment by Tenant. Acceptance of such late charge by Landlord shall in
no event constitute a waiver of Tenant's default with respect to such overdue
amount, nor prevent Landlord from exercising any of the other rights and
remedies granted hereunder.
6. ADDITIONAL RENT.
6.1 OBLIGATIONS TO PAY ADDITIONAL RENT. In addition to the Annual
Basic Rent and other sums to be paid by Tenant to Landlord under the Lease,
Tenant shall pay to Landlord as additional rent the amount by which Tenant's
share of Operating Expenses (defined below) for any calendar year or part
thereof during the Term exceeds Tenant's Expense Stop Base. Tenant's share of
Operating Expenses shall be an amount equal to the product of the Operating
Expenses multiplied by Tenant's Operating Expense Percentage. If any part of
the Term begins or ends on any day other than the first or last day of a
calendar year respectively, then the annual Operating Expense and Tenant's
Expense Stop Base shall be prorated for such partial year on a daily basis
using a 30-day month and 360-day year to determine the amount of additional
rent due to Landlord. When determining the amount of additional rent payable
by Tenant hereunder, the amount used for Operating Expenses for a given
calendar year shall first be adjusted pursuant to Paragraph 6.4(h) herein.
Landlord and Tenant agree to determine Tenant's Expense Stop Base as
being the product obtained by multiplying the Operating Expenses for the
Reference Year by Tenant's Operating Expense Percentage. Such determination of
Tenant's Expense Stop Base shall be made on one occasion only in conjunction
with Landlord's annual statement issued to Tenant with regard to the
Reference Year pursuant to Section 6.3 of this Lease. Any challenge by Tenant
to Landlord's calculation of Operating Expenses for the Reference Year (and
thus to the Expense Stop Base) must be made within the time period set forth
in Section 6.3 of this Lease. The determination of the Expense Stop Base
shall be retroactive to the Commencement Date and shall for all purposes be
conclusive and binding upon Landlord and Tenant.
6.2 ESTIMATED OPERATING EXPENSES. Landlord shall be entitled to make
an estimate of Operating Expenses projected for each calendar year. Landlord
shall be entitled to revise such estimate at any time and from time to time
during the calendar year to increase or decrease the estimate of Operating
Expenses. If Landlord notifies Tenant that Landlord's estimate (or any
revised estimate) of Operating Expenses would result in an obligation of
Tenant to pay additional rent, then upon request by Landlord, Tenant shall
pay one-twelfth (1/12) of such estimated additional rent on the first day of
each month in advance together with the Monthly Basic Rent. If Landlord shall
so notify Tenant after the commencement of a calendar year, then with the
next payment of Monthly Basic Rent due, Tenant shall also pay to Landlord
one-twelfth (1/12) of such estimated additional rent for each month of such
calendar year which has already elapsed.
6.3 ANNUAL STATEMENT. Landlord shall provide Tenant with an annual
statement showing Tenant's share of the annual Operating Expenses for the
prior calendar year, together with any proration. Landlord shall use all
reasonable efforts to deliver the annual statement within one hundred twenty
(120) days after the end of the calendar year; provided, however, that
failure of Landlord to deliver the annual statement within such period shall
not impair or constitute waiver of Tenant's obligations to pay additional
rent or cause Landlord to incur any obligation for damages. If the amount of
the additional rent due for the calendar year exceeds any amounts paid by
Tenant as estimated additional rent for such calendar year, then Tenant shall
pay such excess to Landlord within ten (10) days of receipt of Landlord's
statement. If the amounts paid as estimated additional rent for a calendar
year exceed the amount of Tenant's obligation shown on the annual statement,
then Tenant shall be entitled to a credit against monthly installments of
estimated additional rent due for the then current year. If no further sums
of additional rent are or will become due against which the excess can be
credited, then, subject to offset at Landlord's election against other sums
owed by Tenant, Landlord shall pay such excess to Tenant within ten (10) days
after delivery of the annual statement. If Landlord has not required Tenant
to pay installments of estimated additional rent, then Tenant shall pay
Landlord any sum of additional rent due within ten (10) days of any statement
by Landlord reflecting the amount of overall additional rent. All obligations
to pay additional rent and/or the obligation of Landlord to credit or
reimburse Tenant for any excess payment of estimated additional rent shall
survive expiration of the Term or earlier termination of this Lease.
Tenant shall have a period of thirty (30) days after delivery of the
annual statement of Operating Expenses to question or challenge the amount
shown thereon as being the annual Operating Expenses or Tenant's share thereof
by giving written notice to Landlord specifying the items which are
challenged. Tenant waives and relinquishes the right to challenge or object
to the amounts shown at any time after expiration of such thirty (30) day
period. If Tenant timely challenges any item shown on the annual statement,
Tenant shall then have a period of sixty (60) days in which to inspect,
during business
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hours upon reasonable written notice to Landlord at Landlord's office,
Landlord's records relating to the challenged item or items. Tenant shall
give written notice to Landlord prior to expiration of such sixty (60) days
of whether Tenant continues to challenge any of the items originally objected
to, in which case a certification as to proper amount shall be made, at
Tenant's expense, by Landlord's independent certified public accountant,
which certification shall be final and conclusive. If Tenant fails to review
the records or fails to give timely written notice to Landlord that it
continues to object, then Tenant shall be deemed to have waived its objection
and shall have no further right to challenge or object thereto.
Notwithstanding any objection or challenge of Tenant, Tenant shall pay the
amount claimed by Landlord to be due as and when provided for herein, pending
the resolution of Tenant's objection.
6.4 OPERATING EXPENSES. "Operating Expenses" of the Building and the
Project mean any and all costs and expenses of ownership, operation,
management, maintenance, and repair of the Project and Building, including
the on-site and off-site parking facilities and Common Areas. Operating
Expenses include, but are not limited to, each of the following costs and
expenses:
(a) All costs and expenses of utilities furnished to the Building
and the Project including, without limitation, all costs and expenses
attributable to supply of electrical service, water and sewage service,
natural gas, cable television or other electronic or microwave signal
reception, telephone service or other communication, steam, heat, cooling, or
any other service which is now or in the future considered a utility
furnished to the Building and/or the Project.
(b) All real property taxes which shall include (i) any form of
tax or assessment, license fee, license tax, tax or excise on rent or any
other levy, charge, expense, or imposition made or required by any federal,
state, county, city, district, or other political subdivision on any interest
of Landlord and/or Tenant in the Premises, the Building, or the remainder of
the Project, including without limitation, the underlying real property and
appurtenances; (ii) any fee for services charged by any governmental agency
or quasi-governmental agency for any services such as fire protection,
street, sidewalk, and road maintenance, refuse collection, school systems, or
other services provided, or formerly provided through real property taxes or
assessments, to property owners and residents within the general area of the
Project; (iii) any governmental impositions allocable to or measured by the
area of the Premises or the amount of any rent payable under this Lease,
including, without limitation, any tax on gross receipts or any excise tax or
other charges levied by any federal, state, county, city, district, or other
governmental agency or political subdivision with respect to rent or upon or
with respect to the possession, leasing, operation, maintenance, alteration,
repair, use, or occupancy of the Premises or any portion thereof; (iv) any
impositions by any governmental agency on this Lease transaction or charge
with respect to any document to which Tenant is a party creating or
transferring an interest or an estate in the Premises; and (v) any increase
in any of the foregoing based upon construction of improvements on the
Project or changes in ownership (as defined in the California Revenue and
Taxation Code) of the Property. Real property taxes shall not include taxes
on the Landlord's net income including state franchise taxes or any
inheritance, estate, or gift taxes.
(c) The sum of building operating costs and common facilities
costs which shall include all costs of managing, operating, maintaining, and
repairing the Project, including all Common Areas and facilities of the
Project. Such costs shall include, without limitation, all expenses for
insurance obtained by Landlord (including, without limitation, public
liability, contractual liability, property damage, fire and extended
coverage, sprinkler damage, theft, malicious mischief and vandalism, flood,
rental interruption, boiler and machinery, earthquake, all risk coverage, and
other coverages in such amounts as Landlord determines appropriate to carry
in connection with ownership and operation of a first class building in San
Diego County, California, or such other insurance as may be required by any
present or future lender on loans secured by the Project): labor and
supplies, license, permit and inspection fees, all assessments and special
assessments due to deed restrictions, declarations and/or owners associations
which accrue against the Project, the cost of compensation (including
employment taxes, similar governmental charges, and fringe benefits) with
respect to all persons who perform duties in connection with landscaping,
janitorial, painting, window washing and general cleaning services, security
services, and any other services related to the operation, maintenance, or,
repair of the Project (as well as the cost of all supplies, materials, tools,
and equipment used in conjunction therewith), costs of clean-up and removal
of Hazardous Materials (as hereafter defined) and any governmental charges
imposed by reason of the existence of Hazardous Materials on, in, or about
the Project, the fair market rental value of the Project management office,
management fees (at an attributed fair market rate if Landlord Itself
provides such management services), legal expenses, accounting expenses, and
consultant's fees.
(d) All costs and expenses for replacements of equipment or
improvements that have a useful life of five (5) years or less, amortized on
a straight line basis over such useful life.
(e) All costs and expenses for operation, management,
maintenance, and repair of the parking facilities, including on-site and
off-site parking facilities.
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(f) Appropriate reserves to provide for maintenance, repair, and
replacement of improvements in the Project, as determined by Landlord
consistent with prudent accounting practices.
(g) Any other service to be provided by Landlord that is
elsewhere in this Lease stated to be an "Operating Expense."
(h) If the Building is not at least 95% occupied during all or a
portion of any calendar year, then Landlord shall make an appropriate
adjustment of the Operating Expenses for such calendar year to determine what
the Operating Expenses would have been for such year if the Building had been
95% occupied and the amount so determined shall be deemed to be the amount of
the Operating Expenses for the year. Such adjustment shall be made by
Landlord to the amount of cost which in Landlord's judgment would have been
incurred if the Building had been 95% occupied for the entire calendar year.
(i) Operating Expenses shall not include the following: (i)
depreciation of the Project; (ii) payments of principal and interest on any
loans secured by the Project, commissions paid for leasing, building
construction permits and fees, or costs of alteration of the Project;
provided, however, that Operating Expenses shall include the costs of any
capital improvements made to the Project for the purpose of reducing
Operating Expenses or pursuant to the requirements of any governmental
entity, such costs to be amortized over a reasonable period as Landlord shall
determine, together with interest on the unamortized balance at the rate of
interest which would be payable on sums due under this Lease at the time such
capital improvements are made; and, (iii) any expenses paid by Tenant
directly to third parties, or as to which Landlord is otherwise reimbursed by
any third party, any other tenant or insurance proceeds.
6.5 TENANT'S CHARGES. Charges for any services, goods, or materials
furnished by Landlord at Tenant's request and charges for services, goods,
and materials furnished by Landlord as a result of uses or demands by Tenant
in excess of those charges which are normally furnished to other tenants in
the Building with general office usage, and all other sums payable by Tenant
under this Lease shall not be included in Operating Expenses but shall be
payable by Tenant pursuant to this Lease (or if not elsewhere provided for in
this Lease, within ten (10) days after Landlord delivers a statement for such
services, goods, or materials to Tenant). If any other tenant of the Project
either pays sums directly to third parties or specifically reimburses
Landlord sums which otherwise would be included in Operating Expenses, such
payments or reimbursements shall not be included in Operating Expenses for
the purpose of determining the amount of Operating Expenses allocable to
Tenant
7. [INTENTIONALLY DELETED].
8. USE.
8.1 USE IN GENERAL. Tenant shall use and occupy the Premises during
the Term of this Lease solely for and in accordance with the use specified in
the Basic Lease Provisions and for no other use or uses without the prior
written consent of Landlord, which said consent can be granted or withheld in
Landlord's absolute discretion. Nothing contained herein shall be deemed to
give Tenant any exclusive right to such use in the Building. Tenant shall not
use or occupy the Premises in violation of law, any permit or the certificate
of occupancy issued for the Building or the Promises. Upon written notice
from Landlord, Tenant shall discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation
of law, any permit or any certificate of occupancy. Tenant shall comply with
any direction of any governmental authority having jurisdiction which shall,
by reason of the nature of Tenant's use or occupancy of the Premises, impose
any duty upon Tenant or Landlord respecting the Premises or use or occupation
thereof. Tenant shall not do or permit to be done anything which will
invalidate or increase the cost of any fire, extended coverage or any other
insurance policy covering the Project or any property located therein and
shall comply with all rules, orders, regulations, and requirements of any
fire rating bureau or any other organization performing a similar function.
If Landlord shall request Tenant to designate a fire warden or other
responsible person from among the persons regularly located at the Premises,
Tenant shall make such person available at reasonable times for training,
briefing, and drills. Tenant shall promptly, upon demand, reimburse Landlord
for any additional premium charged for any insurance policy by reason of
Tenant's failure to comply with the provisions of this Article.
8.2 CONDUCT OF BUSINESS BY TENANT. Tenant shall not do anything or
permit anything to be done in or about the Premises, which is inconsistent
with the operation of a first-class building, or which will obstruct
inconvenience, or interfere with the rights of other tenants of the Project.
Tenant shall not use the Premises or any portion thereof for (a) product
display activities (such as those of a manufacturers representative) other
than those that are ancillary to office use or other uses specifically
permitted hereunder, (b) offices or agencies of foreign governments or
political subdivisions thereof, (c) offices of any governmental bureau or
agency of the United States or any state or political subdivision thereof,
(d) data processing concerns, not including data processing activities
ancillary to office use or other uses specifically permitted hereunder, (e)
health care professionals other than those present only
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to provide physical examinations or emergency care to employees of Tenant,
(f) schools or other training, educational, or instructional uses other than
those ancillary to office use or other uses specifically permitted hereunder,
(g) clerical support services (other than those which are ancillary to an
otherwise permitted use), (h) "executive suite" type uses where office suites
are maintained for individual rental with common services provided by Tenant
or a sublessee, (i) reservation centers for airlines or travel agencies, (j)
retail or restaurant areas other than an executive or employee dining room
facility to provide service to persons occupying the Premises for an otherwise
permitted use, (k) communications firms such as radio or television studios,
or (l) personnel agencies. Tenant shall not cause or maintain any nuisance in
or about the Premises or commit or suffer to be committed any waste in or
about the Premises, and shall use its best efforts not to allow third parties
to do so.
8.3 HAZARDOUS MATERIAL.
(a) DEFINITION: The term "Hazardous Material" as used in this
Lease means any product, substance, chemical, material, or waste whose
presence, nature, quantity and/or intensity of existence, use, manufacture,
disposal, transportation, spill, release, or effect, either by itself or in
combination with other materials expected to be owned or about the Premises
is either: (i) potentially injurious to the public health, safety, or
welfare, the environment, or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Landlord to any
governmental agency or third party under applicable statute or common law
theory. Hazardous Material shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil, or any products, by-products or
fractions thereof, asbestos, chlorofluorocarbons, polychlorinated byphenyls
(PCBs) and formaldehyde. Tenant shall not bring, place, hold, treat, or
dispose of any Hazardous Material on, under, or about the Premises, the
Building, or the Project. Tenant shall not cause or allow any Hazardous
Material to be incorporated into any improvements or alterations which it
makes or causes to be made to the Premises. Tenant's liability under this
Section 8.3 shall extend to any and all such Hazardous Material whether or
not such substance was defined, recognized, or known or suspected of being
hazardous, toxic, dangerous, or wasteful, at the time of any act or omission
giving rise to Tenant's liability.
(b) DUTY TO INFORM LANDLORD: Tenant shall promptly comply with
the requirements of Section 25359.7(b) of the California Health and Safety
Code and/or any successor or similar statute. Accordingly, if Tenant knows,
or has reasonable cause to believe, that Hazardous Materials, or a condition
involving or resulting from same, has come to be located in, on, under, or
about the Premises, other than as previously consented to by Landlord, Tenant
shall immediately give written notice of such fact to Landlord. Tenant shall
also immediately give Landlord a copy of any statement, report, notice,
registration, application, permit, business plan, license, claim, action, or
proceeding given to, or received from, any governmental authority or private
party, or persons entering or occupying the Premises, concerning the
presence, spill, release, discharge off, or exposure to, any Hazardous
Materials, or contamination in, on, under, or about the Premises. Should
Tenant fail to so notify Landlord, Landlord shall have all rights and
remedies provided for such a failure by such Section 25359.7(b) in addition
to all other rights and remedies which Landlord may have under this Lease or
otherwise. Additionally, Tenant shall immediately notify Landlord in writing
of (i) any enforcement, clean-up, removal, or other governmental action
instituted, completed, or threatened with regard to Hazardous Materials
involving the Premises, the Building, or the Project, (ii) any claim made or
threatened by any person against Tenant, Landlord, the Premises, the
Building, or the Project related to damage, contribution, cost recovery,
compensation, loss, or injury resulting from or claimed to result from any
Hazardous Materials, (iii) any reports made to any environmental agency
arising out of or in connection with any Hazardous Materials at or removed
from the Premises, the Building, or the Project, including any complaints,
notices, warnings, or assertions of any violation in connection therewith,
(iv) any spill, release, discharge, or disposal of Hazardous Materials that
occurs with respect to the Premises or Tenant's operations, including,
without limitation, those that would constitute a violation of California
Health and Safety Code Section 25249.5 or any other Applicable Environmental
Law (defined hereafter); and (v) Tenant's discovery of any occurrence or
condition on, under, or about the Premises, the Building, or the Project or
any real property adjoining or in the vicinity of the Project or any part
thereof causing or possibly causing the Project or any part thereof to be
subject to any restrictions on the ownership, occupancy, transferability, or
use under any Applicable Environmental Law, including, without limitation,
Tenant's discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Project that could cause the Project or
any part thereof to be classified as "border-zone property under the provisions
of California Health and Safety Code Sections 25220 et seq. or any regulation
adopted in accordance therewith, or to be otherwise subject to any
restrictions on the ownership, occupancy, transferability, or use of the
Project, or any part thereof under any Applicable Environmental Law.
(c) DUTY TO ABATE: Tenant shall immediately abate any Hazardous
Material brought, placed, or leaked onto, or under. the Premises during the
Term of the Lease. Additionally, to the extent Tenant brings, places, holds,
treats, disposes of, or utilizes any chlorofluorocarbons on or about the
Premises, Tenant shall remove all such chlorofluorocarbons prior to, or upon,
termination of the Lease, regardless of whether such chlorofluorocarbons are
then defined, recognized, known or supposed to be Hazardous Materials.
Tenant, however, shall not take any remedial action related to Hazardous
Materials located in or about the Premises, the Building, or the Project and
shall not enter into a settlement, consent decree, or compromise in response
to any claim related to Hazardous Materials,
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without first notifying Landlord in writing of Tenant's proposed action and
affording Landlord a reasonable opportunity to appear, intervene, or otherwise
partcipate in any discussion or proceeding for the purposes of protecting
Landlord's interest in the Premises, the Building, and the Project.
(d) INDEMNIFICATION: In addition to any other indemnity
contained in this Lease, Tenant hereby shall defend, indemnify, and hold
Landlord, its agents, employees, lenders, and ground lessor, if any, and the
Premises, harmless from and against any and all losses, liabilities, general,
special, consequential and/or incidental damages, injuries, costs, expenses,
claims of any and every kind whatsoever (including, without limitation, court
costs, attorneys' fees, damages to any person, the Premises, the Building,
the Project, or any other property or loss of rents) which at any time or
from time to time may be paid, incurred, or suffered by or asserted against
Landlord with respect to, or as a direct or indirect result of: (a) breach by
Tenant of any of the covenants set forth in this Article, and/or (b) to the
extent caused or allowed by Tenant or any agent, employee, contractor,
invitee, or licensee of Tenant, the presence on, under, or the escape,
seepage, leakage, spillage, discharge, emission, release from, onto, or into
the Premises, the Building, the Project, any land, the atmosphere, or any
watercourse, body of water, or ground water, of any Hazardous Material
(including, without limitation, any losses, liabilities, damages, injuries,
costs, expenses, or claims asserted or arising under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C.
Sections 9601 et seq.), any so-called "Superfund" or "Superlien" law, the
Resource Conservation and Recovery Act of 1980 (42 U.S.C. Sections 6901 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. Sections 1251 et
seq.), the Safe Drinking Water Act (42 U.S.C. Sections 300f et seq.), the
Toxic Substances Control Act (15 U.S.C. Sections 2601 et seq.), the Clean Air
Act (42 U.S.C. Sections 7401 et seq.), California Health & Safety Code
Sections 25100 et seq. and Sections 39000 et seq., the California Safe
Drinking Water & Toxic Enforcement Act of 1986 (California Health & Safety
Code Sections 25249.5 et seq.), the Porter-Cologne Water Quality Control Act
(California Water Code Sections 13000 et seq.), any and all amendments and
recodifications of the foregoing statutes, or any other federal, state,
local, or other statute, law, ordinance, code, rule, regulation, permit,
order, or decree regulating, relating to or imposing liability or standards
of conduct concerning Hazardous Materials; all of the foregoing shall
collectively be referred to as "Applicable Environmental Laws"). The
undertaking and indemnification set forth in this Section shall survive the
termination of this Lease and shall continue to be the personal liability and
obligation of Tenant.
(e) FINANCIAL ASSURANCE: Notwithstanding the foregoing
prohibition against the location of Hazardous Materials on or about the
Premises, the Building, or the Project, if Tenant or its agents, employees,
or contractors cause any Hazardous Materials to be located on or about the
Premises, the Building, or the Project, then Tenant shall obtain insurance or
other means of financial capability satisfactory to Landlord (in its sole
discretion) to assure compliance with the indemnity and other obligations of
Tenant related to Hazardous Materials set forth in this Lease or otherwise
now or in the future required by law; such insurance or other means of
financial capability shall be on such forms, in such amounts and with such
persons as from time to time required by Landlord, and otherwise be
satisfactory to Landlord (in its sole discretion).
(f) INSPECTION: Landlord and Landlord's Lender(s) shall have
the right to enter the Premises at any time in the case of an emergency, and
otherwise at reasonable times, for the purpose of inspecting the condition of
the Premises and for verifying compliance by Tenant with this Lease and with
all Applicable Environmental Laws, and to employ experts and/or consultants
in connection therewith and/or to advise Landlord with respect to Tenant's
activities including but not limited to the installation, operation, use,
monitoring, maintenance, or removal of any Hazardous Materials from the
Premises. The costs and expenses of such inspection shall be paid by the
party requesting same, unless a Default of this Lease, violation of
Applicable Environmental Law, or a contamination, caused or contributed to by
Tenant is found to exist or be imminent, or unless the inspection is required
or ordered by governmental authority as the result of any such existing or
imminent violation or contamination. In any such case, Tenant shall upon
request reimburse Landlord or Landlord's Lender(s), as the case may be, for
the costs and expenses of such inspections.
9. TAXES ON TENANT'S PROPERTY.
9.1 PAYMENT BY TENANT. Tenant shall be liable for and shall pay, at
least ten (10) days before delinquency, all taxes and license fees levied
against any personal property or trade fixtures located in or about the
Premises. If any taxes on Tenant's personal property or trade fixtures are
levied against Landlord or Landlord's property, or if the assessed value of
the Premises, the Building, or the Project is increased by the inclusion of
the value of personal property or trade fixtures located at the Premises in
the assessed value of Landlord's property, then Tenant shall pay to Landlord
the amount of taxes reasonably determined by Landlord as levied on Landlord's
property or attributable to any increased assessment within ten (10) days
after delivery of notice of such amount by Landlord.
9.2 EXCESS TAXES ON TENANT IMPROVEMENTS. If the Tenant Improvements
in the Premises, whether installed, and/or paid for by Landlord or Tenant,
and whether or not affixed to the real property so as to become a part
thereof, are assessed for real property tax purposes at a valuation higher
than the valuation at which Tenant Improvements conforming to Landlord's
building standard for the Building are assessed, then the real property taxes
and assessments levied against the Building by
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reason of such excess assessed valuation shall be deemed to be taxes levied
against personal property of Tenant and shall be governed by the provisions of
Section 9.1 above. If the records of the County Assessor are available and
sufficiently detailed to serve as a basis for determining whether such Tenant
Improvements are assessed at a higher valuation than Landlord's building
standard, such records shall be binding on both the Landlord and the Tenant. If
the records of the County Assessor are not available or not sufficiently
detailed to serve as a basis for making said determination, then Landlord shall
determine the real property or other taxes allocable to Tenant based on
Landlord's good faith estimate of the taxes attributable to the excess of the
actual cost of construction of the Tenant Improvements over Landlord's estimate
of the cost to construct Tenant Improvements according to building standard.
10. CONDITION OF PREMISES.
10.1 OPERATING CONDITION. Landlord shall deliver the Premises to
Tenant in a clean condition on the Lease Commencement Date (unless Tenant is
already in possession) and Landlord warrants to Tenant that the plumbing,
lighting, air conditioning, and heating system in the Premises shall be in
good operating condition. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Landlord,
after receipt of written notice from Tenant setting forth with specificity
the nature of the violation, to promptly, at Landlord's sole cost, rectify
such violation. Tenant's failure to give such written notice to Landlord
within thirty (30) days after the Commencement Date shall result in the
conclusive presumption that Landlord has complied with all of its obligations
hereunder, that the Premises are fully completed and are suitable for Tenant's
purposes, that the Building and every part of it, including the Premises, are
in good and satisfactory condition, and that Tenant waives any defects
therein.
10.2 COMPLIANCE WITH REGULATIONS. Landlord warrants to Tenant that
the Premises, in the state existing on the date that the Lease Term
commences, but without regard to alterations or improvements made by Tenant
or to the use for which Tenant will occupy the Premises, does not violate any
covenants or restrictions of record, or any applicable law or ordinance in
effect on the Lease Commencement Date, that would substantially and adversely
affect the operation and profitability of Tenant's business conducted from
the Premises. In the event that it is determined that this warranty has been
violated, then it shall be the obligation of Landlord, after receipt of
written notice from Tenant setting forth with specificity the nature of the
violation, to promptly, at Landlord's sole cost, rectify such violation.
Tenant's failure to give such written notice to Landlord within six (6)
months after the Commencement Date shall result in the conclusive presumption
that Landlord has complied with all of its obligations hereunder, and that
the Premises, in the state existing on the date that the Lease Term
commences, do not violate any such covenants, restrictions, laws, or
ordinances in a manner that would substantially and adversely affect the
operations and profitability of Tenant's business conducted from the
Premises, and that Tenant waives any claims thereof.
10.3 TENANT ACCEPTANCE. Except as otherwise provided in this Lease,
Tenant hereby accepts the Premises, the Building, and the Project in their
condition existing as of the Commencement Date subject to all applicable
zoning, municipal, county, and state laws, ordinances, and regulations
governing and regulating the use of the Premises, and any easements,
covenants, or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto.
Tenant acknowledges that it has satisfied itself by its own independent
investigation that the Premises are suitable for its intended use, and that
neither Landlord nor Landlord's agent or agents has made any representation
or warranty as to the present or future suitability of the Premises, Common
Areas, Building, or Project for the conduct of Tenant's business.
10.4 TENANT'S OBLIGATIONS TO MAINTAIN. Tenant shall, at Tenant's sole
cost and expense, keep the Premises in good, clean, and sanitary order.
Tenant shall use all electrical, gas, and plumbing fixtures properly and keep
them in a good, clean, and sanitary condition. Neither Tenant nor any
sublessee, agent, employee, or contractor of Tenant shall destroy, deface,
damage, impair, or remove any part of the Premises, the Building, or the
Project, or the facilities, equipment, or appurtenances of the Premises, the
Building, or the Project. Tenant shall not place any object or series of
objects on the floors of the Premises in such a manner as to exceed the load
capacity of the floors on a per square foot basis as determined by any
architect, engineer, or other consultant of Landlord, or as otherwise limited
by any law, code, regulation, permit, or certificate of any governmental
authority. Tenant shall, at its sole cost and expense, make all repairs to
the Premises which are required to correct any damage or deficiency caused by
failure of Tenant to keep the Premises in the condition required by this
Section. Tenant shall reimburse Landlord for the cost of any repair to the
Premises, the Building, or the Project required as a result of any misuse or
neglect committed or permitted by Tenant or by any sublessee, agent,
employee, or contractor of Tenant. Tenant shall, at its sole cost and
expense, repair, or reimburse Landlord for any damage to the Premises, the
Building, or the Project caused by any person who has entered the Premises as
a result of the express or implied invitation or permission of Tenant. If
Tenant does not make repairs promptly and adequately or fails to maintain the
Premises as required by this Section within five (5) days after delivery of
written notice of any deficiency by Landlord (or if such deficiency cannot be
reasonably corrected within five (5) days and Tenant shall not commence to
correct such deficiency within such five (5) day period and diligently pursue
completion of such correction), then Landlord may, but shall not be required
to, perform such repairs, maintenance and/or correction to the
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Premises and any amounts expended by Landlord to prosecute correction shall
be reimbursed by Tenant to Landlord together with a 20% overhead charge upon
demand; provided, however, that if in Landlord's judgment, there is an
emergency, Landlord may perform the repairs prior to delivery of notice to
Tenant or expiration of Tenant's cure period. If Landlord performs such
repairs, maintenance, or corrections on behalf of Tenant, Landlord shall not
be liable to Tenant for any loss or damage that may accrue to Tenant's
personal property, trade fixtures, records, or data resulting from such
repair, maintenance, or correction by Landlord. Entry by Landlord to pursue
repair, maintenance, or correction shall not be deemed an actual or
constructive eviction and shall not entitle Tenant to any abatement or
reduction of rent. Tenant shall notify Landlord in writing promptly upon
discovery of any damage, defect, or malfunction of any structural or
mechanical portions of the Building which Landlord is required to repair and
maintain pursuant to Article 11 below.
10.5 CONDITION UPON SURRENDER. Upon expiration or earlier
termination of this Lease, unless Landlord demands otherwise pursuant to this
Article, Tenant shall surrender the Premises to Landlord in the same
condition as the Premises were upon delivery of possession to Tenant, broom
clean, reasonable wear and tear excepted, shall surrender all keys to the
Landlord at the place then fixed for the payment of rent, and shall inform
Landlord of all combinations of locks, safes, and vaults, if any, on the
Premises. Tenant shall remove from the Premises all movable furniture and
movable personal property, and shall promptly repair any damage to the
Premises or the Building caused by such removal. All removal and repair shall
be at Tenant's sole cost and expense. Tenant shall not remove any wall
covering, floor covering, shelving, cabinet units (whether for storage, for
library purposes or for any other purpose), lighting fixtures, or other
improvements affixed to the Premises unless requested to do so by Landlord.
If requested at any time by Landlord, Tenant shall remove from the Premises
within fifteen (15) days prior to expiration of the scheduled Term, or within
fifteen (15) days after Landlord's request made before or after any
alterations, additions, improvements, fixtures, equipment, shelving, cabinet
units, or other personal property designated by Landlord are to be so
removed. In such event, Tenant shall complete such removal (including the
repair of any damage caused by such removal) entirely at its own expense and
within fifteen (15) days of Landlord's request. All repairs required by
Tenant in this Section shall be performed in a manner satisfactory to
Landlord, subject to the provisions of Article 7, and shall include, without
limitation, the following; cap all plumbing, cap all electrical wiring,
repair all holes in walls, restore damage to the floors and/or ceiling,
repair any other cosmetic damage, and clean the Premises. If Tenant fails to
remove from the Premises all of its personal property (together with any
other items requested by Landlord to be removed in accordance with this
Section) prior to the expiration or earlier termination of this Lease, then
Landlord may, at its sole option (i) treat Tenant as a holdover in which
event the provisions of Article 26 of this Lease shall apply, or (ii) handle
the items as provided in Section 20.2(b) of this Lease. Promptly upon request
by Landlord following expiration or earlier termination of this Lease, Tenant
shall execute, acknowledge, and deliver to Landlord an instrument in
recordable form releasing, remising, and quitclaiming to Landlord all right,
title, and interest of Tenant in the Premises by reason of this Lease or
otherwise.
11. MAINTENANCE AND REPAIRS BY LANDLORD.
Landlord shall repair and maintain the structural and mechanical
portions of the Building, including basic plumbing, heating, ventilating, air
conditioning, and electrical systems installed or furnished by Landlord, and
Landlord shall keep all Common Areas in good, clean, and sanitary order, and
the costs thereof shall be includable as Operating Expenses; provided,
however, that if maintenance and repairs are caused by the act, neglect, or
omission of any duty by Tenant, its agents, servants, employees, or invitees,
then Tenant shall pay to Landlord, as additional rent, the reasonable cost of
such maintenance and repairs. Landlord shall not be liable for any failure to
make any such repairs or to perform any maintenance, and Tenant shall not be
entitled to any abatement or reduction in rent by reason of such failure, no
actual or constructive eviction of Tenant shall result from such failure,
Tenant shall not have the right to terminate this Lease, and Tenant shall not
be relieved from the performance of any covenant or agreement in this Lease
because of such failure. Except as provided in Article 18 hereof, there shall
be no abatement of rent and no liability of Landlord by reason of any injury
to or interference with Tenant's business arising from the making of any
repairs, alterations, or improvements in or to any portion of the Building or
the Premises or in or to fixtures, appurtenances, and equipment therein.
Tenant hereby waives the provisions of Sections. 1932, 1933(4) and 1942 of the
Civil Code of California or any similar or successor statutes to the fullest
extent permitted by law, and Tenant acknowledges that in the event Landlord
fails to make a repair or perform maintenance, Tenant's sole remedy for such
breach by Landlord shall be an action for damages, and that Tenant shall not
be entitled to terminate this Lease, withhold rent, or make any repair and
deduct the cost of repair from rent payable under this Lease.
12. ALTERATIONS.
Tenant shall make no alterations, additions, or improvements in or to
the Premises (whether structural or non-structural) without Landlord's prior
written consent, which consent may be withheld for any reason. If any
alteration, addition, or improvement is made by Tenant without such consent,
Landlord shall have the right to require Tenant to remove the same at any
time during the Term. If Tenant shall request Landlord's consent for any
alterations, additions, or improvements, then Tenant shall submit
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detailed plans, specifications, and an itemized budget for making such
alterations, additions, or improvements. Tenant shall pay to Landlord all
costs incurred by Landlord for any architectural, engineering, supervisory,
or legal services in connection with making a determination concerning
consent for any alteration, addition, or improvement requested by Tenant or
in connection with making any correction to any work or improvement performed
by or at the request of Tenant. Landlord may impose any conditions on and
requirements to its consent as Landlord shall in its discretion deem to be
necessary or advisable, including without limitation the hours when work may
be performed. Any approved alteration, addition, or improvement shall be made
only by contractors or mechanics approved by Landlord. Tenant shall provide
Landlord with as-built plans and specifications for any alterations,
additions, or improvements. The review, approval, inspection, or examination
by Landlord or any of its agents of any plans, specifications, contractors,
or any other items shall be solely for Landlord's benefit and to protect its
interests, and neither Landlord nor its agents shall be deemed to have
assumed any responsibility for the quality of work of any contractor, or the
accuracy, sufficiency, quality, or suitability of such plans, specifications,
or other items. Tenant agrees that there shall be no construction of
partitions or other obstructions which might interfere with Landlord's free
access to mechanical installations or service facilities of the Building or
interfere with the moving of Landlord's equipment to or from the enclosures
containing said installations or facilities. Tenant covenants and agrees that
all work done by Tenant shall be performed in full compliance with all laws,
rules, orders, ordinances, regulations, permits, and requirements of any
insurance rating bureau used by insurers selected to carry Landlord's
insurance, and of any similar body. Before commencing any work, Tenant shall
give Landlord at least ten (10) days written notice of the proposed
commencement of such work and shall, if required by Landlord, secure at
Tenant's own cost and expense, a completion and lien indemnity bond
satisfactory to Landlord for said work and such other comprehensive general
public liability insurance, builders risk insurance, and other such insurance
coverages so as to protect the insurable interests of Landlord, Tenant,
contractors, and subcontractors in amounts and on forms as may be requested
by Landlord. Tenant further covenants and agrees that any mechanic's lien
filed against the Premises or against the Building for work claimed to have
been done, or materials claimed to have been furnished, will be discharged by
Tenant, by bond, or otherwise, within ten (10) days after the filing thereof,
at the sole cost and expense of Tenant. All alterations, additions, or
improvements upon the Premises made by either party, including without
limitation, all wall coverings, floor coverings, built-in cabinet work,
paneling, and the like, shall, unless Landlord elects otherwise, become the
property of Landlord, and shall remain upon, and be surrendered with the
Premises, as a part thereof, at the end of the Term or upon earlier
termination; provided, however, that Landlord may, by written notice to
Tenant, require Tenant to remove all improvements, alterations, and additions
made by Tenant, and Tenant shall repair all damage resulting from such
removal or, at Landlord's option, shall pay to Landlord all costs arising
from such removal. Landlord reserves the right to install new or additional
utility facilities throughout the Project for the benefit of Landlord or
Tenant or any other tenant of the Project, including, but not limited to,
such utilities as plumbing, electrical systems, security systems,
communication systems, and fire protection and detection systems, so long as
such installations do not unreasonably interfere with Tenant's use of the
Premises.
13. LIENS.
Tenant shall keep the Premises, the Building, and the Project and all
underlying realty and appurtenances free from any mechanic's or materialmen's
liens and any other liens of a similar nature placed upon the Premises or any
realty of the Project by any reason of or in connection with any repairs,
additions, alterations, or improvements contracted for or initiated by
Tenant. Tenant shall be solely responsible for making payment for such work
and discharging liens for such work. Tenant shall defend, indemnify, and hold
Landlord fully harmless with respect to all liability for such liens, claims,
and demands, including reasonable attorneys' fees and all costs and expenses
in connection therewith. Landlord shall have the right at all times to post
on the Premises notices of nonresponsibility (and to record verified copies
thereof) in order to place contractors and material suppliers on notice that
Landlord is not to be held financially responsible for such work. Tenant
shall, at the request of Landlord, provide Landlord with executed and
acknowledged full and unconditional lien releases in recordable form and paid
receipts from any general contractor, subcontractor, material supplier, or
other person furnishing labor and/or materials in connection with any work
connected with the Premises, as well as any other evidence required by
Landlord to demonstrate that there are no liens affecting Landlord or any
property of Landlord by reason of such work. Any amount paid by Landlord to
discharge or bond around any liens shall be payable by Tenant to Landlord
upon demand. Tenant shall be permitted to contest the validity of any such
lien, claim, or demand provided Tenant acquires and records a bond in an
amount, in a form, and from a surety reasonably satisfactory to Landlord, and
Tenant shall, at its sole cost and expense, defend itself and Landlord with
counsel reasonably satisfactory to Landlord. Tenant shall pay and satisfy any
adverse judgment that may be rendered prior to any action taken to enforce
such judgment against Landlord or the Project.
14. ENTRY BY LANDLORD.
Landlord reserves and shall at any and all times have the right to enter
the Premises to inspect the same, to supply janitorial service and any other
service to be provided by Landlord to Tenant hereunder, to show the Premises
to prospective purchasers or tenants, to post notices of
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nonresponsibility, to alter, improve, or repair the Premises, or any other
portion of the Building, all without such entry constituting any actual or
constructive eviction of Tenant and without abatement of rent. Landlord may,
in order to carry out such purposes, erect scaffolding and other necessary
structures where reasonably required by the character of the work to be
performed, provided that Landlord shall use reasonable efforts to minimize
interference with the business of Tenant. Tenant hereby waives any claim for
damages, for any injury or inconvenience to or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss in, upon and about the Premises. Landlord shall at all times have
and retain a key with which to unlock all doors in the Premises, excluding
Tenant's vaults and safes. Landlord shall have the right to use any and all
means which Landlord may deem proper to open said doors in an emergency in
order to obtain entry to the Premises. Any entry to the Premises obtained by
Landlord by any of said means, or otherwise, shall not be construed or deemed
to be a forcible or unlawful entry into the Premises, or an eviction of
Tenant from the Premises or any portion thereof, and any damages caused on
account thereof shall be borne by Tenant. No provision of this Article shall
be construed as obligating Landlord to perform any repairs, alterations, or
decorations except as otherwise expressly agreed herein by Landlord.
15. UTILITIES AND SERVICES.
Provided that Tenant is not in default under this Lease, Landlord agrees
to furnish or cause to be furnished to the occupied portion of the Premises
the utilities and services described in the Standards for Utilities and
Services, attached hereto as Exhibit B. Tenant agrees to perform and be bound
by all of the provisions of Exhibit B. Interruption of utilities or services
or Landlord's failure to furnish any of such utilities or services when such
interruption or failure is caused by (i) accident, breakage, or repairs, (ii)
strikes, lockouts, or other labor disturbance or labor dispute of any
character, (iii) governmental regulation, moratorium, or other governmental
action, (iv) inability despite the exercise of reasonable diligence to obtain
electricity, gas, water, or fuel, (v) limitation, rationing, curtailment, or
restriction on the use of water, electricity, gas, heating, cooling, or other
forms of service or utility provided to the Premises or the Building, or (vi)
any other cause beyond Landlord's reasonable control, shall not give rise to
a claim for damages against Landlord or otherwise result in any liability to
Landlord. In addition, Tenant shall not be entitled to any offset, abatement,
or reduction of rent by reason of such failure, no actual or constructive
eviction of Tenant shall result from such failure, and Tenant shall not be
relieved from the performance of any covenant or agreement in this Lease
because of such failure. In the event of any such failure, stoppage, or
interruption thereof, Landlord shall diligently attempt to resume service
Promptly.
16. BANKRUPTCY.
If Tenant shall file a petition in bankruptcy under any provision of the
Bankruptcy Code as then in effect, or if Tenant shall be adjudicated a
bankrupt in any involuntary bankruptcy proceeding and such adjudication shall
not have been vacated within sixty (60) days from the date thereof, or if a
receiver, disbursing agent, or trustee shall be appointed for Tenant's
property and the order appointing such receiver, disbursing agent, or trustee
shall not be set aside or vacated within sixty (60) days after the entry
thereof, or if Tenant shall assign its estate or effects for the benefit of
creditors, or if this Lease shall, by operation of law or otherwise, pass to
any person or persons other than Tenant, then Landlord may elect to terminate
this Lease, with or without notice of such election and with or without entry
or action by Landlord. In the event of such termination, notwithstanding any
other provisions of this Lease, Landlord, in addition to any and all rights
and remedies allowed by law or equity, shall, upon such termination, be
entitled to recover damages in the amount provided in Section 20.2(a) hereof.
In the event of such termination, neither Tenant nor any person claiming
through or under Tenant or by virtue of any statute or order of any court
shall be entitled to possession of the Premises but shall surrender the
Premises to Landlord. Nothing contained herein shall limit or prejudice the
right of Landlord to recover damages by reason of any such termination equal
to the maximum amount allowed by any statute or rule of law in effect at the
time when, and governing the proceedings in which, such damages are to be
proved, whether or not such amount is greater, equal to, or less than the
amount of damages recoverable under the provisions of this Article. In the
event that any provision of this Article is contrary to any applicable law,
such provision shall be of no force or effect.
17. INDEMNITY AND INSURANCE.
17.1 TENANT'S INDEMNITY. Tenant shall protect, defend, indemnify,
and hold Landlord, its partners, shareholders, officers, directors, trustees,
employees, agents, affiliates, representatives, and management, and other
contractors (collectively, "Landlord's Affiliates") harmless from and against
any and all claims, demands, judgments, losses, costs, expense, liability,
damage, or injury to property or persons, resulting from or occurring by
reason of (a) the use, occupancy, or nonoccupancy of the Premises or the
actions or inactions, whether or not negligent, of Tenant and/or any
sublessee, their agents, officers, employees, contractors, customers,
invitees, or licensees; (b) any default or breach of this Lease by Tenant;
and/or (c) the failure of Tenant or any other occupant to surrender
possession of the Premises upon the expiration or earlier termination of this
Lease in accordance with the provisions of this Lease, either due to failure
of Tenant to timely perform its obligations for removal and repair of
personal property or any other reason, which indemnity shall include, without
limitation, any claims made
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by any succeeding tenant founded upon such delay; provided, however, that
Tenant shall not be obligated to so indemnify Landlord or any of Landlord's
Affiliates from matters arising from or caused by the sole willful misconduct
or gross negligence of Landlord or any of Landlord's Affiliates each acting
within the scope of its authority on behalf of Landlord. Payment of any sum
by Landlord shall not be a condition precedent to Tenant's obligations
hereunder. If Tenant is required to defend Landlord, then Landlord shall be
entitled to select its own defense counsel, and Tenant shall pay on behalf
of, or to Landlord all defense expenses incurred by or on behalf of Landlord,
including, without limitation, reasonable attorneys' fees and expenses, fees
of experts and accountants, and court costs.
17.2 TENANT'S INSURANCE. Tenant shall carry at its own expense
throughout the Term of this Lease, commercial general liability insurance
covering the Premises and appurtenant areas, and Tenant's use thereof, and
protecting Tenant and Landlord (as an additional insured) against claims for
bodily injury, personal injury, and property damage based upon, involving, or
arising out of the ownership, use, occupancy, or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $2,000,000
per occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and shall contain the "Amendment of Pollution Exclusion" for
damage caused by heat, smoke, or fumes from a hostile fire. The policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Tenant's indemnity
obligations under this Lease. Such insurance shall also cover Tenant's
contractual liability under this Lease in an amount periodically adjusted to
conform to then current standard business practices for comparable business
operations, but in no case less than $3,000,000 in combined single limit and
general aggregate coverage for bodily injury or death, personal injury, and
property damage. Tenant shall keep in full force and effect, at its own
expense throughout the Term of this Lease, a policy or policies of worker's
compensation insurance as required by law and with employer's liability
coverage of not less than $1,000,000 per employee and per occurrence. The
amounts of general liability and employer's liability insurance shall be
increased on the third anniversary of the Measurement Date and every third
anniversary thereafter to an amount reasonably determined by Landlord as may
be required, given the then current economic conditions and the size of
damage awards generally, to approximate the same level of protection as was
provided on the Commencement Date. In the event the use specified in the
Basic Lease Provisions permits the sale and/or consumption of alcoholic
beverages, Tenant shall keep in full force and effect, at its own expense
throughout the Term of this Lease, a liquor liability insurance policy or
policies in a policy amount of not less than $2,000,000; provided, however,
that such policy amounts of commercial general public liability insurance and
liquor liability insurance pursuant to Sections 25602 and 25602.1 of the
California Business and Professions Code and Section 1714 of the California
Civil Code, in effect as of the date of this Lease, accurately state the law
regarding the potential liability of persons serving alcoholic beverages to
both the party consuming such beverages and to third parties. In the event
the foregoing code sections are amended and/or judicial decisions are
rendered which increase the liability exposure to third parties, Landlord, in
its sole and absolute discretion, shall have the immediate right to revise
such policy amounts to amounts reasonably deemed appropriate by Landlord.
17.3 TENANT'S PROPERTY. Tenant agrees that all personal property of
whatever kind, including, without limitation, inventory and/or goods stored
at or about the Premises, Tenant's trade fixtures, and Tenant's interest in
tenant improvements which may be at any time located in, on or about the
Premises or the Building, whether owned by Tenant or third parties, shall be
at Tenant's sole risk or at the risk of those claiming through Tenant, and
that Landlord shall not be liable for any damage to or loss of such property
except for loss or damage arising from or caused by the sole gross negligence
of Landlord or any of Landlord's officers, employees, agents, or authorized
representatives each acting within the scope of their authority. Tenant shall
obtain and maintain, at its own expense throughout the Term of this Lease,
(i) replacement cost, fire, and extended coverage insurance, with vandalism
and malicious mischief and sprinkler leakage endorsements, in an amount
sufficient to cover the full replacement cost of all such property, and (ii)
business income with extra expense insurance, naming Landlord as loss payee,
in an amount not less than the Annual Basic Rent, without regard to any
calculation of Percentage Rent, and Tenant's share of Operating Expenses
payable by Tenant during the preceding year of the Term of this Lease (or, as
to the first year of the Term, the total amount of Annual Basic Rent to be
paid during such first year).
17.4 FORM OF INSURANCE POLICIES. All insurance policies required of
Tenant by this Lease shall be obtained from insurers doing business in
California having a rating of A-XII or better in the current issue of "Best's
Insurance Guide." All loss payable clauses shall name Landlord as a loss
payee and/or conform to the requirements of any mortgage lenders. Tenant's
insurance may, provided Tenant obtains the prior written approval of Landlord
(which approval shall not be unreasonably withheld), provide for deductibles
in reasonable amounts. If Tenant requests approval of a deductible, Tenant
shall provide evidence of financial responsibility reasonably satisfactory to
Landlord to pay the deductible amount in the event of a loss. Any policy of
insurance required to be maintained by Tenant under this Lease may be
maintained under a policy commonly referred to as a "blanket policy" insuring
other parties and/or other locations; provided however, that the amount of
insurance and the scope and type of coverage shall conform to the
requirements contained in this Lease.
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17.5 EVIDENCE OF COVERAGE. Tenant shall provide Landlord with copies
of insurance policies or other evidence of insurance coverage prior to the
Commencement Date of the Lease and shall provide to Landlord copies of
replacement policies at least ninety (90) days prior to the date of
expiration of a policy, A binder or certificate of insurance shall be
sufficient evidence of insurance pending issuance of a policy; provided,
however, that Tenant shall forward a copy of each policy to Landlord when
issued. Such insurance policies shall be on forms reasonably acceptable to
Landlord and shall be on an occurrence basis. Such insurance shall name
Landlord and any management agent from time to time designated by Landlord
and any lender of Landlord as additional insureds, and shall provide that
coverage of additional insureds shall be primary and that any insurance
maintained by Landlord shall be excess only. Such insurance shall provide
that the interests of Landlord, Tenant, and other insureds shall be severable
such that the actor omission of one insured shall not avoid or reduce the
coverage of other insureds. Such insurance shall contain endorsements (i)
stating that the insurer agrees to notify Landlord in writing not less than
thirty (30) days in advance or modification or cancellation thereof, (ii)
deleting any employee exclusion on personal injury coverage, (iii) including
employees as additional insureds, (iv) deleting any exclusion from liability
caused by serving alcoholic beverages incidental to Tenant's business, and
(v) providing for coverage for employer's nonowned automobile liability.
Failure of Tenant to maintain insurance coverages required by this Lease for
any time period during the Term or failure of Tenant to deliver evidence of
insurance or copies of policies shall be material defaults under this Lease.
If Tenant fails to maintain, or to provide Landlord with, evidence of the
required insurance coverages, Landlord shall have the right, but not the
obligation, to obtain such insurance coverages on Tenant's behalf. The cost
of such insurance coverage shall be deemed additional rent payable by Tenant
to Landlord upon demand.
17.6 EXEMPTION OF LANDLORD FROM LIABILITY. Except to the extent such
matters are caused by Landlord's sole gross negligence or willful misconduct,
Tenant hereby agrees that Landlord and Landlord's Affiliates shall not be
liable for injury to Tenant's business or loss of income therefrom or for
damage to the goods, wares, merchandise, or other property of Tenant,
Tenant's employees, invitees, customers, or any other person in or about the
Premises. Tenant further agrees that Landlord and Landlord's Affiliates shall
not be liable for injury to the person of Tenant, Tenant's employees,
visitors, agents, or contractors or to Tenant's property, whether such damage
or injury is caused by or results from criminal acts, fire, steam,
electricity, gas, water, or rain, or from the breakage, leakage, obstruction,
or other defects of pipes, sprinklers, wires, appliances, plumbing, heating,
ventilation, air conditioning, or lighting fixtures, or from any other cause,
whether damage or injury results from conditions arising upon the Premises or
upon other portions of the Building or the Project, or from other sources or
places appurtenant to the Premises and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Tenant. Landlord and Landlord's Affiliates shall not be liable for any
damages arising from any act or neglect of any other tenant, occupant, or
user of the Building or the Project, nor from the failure of Landlord to
enforce the lease provisions of any other tenant of the Project.
17.7 WAIVER OF SUBROGATION. Landlord and Tenant each hereby waives
any and all rights of recovery against the other (and against the officers,
employees, and agents of the other party), for loss of or damage to such
waiving party or its property or the property of others under its control, to
the extent such loss or damage is covered by standard fire and extended
coverage insurance policies or endorsements; provided, however, that this
waiver does not apply to any rights that either party may have with respect
to the insurance proceeds at the time of such loss or damage. Landlord and
Tenant shall, in obtaining the policies of standard fire and extended
coverage insurance which they are required to maintain under this Lease, give
notice to their respective insurance carriers that the foregoing mutual
waiver of subrogation is contained in this Lease; and Landlord and Tenant
shall each obtain from its insurance carrier a consent to such waiver. If
either Landlord or Tenant is unable to obtain the insurance described in this
Section because it is determined to be unavailable or unreasonably expensive
due to the waiver of subrogation set forth in this Section, which
determination shall be made by Landlord in its sole discretion, then neither
Landlord nor Tenant shall be obligated to comply with the provisions of this
Section.
17.8 WAIVER OF DAMAGES. Tenant hereby acknowledges that the City may
from time to time impose certain restrictions which will affect Tenant, its
employees and visitors, during such times as Landlord may choose to schedule,
sponsor, or cooperate with various municipal and/or private party events.
Such restrictions may provide for limited vehicular and pedestrian access to
the Building, its parking facilities, and the public streets, sidewalks, and
rights-of-way surrounding them. Such restrictions may apply from before the
commencement until after the conclusion of each event. Tenant acknowledges
that such restrictions will interfere with vehicular and pedestrian access to
the Building and its parking facilities. Tenant hereby waives all claims
against Landlord for damages, losses, and expenses of any kind whatsoever
arising from or related to the imposition of such restrictions.
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18. DAMAGE OR DESTRUCTION.
18.1 DEFINITIONS.
(a) "Premises Damage" shall mean that the Premises are
damaged or destroyed to any extent.
(b) "Building Partial Damage" shall mean that the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost
of the Building.
(c) "Building Total Destruction" shall mean that the Building
of which the Premises are a part is damaged or destroyed to the extent that
the cost to repair is fifty percent (50%) or more of the then Replacement
Cost of the Building.
(d) "Project Total Destruction" shall mean that the Project
(as defined in paragraph 2.1) is damaged or destroyed to the extent that the
cost of repair is fifty percent (50%) or more of the then Replacement Cost of
the Project
(e) "Insured Loss" shall mean damage or destruction caused by
an event required to be covered by the insurance described in Article 17. The
fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(f) "Replacement Cost" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the occurrence of the damage,
excluding all improvements made by tenants, other than those installed by
Landlord at Tenant's expense.
18.2 PREMISES DAMAGE: PREMISES BUILDING PARTIAL DAMAGE.
(a) INSURED LOSS. Subject to the provisions of paragraphs
18.4 and 18.5, if at any time during the term of this Lease there is damage
which is an Insured Loss and which falls into the classification of either
Premises Damage or Building Partial Damage, then Landlord shall, as soon as
reasonably possible and to the extent the required materials and labor are
readily available through usual commercial channels, at Landlord's expense,
repair such damage (but not Tenant's fixtures, equipment, or tenant
improvements originally paid for by Tenant) to its condition existing at the
time of the damage, and this Lease shall continue in full force and effect.
(b) UNINSURED LOSS. Subject to the provisions of paragraphs
18.4 and 18.5, if at any time during the term of this Lease there is damage
which is not an Insured Loss and which falls within the classification of
Premises Damage or Building Partial Damage, unless caused by a negligent or
willful act of Tenant (in which event Tenant shall make the repairs at
Tenant's expenses), which damage prevents Tenant from making any substantial
use of the Premises, Landlord may at Landlord's option either (i) repair such
damage as soon as reasonably possible at Landlord's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written
notice to Tenant within thirty (30) days after the date of the occurrence of
such damage of Landlord's intention to cancel and terminate this Lease as of
the date of the occurrence of such damage, in which event this Lease shall
terminate as of the date of the occurrence of such damage.
18.3 BUILDING TOTAL DESTRUCTION: PROJECT TOTAL DESTRUCTION. Subject
to the provisions of paragraphs 18.4 and 18.5, if at any time during the term
of this Lease there is damage, whether or not it is an Insured Loss, which
falls in the classifications of either (i) Building Total Destruction, or
(ii) Project Total Destruction, then Landlord may at Landlord's option either
(i) repair such damage or destruction as soon as reasonably possible at
Landlord's expense (to the extent the required materials are readily
available through usual commercial channels) to its condition existing at the
time of the damage, but not Tenant's fixtures, equipment, or tenant
improvements, and this Lease shall continue in full force and effect, or (ii)
give written notice to Tenant within thirty (30) days after the date of
occurrence of such damage of Landlord's intention to cancel and terminate
this Lease, in which case this Lease shall terminate as of the date of the
occurrence of such damage.
18.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 18.4(b), if at any time during the
last twelve (12) months of the term of this Lease there is substantial damage
to the Premises, Landlord may at Landlord's option cancel and terminate this
Lease as of the date of occurrence of such damage by giving written notice to
Tenant of Landlord's election to do so within thirty (30) days after the date
of occurrence of such damage.
(b) Notwithstanding paragraph 18.4(a), in the event that
Tenant has an option to extend or renew this Lease, and the time within which
said option may be exercised has not yet
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expired, Tenant shall exercise such option, if it is to be exercised at all,
no later than twenty (20) days after the occurrence of an Insured Loss
falling within the classification of Premises Damage during the last twelve
(12) months of the term of this Lease. If Tenant duly exercises such option
during said twenty (20) day period, Landlord shall, at Landlord's expense,
repair such damage, but not Tenant's fixtures, equipment, or tenant
improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect. If Tenant fails to exercise such option during said
twenty (20) day period, then Landlord may at Landlord's option terminate and
cancel this Lease as of the expiration of said twenty (20) day period by
giving written notice to Tenant of Landlord's election to do so within ten
(10) days after the expiration of said twenty (20) day period,
notwithstanding any term or provision in the grant of option to the contrary.
18.5 ABATEMENT OF RENT: TENANT'S REMEDIES.
(a) In the event Landlord repairs or restores the Building or
Premises pursuant to the provisions of this Article 18, and any part of the
Premises are not usable (including loss of use due to loss of access or
essential services), the rent payable hereunder (including Tenant's Share of
Operating Expenses) for the period during which such damage, repair, or
restoration continues shall be abated in proportion to the amount of Rentable
Area of the Premises that is not usable, provided (1) the damage was not the
result of the negligence of Tenant, and (2) such abatement shall only be to
the extent the operation and profitability of Tenant's business as operated
from the Premises is adversely affected. Except for said abatement of rent,
if any, Tenant shall have no claim against Landlord for any damage suffered
by reason of any such damage, destruction, repair, or restoration.
(b) If Landlord shall be obligated to repair or restore the
Premises under the provisions of this Article 18 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Tenant may, at
any time prior to the commencement of such repair or restoration, give
written notice to Landlord and to any lenders of which Tenant has actual
notice of Tenant's election to terminate this Lease on a date not less than
sixty (60) days following the giving of such notice. If Tenant gives such
notice to Landlord and such lenders and such repair or restoration is not
commenced within thirty (30) days after receipt of such notice, this Lease
shall terminate as of the date specified in said notice. If Landlord or a
lender commences the repair or restoration of the Premises within thirty (30)
days after receipt of such notice, this Lease shall continue in full force
and effect. "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
(c) Tenant agrees to cooperate with Landlord in connection
with any such restoration and repair, including but not limited to the
approval and/or execution of plans and specifications required.
18.6 TERMINATION; ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Article 18, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Tenant to Landlord. Landlord
shall, in addition, return to Tenant so much of Tenant's security deposit as
has not theretofore been applied by Landlord.
18.7 WAIVER. Landlord and Tenant waive the provisions of any statute
which relates to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
18.8 INSURANCE LIMITATION. Notwithstanding anything else to the
contrary contained in this Article 18, Landlord shall have no obligation to
pay for the repair or restoration of damage or destruction to the Premises
caused by fire or other casualty more than the amount of the insurance
proceeds payable for the benefit of Landlord by reason of such damage or
destruction, plus any amounts actually paid by Tenant as required in this
Article 18 for the excess of the cost of reconstructing tenant improvements
over the original cost of such tenant improvements paid initially by
Landlord. If the sum of such insurance proceeds, plus the amount so paid by
Tenant, are not sufficient to cover the cost of such repairs, then Landlord
may elect to so repair or restore and the Lease shall continue in full force
and effect, or Landlord may elect not to repair or restore and the Lease
shall then terminate.
19. EMINENT DOMAIN.
If the Premises or any portion thereof or the Project are taken under
the power of eminent domain, or sold under the threat of the exercise of said
power, this Lease shall terminate as to the part so taken as of the date the
condemning authority takes title or possession, whichever first occurs;
provided that if so much of the Premises or the Project are taken by such
condemnation as would substantially and adversely affect the operation and
profitability of Tenant's business conducted from the Premises, Tenant shall
have the option, to be exercised only in writing within thirty (30) days
after Landlord shall have given Tenant written notice of such taking (or in
the absence of such notice, within thirty (30) days after the condemning
authority shall have taken possession), to terminate this Lease as of the
date the condemning authority takes such possession. If Tenant does not
terminate this Lease in
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accordance with the foregoing, this Lease shall remain in full force and
effect as to the portion of the Premises remaining, except that the rent and
Tenant's share of Operating Expenses shall be reduced in the proportion that
the floor area of the Premises taken bears to the total floor area of the
Premises, Common Areas taken shall be excluded from the Common Areas usable
by Tenant and no reduction of rent shall occur with respect thereto or by
reason thereof. Landlord shall have the option in its sole discretion to
terminate this Lease as of the taking of possession by the condemning
authority, by giving written notice to Tenant of such election within thirty
(30) days after receipt of notice of taking by condemnation of any part of
the Premises or the Project. Any award for the taking of all or any part of
the Premises or the Project under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the property of
Landlord, whether such award shall be made as compensation for diminution in
value of the leasehold or for the taking of the fee, or as severance damages;
provided, however, that Tenant shall be entitled to any separate award for
loss of or damage to Tenant's trade fixtures, removable personal property or
for damages for cessation or interruption of Tenant's business.
In the event that this Lease is not terminated by reason of such
condemnation, Landlord shall to the extent of severance damages received by
Landlord in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Tenant has
been reimbursed therefor by the condemning authority. Tenant shall pay any
amount in excess of such severance damages required to complete such repair.
20. DEFAULTS AND REMEDIES.
20.1 TENANT'S DEFAULT. The occurrence of any one or more of the
following events shall be a material default and breach of this Lease by
Tenant. Any notice required by the terms of this Lease in connection with any
such default shall be in lieu of, and not in addition to, any notice required
under Sections 1161, et seq., of the California Code of Civil Procedure:
(a) Tenant fails to pay any rent payment or other sum due
under this Lease after the same shall be due and payable, and such failure
continues for a period of three (3) days after written notice thereof from
Landlord to Tenant.
(b) Tenant fails to perform or observe any term, condition,
covenant, or obligation required to be performed or observed by it under this
Lease for a period of thirty (30) days (or such shorter time provided herein)
after notice thereof from Landlord; provided, however, that if the term,
condition, covenant, or obligation to be performed by Tenant is of such
nature that the same cannot reasonably be cured within thirty (30) days and
if Tenant commences such performance within said thirty-day (30) period and
thereafter diligently undertakes to complete the same, then such failure
shall not be a default hereunder if it is cured within sixty (60) days
following Landlord's notice.
(c) Tenant vacates, abandons, or fails to occupy the
Premises, or any substantial portion thereof, for a continuous period of
fourteen (14) days or more, whether or not the rent is paid.
(d) A trustee, disbursing agent, or receiver is appointed to
take possession of all or substantially all of Tenant's assets in, on or
about the Premises or of Tenant's interest in this Lease (and Tenant or any
guarantor of Tenant's obligations under this Lease does not regain possession
within sixty (60) days after such appointment); or Tenant makes an assignment
for the benefit of creditors; or all or substantially all of Tenant's assets
in, on or about the Premises or Tenant's interest in this Lease are attached
or levied upon under execution (and Tenant does not discharge the same within
sixty (60) days thereafter).
(e) A petition in bankruptcy, insolvency, or for
reorganization or arrangement is filed by or against Tenant or any guarantor
of Tenant's obligations under this Lease pursuant to any federal or state
statute, and, with respect to any such petition filed against it, Tenant or
such guarantor fails to secure a stay or discharge thereof within sixty (60)
days after the filing of the same. In the event that any provision of this
Subsection 20.1(e) is contrary to any applicable law, such provision shall
be of no force or effect.
(f) Any assignment, subletting, or other transfer for which
the prior written consent of the Landlord has not been obtained.
(g) Discovery of any false or misleading statement concerning
financial information submitted by Tenant or any guarantor of Tenant's
obligations under this Lease to Landlord in connection with obtaining this
Lease or any other consent or agreement by Landlord.
(h) Tenant's admission in writing its inability to pay its
debts as they mature.
(i) Suspension of Tenant's right to conduct its business,
caused by the order, judgment, decree, decision, or other act of any court or
governmental agency.
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(j) Tenant's failure to execute, acknowledge, and deliver to
Landlord, within the ten (10) day period specified in Article 22, any
documents required to effectuate an attornment, a subordination, or to make
this Lease or any option granted herein prior to the lien of any mortgage,
deed of trust, or ground lease, or any estoppel certificate, as the case may
be.
(k) If the performance of Tenant's obligations under this
Lease is guaranteed: (a) the termination of a guarantor's liability with
respect to this Lease other than in accordance with the terms of such
guaranty, (b) a guarantor's becoming insolvent or the subject of a bankruptcy
filing, (c) a guarantor's refusal or inability to honor the guarantee, or (d)
a guarantor's breach of its guarantee obligation, and Tenant's failure within
sixty (60) days following written notice by or on behalf of Landlord to
Tenant of any such event, to provide Landlord with written alternative
assurance or security, which, when coupled with the then existing resources
of Tenant, equals or exceeds the combined financial resources of Tenant and
the guarantors that existed at the time of execution of this Lease.
20.2 LANDLORD'S REMEDIES. Upon the occurrence of any event of
default, Landlord shall have the following rights and remedies, in addition
to those allowed by law or in equity, any one or more of which may be
exercised or not exercised without precluding the Landlord from exercising
any other remedy provided in this Lease or otherwise allowed by law or in
equity:
(a) Landlord may terminate this Lease and Tenant's right to
possession of the Premises. If Tenant has abandoned and vacated the Premises,
the mere entry onto the Premises by Landlord in order to perform acts of
maintenance, cure defaults, preserve the Premises, or attempt to relet the
Premises, or the appointment of a receiver in order to protect the Landlord's
interest under this Lease, shall not be deemed a termination of Tenant's
right to possession or a termination of this Lease unless Landlord has
notified Tenant in writing that this Lease is terminated. If Landlord
terminates this Lease and Tenant's right to possession of the Premises
pursuant to this Subsection 20.2(a), then Landlord may recover from Tenant:
(i) The worth at the time of the award of unpaid rent,
including, without limitation, Tenant's share of Operating Expenses, which
had been earned at the time of termination; plus
(ii) The worth at the time of the award of the amount
by which the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided; plus
(iii) The worth at the time of the award of the amount
by which the unpaid rent for the balance of the term after the time of the
award exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided; plus
(iv) Any other amounts necessary to compensate Landlord
for all of the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease which in the ordinary course of things would
be likely to result therefrom, including, without limitation, recovery of
Basic Rent and additional or other forms of rent for any period of free rent
theretofore enjoyed by Tenant (at rates in effect for the period immediately
following such period of free rent); recovery of the pro rata portion of any
Tenant Improvement Allowance or other leasehold improvement costs paid by
Landlord to install leasehold improvements on the Premises which is
applicable to that portion of the Term, including option periods, which is
unexpired as of the date on which this Lease terminated; any legal expenses,
brokers commissions, or finders fees in connection with reletting the
Premises, and the pro rata portion of any leasing commission paid by Landlord
in connection with this Lease which is applicable to the portion of the Term,
including option periods, which is unexpired as of the date on which this
Lease terminated; the costs of repairs, cleanup, refurbishing, removal, and
storage or disposal of Tenant's personal property, equipment, fixtures, and
anything else that Tenant is required under this Lease to remove but does not
remove (including those alterations which Tenant is required to remove
pursuant to an election by Landlord, and which Landlord actually removes,
whether or not notice to remove shall be delivered to Tenant); and any costs
for alterations, additions, and renovations incurred by Landlord in regaining
possession of and reletting (or attempting to relet) the Premises.
All computations of the "worth at the time of the
award" of amounts recoverable by Landlord under Subsections (i) and (ii)
hereof shall be computed by allowing interest at the maximum lawful rate per
annum allowed for commercial transactions as of the date on which the event
of default occurred. The "worth at the time of the award" recoverable by
Landlord under Subsection (iii) and the discount rate for purposes of
determining any amounts recoverable under Subsection (iv), if
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applicable, shall be computed by discounting the amount recoverable
by Landlord at the discount rate of the Federal Reserve Bank of
California San Francisco at the time of the award plus one percent
(1%). If Tenant tenders to Landlord in an offer of settlement all
sums due under this Subsection 20.2(a) after Landlord has notified
Tenant of exercise of the remedies under this Subsection 20.2(a),
then the "worth at the time of the award" shall be determined at
the time of the tender of payment of the entire amount of such sums
by Tenant.
(b) Upon termination of this Lease, whether by lapse of time
or otherwise, Tenant shall immediately vacate the Premises and deliver
possession to Landlord. If Tenant has vacated the Premises and Landlord or
any of its agents has reason to believe that Tenant does not intend to
reoccupy the Premises, and current or past rent has been due or unpaid for at
least fourteen (14) consecutive days, then Landlord shall have the right to
send Tenant a notice of belief of abandonment pursuant to Section 1951.3 of
the California Civil Code. The Premises will be deemed abandoned, and the
Tenant's right to possession of the Premises will terminate on the date set
forth in such notice, unless Landlord receives (at its address for notices
pursuant to this Lease) before such date a notice from Tenant stating (i)
Tenant's intent not to abandon the Premises, and (ii) an address at which
Tenant may be served in any action for unlawful detainer of the Premises
and/or damages or other relief available at law or in equity. If the Premises
are deemed abandoned (either through the aforementioned procedure or due to
any statement by Tenant to that effect), or if Landlord or any of its agents
acts pursuant to a court order, then Landlord or any of its agents shall have
the right, without terminating this Lease, to re-enter the Premises and
remove all persons therefrom and any or all of Tenant's fixtures, equipment,
furniture, and other personal property (herein collectively referred to as
"Property") from the Premises, without being deemed in any manner liable for
trespass, eviction, or forcible entry or detainer, or conversion of Property,
and without relinquishing any right given to Landlord under this Lease or by
operation of law. If Landlord re-enters the Premises in such situation, all
Property removed from the Premises by Landlord or any of its agents and not
claimed by the owner may be handled, removed, or stored, in a commercial
warehouse or otherwise by Landlord at Tenant's risk and expense, and Landlord
shall in no event be responsible for the value, preservation, or safekeeping
thereof. Before the retaking of any such Property from storage, Tenant shall
pay to Landlord, upon demand, all expenses incurred in such removal and all
storage charges against such Property. Any such Property of Tenant not so
retaken from storage by Tenant within thirty (30) days after such Property is
removed from the Premises shall be deemed abandoned and may be either
disposed of by Landlord pursuant to Section 1988 of the California Civil Code
or retained by Landlord as its own property.
(c) Notwithstanding Landlord's right to terminate this Lease
pursuant to Section 20.2(a), Landlord may, at its option, even though Tenant
has breached this Lease and abandoned the Premises, continue this Lease in
full force and effect and not terminate Tenant's right to possession, and
enforce all of Landlord's rights and remedies under this Lease. In such
event, Landlord shall have the remedy described in California Civil Code
Section 1951.4 (Landlord may continue this Lease in effect after Tenant's
breach and abandonment and recover rent as it becomes due, if Tenant has the
right to sublet or assign, subject only to reasonable limitations). Further,
in such event, Landlord shall be entitled to recover from Tenant all costs of
maintenance and preservation of the Premises, and all costs, including
attorneys' fees and receivers' fees, incurred in connection with appointment
of and performance by a receiver to protect the Premises and Landlord's
interest under this Lease. No reentry or taking possession of the Premises by
Landlord pursuant to this Section 20.2(c) shall be construed as an election
to terminate this Lease unless a written notice (signed by a duly authorized
representative of Landlord) of intention to terminate this Lease is given to
Tenant, Landlord may at any time after default by Tenant elect to terminate
this Lease pursuant to Section 20.2(a), notwithstanding Landlord's prior
continuance of this Lease in effect for any period of time, and upon and
after Tenant's default under this Lease, Landlord may, but need not, relet
the Premises or any part thereof for the account of Tenant to any person,
firm, partnership, corporation, or other business entity for such rent, for
such time, and upon such terms as Landlord, in its sole discretion, shall
determine. Subject to the provisions of this Lease regarding assignment and
subletting in Article 21, Landlord shall not be required to accept any
substitute tenant offered by Tenant or to observe any instructions given by
Tenant regarding such reletting. Landlord may remove (and repair any damage
caused by such removal) and store (or dispose of) any of Tenant's personal
property, equipment, fixtures, and anything else Tenant is required (under
this Lease at the election of Landlord or otherwise) to remove but does not
remove, and Landlord may also make repairs, renovations, alterations, and/or
additions to the Premises to the extent deemed by Landlord necessary or
desirable in connection with any attempt to relet the Premises. Tenant shall
upon demand pay the cost of such repairs, alterations, additions, removal,
storage, and renovations, together with any legal expenses, brokers
commissions, or finders fees and any other expenses incurred by Landlord in
connection with its entry upon the Premises and attempt to relet the
Premises. If Landlord is able to relet the Premises for Tenant's account
during the remaining portion of the Term and the consideration collected by
Landlord from any reletting is not sufficient to pay monthly the full amount
of rent and additional rent payable by Tenant under this Lease, together with
any legal expenses, brokers commissions, or finders fees, any cost for
repairs, alterations, additions, removal, storage, and renovations, and any
other cost and expense incurred by Landlord in re-entering the Premises and
reletting the Premises, then Tenant shall pay to Landlord the amount of each
monthly deficiency upon demand. Any rentals received by Landlord from any
such reletting shall be applied as follows:
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(i) First, to the payment of any indebtedness other
than rent due hereunder from Tenant to Landlord;
(ii) Second, to the payment of any costs of reentry
and reletting the Premises;
(iii) Third, to the payment of costs of any such
alterations, repairs, additions, removal, storage, and renovations to the
Premises;
(iv) Fourth, to the payment of rent due and unpaid
under this Lease; and
(v) The residue, if any, shall be held by Landlord
and applied as payment of future rent as the same may become due and payable
under this Lease.
(d) No act or omission by Landlord or its agents during the
Term shall be an acceptance of a surrender of the Premises, and no agreement
to accept a surrender of the Premises shall be valid, unless made in writing
and signed by a duly authorized representative of Landlord. Neither any
remedy set forth in this Lease nor pursuit of any particular remedy shall
preclude Landlord from any other remedy set forth in this Lease or otherwise
available at law or in equity. Landlord shall be entitled to a restraining
order or injunction to prevent Tenant from breaching or defaulting under any
of its obligations under this Lease other than the payment of rent or other
sums due hereunder.
(e) Neither the termination of this Lease nor the exercise of
any remedy under this Lease or otherwise available at law or in equity shall
affect the right of Landlord to any right of indemnification set forth in
this Lease or otherwise available at law or in equity by reason of Tenant's
occupancy of the Premises, and ail rights to indemnification or other
obligations of Tenant shall survive termination of this Lease and termination
of Tenant's right to possession under this Lease.
20.3 INDUCEMENT, RECAPTURE AND EFFECT OF BREACH. Any agreement by
Landlord for free or abated rent or other charges applicable to the Premises,
or for the giving or paying by Landlord to or for Tenant of any cash or other
bonus, inducement, or consideration for Tenant's entering into this Lease,
all of which concessions are hereinafter referred to as "Inducement
Provisions," shall be deemed conditioned upon Tenant's full and faithful
performance of all the terms, covenants, and conditions of this Lease to be
performed or observed by Tenant during the term hereof as the same may be
extended. Upon the occurrence of a breach of this Lease by Tenant, as defined
in paragraph 20.1, any such Inducement Provision shall automatically be
deemed deleted from this Lease and of no further force or effect, as though it
had never been a part hereof, and any rent, other charge, bonus, inducement,
or consideration theretofore abated, given or paid by Landlord under such an
Inducement Provision shall be immediately due and payable by Tenant to
Landlord, and recoverable by Landlord as additional rent due under this
Lease, notwithstanding any subsequent cure of said breach by Tenant. The
acceptance by Landlord of rent or the cure of the breach which initiated the
operation of this paragraph shall not be deemed a waiver by Landlord of the
provisions of this paragraph unless specifically so stated in writing by
Landlord at the time of such acceptance.
20.4 DEFAULT BY LANDLORD AND REMEDIES OF TENANT.
(a) It shall be a default and breach of this Lease by Landlord
if it shall fail to perform or observe any term, condition, covenant, or
obligation required to be performed or observed by it under this Lease for a
period of thirty (30) days after written notice thereof from Tenant;
provided, however, that if the term, condition, covenant, or obligation to be
performed by Landlord is of such nature that the same cannot reasonably be
performed within such thirty (30) day period, such default shall be deemed to
have been cured if Landlord commences such performance within said thirty
(30) day period and thereafter diligently undertakes to complete the same.
(b) Tenant shall not have the right based upon a default of
Landlord to terminate this Lease or to withhold, offset, or abate rent,
Tenant's sole recourse for Landlord's default being an action for damages
against Landlord for diminution in the rental value of the Premises for the
period of Landlord's default, which is proximately caused by Landlord's
default. Tenant shall not have the right to terminate this Lease or to
withhold, offset, or abate the payment of rent based upon the unreasonable or
arbitrary withholding by Landlord of its consent or approval of any matter
requiring Landlord's consent or approval, including but not limited to any
proposed assignment or subletting, Tenant's remedies in such instance being
limited to a declaratory relief action, specific performance, injunctive
relief, or an action of actual damages. Tenant shall not in any case be
entitled to any consequential or punitive damages based upon any Landlord
default or withholding of consent or approval.
(c) Notwithstanding anything to the contrary contained in this
Lease, Tenant agrees and understands that Tenant shall look solely to the
estate and property of Landlord in the Building
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of which the Premises area part for the enforcement of any judgment (or other
judicial decree) requiring the payment of money by Landlord or any other
partner, director, officer, employee, or agent of Landlord
[or Landlord Affiliate] to Tenant by reason of any default or breach by
Landlord in the performance of its obligations under this Lease, it being
intended that no other assets of Landlord or any of Landlord's Affiliates
shall be subject to levy, execution, attachment, or any other legal process
for the enforcement or satisfaction of the remedies pursued by Tenant in the
event of such default or breach.
(d) In the event of a sale or transfer of the Premises by
Landlord, the Landlord named herein, or, in the case of a subsequent
transfer, the transfor shall, after the date of such transfer, be
automatically released from all personal liability for the performance or
observance of any term, condition, covenant, or obligation required to be
performed or observed by Landlord hereunder; and the transferee shall be
deemed to have assumed all of such terms, conditions, covenants, and
obligations, it being intended hereby that such terms, conditions, covenants,
and obligations shall be binding upon Landlord, its successors, and assigns
only during and in respect of their successive periods of ownership during
the Term.
20.5 NON-WAIVER OF DEFAULT. The failure or delay by either party
hereto to enforce or exercise at any time any of the rights or remedies or
other provisions of this Lease shall not be construed to be a waiver thereof,
nor affect the validity of any part of this Lease or the right of either
party thereafter to enforce each and every such right or remedy or other
provision. No waiver of any default or breach of this Lease shall be held to
be a waiver of any other or subsequent default or breach. The receipt by
Landlord of less than the full rent due shall not be construed to be other
than a payment on account of rent then due, no statement on Tenant's check or
any letter accompanying Tenant's check be deemed an accord and satisfaction,
and Landlord may accept any payment without prejudice to Landlord's right to
recover the balance of the rent due or to pursue any other remedies provided
in this Lease or available at law or in equity.
21. ASSIGNMENT AND SUBLETTING.
21.1 PROHIBITION OF ASSIGNMENT OR SUBLETTING. Except as otherwise
provided herein, Tenant shall not assign, transfer, mortgage, or otherwise
encumber, voluntarily or by operation of law, this Lease or any interest
hereof, or sublet the Premises or any portion thereof, or permit any other
person to occupy the Premises or any portion thereof without the express
written consent of Landlord, which consent shall be subject to the provisions
of Section 21.3 below. Consent to one assignment or subletting shall not
constitute a waiver of this provision or consent to any further assignment or
subletting. Tenant shall reimburse Landlord for any reasonable costs and
expenses, including but not limited to legal expenses, incurred by Landlord
in connection with its review of any proposed assignment or subletting,
whether or not Landlord gives its consent. Tenant shall be deemed to have
assigned its interest hereunder within the meaning of this Section if legal
or beneficial interests representing 20% or more of the interests in either
voting power, capital, profits, losses, or distribution in any corporation,
partnership, joint venture, or other entity comprising Tenant are transferred
by any means. No assignee for the benefit of creditors, trustee in bankruptcy
or purchaser at any execution sale, shall have the right to possess or occupy
the Premises or any part thereof, or claim and right hereunder or assignment.
21.2 MINIMUM REQUIREMENTS FOR CONSENT. Landlord will not consent to
any assignment or sublease unless, at a minimum: (i) the proposed transferee
shall execute, acknowledge, and deliver to Landlord an agreement in form and
substance satisfactory to Landlord whereby such transferee shall assume and
agree to perform and be personally bound by and upon all the covenants,
agreements, terms, and conditions of this Lease on the part of Tenant to be
performed, and whereby such transferee shall expressly agree that the
provisions of this Article, notwithstanding such transfer, shall continue to
be binding upon it with respect to future assignments, subleases, and/or
other transfers; (ii) in the event Landlord requires personal guaranties from
financially responsible persons as a condition of consent, that such
guarantors shall execute, acknowledge, and deliver an absolute and
unconditional guaranty in a form presented by Landlord which shall contain
waivers of all defenses to the maximum extent permitted by law; and (iii)
Tenant and any guarantors shall continue to be liable to Landlord under this
Lease for the terms, covenants, and conditions to be compiled with by Tenant
whether this Lease is assigned, sublet, and/or otherwise transferred. In no
event, however, shall compliance with the provisions of this paragraph 21.2
require Landlord to consent to a transfer.
21.3 SUBMITTAL PROCEDURE. If at any time Tenant wishes to sublet or
assign the Premises, or any portion thereof, the following procedure shall
apply:
(a) Tenant shall submit to Landlord in writing (i) the name of
the proposed transferee, (ii) the nature of the business to be conducted on
the Premises, (iii) reasonable information as to the proposed transferee's
financial responsibility and standing as Landlord may request, and (iv) the
proposed sublease on Landlord's standard office space sublease form
containing all of the terms and conditions of the proposed transfer.
(b) At any time within thirty (30) days after Landlord's
receipt of Tenant's full submission (including any additional information
Landlord may request), Landlord may, by written notice
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to Tenant, elect in its sole discretion either to: (i) consent to the
proposed transfer; (ii) reasonably withhold its consent to the proposed
transfer; (iii) if the transfer is to third parties not affiliated with
Tenant, terminate this Lease in its entirety in the case of a proposed
assignment or with respect to the proposed sublease premises in the case of a
proposed sublease (in which case the rent, parking rights, and any other
rights or obligations under this Lease which are based upon the square
footage of the Premises shall be proportionately adjusted, and Tenant shall
pay the cost of any alterations necessary to divide the proposed sublease
premises from the remainder of the Premises), which termination shall take
effect on the date set forth in Landlord's notice but in no event more than
ninety (90) days after Landlord has so notified Tenant. Landlord may then
enter into a new lease with the intended assignee or sublessee, or any other
person, on whatever terms the parties may negotiate. In such a case, Tenant
is not entitled to any portion of the profit, if any, realized by Landlord
from the termination and reletting: or (iv) take such transfer, as
applicable, from Tenant in its own name on the same terms as Tenant shall
propose to enter into such transfer (but Landlord shall have the unqualified
right to re-assign, sublet, or sub-sublet without Tenant's consent and
Landlord may offset any sums due or to become due to Tenant under any
transfer against any sums due to Landlord under this Lease).
21.4 CONTINUING OBLIGATION OF TENANT. No transfer, even with the
consent of Landlord, shall release Tenant of its obligation to pay the rent
and to perform all other obligations of Tenant hereunder. Neither a delay in
the approval or disapproval of an assignment or subletting, nor the
acceptance by Landlord of any payment due hereunder from any source other
than Tenant shall be deemed a waiver by Landlord of any provision of this
Lease or to be a consent to any assignment or subletting. If Tenant's
obligations under this Lease have been guaranteed by third parties, then an
assignment or sublease, and Landlord's consent thereto, shall not be
effective unless said guarantors give their written consent to such sublease
and the terms thereof. In the event of any default under this Lease, Landlord
may proceed directly against Tenant, any guarantors or anyone else
responsible for the performance of this Lease, including the sublessee,
without first exhausting Landlord's remedies against any other person or
entity responsible therefor to Landlord, or any security held by Landlord or
Tenant. Landlord may consent to subsequent assignments or modifications of
this Lease by Tenant's transferee, without notifying Tenant or obtaining its
consent. Such action shall not relieve Tenant's liability under this Lease.
21.5 CONSENT NOT WAIVER. Landlord's written consent to any
assignment or subletting of the Premises by Tenant shall not constitute an
acknowledgment that no Default then exists under this Lease of the
obligations to be performed by Tenant, nor shall such consent be deemed a
waiver of any then existing Default, except as may be otherwise stated by
Landlord at the time.
21.6 FINANCIAL INFORMATION. The discovery of the fact that any
financial statement relied upon by Landlord in giving its consent to an
assignment or subletting was materially false or misleading shall, at
Landlord's election, render Landlord's said consent null and void.
21.7 CONSIDERATION. In the event of (i) any permitted subletting or
assignment at a greater rental than the monthly rent and the additional rent
provided for in this Lease (as ratable to the subleased space), or (ii) any
permitted subletting or assignment providing for payment of any other
consideration (including, without limitation, payment for leasehold
improvements) by the assignee or sublessee to the Tenant, the amount of
seventy-five percent (75%) of all such sublease rental that exceeds the
monthly rent and additional rent payable by Tenant hereunder (as ratable to
the subleased space) and the amount of seventy-five percent (75%) of all such
consideration shall be paid over by Tenant to Landlord as received.
21.8 SUBLEASES. Regardless of Landlord's consent, the following
terms and conditions shall apply to any subletting by Tenant of all or any
part of the Premises and shall be deemed included in all subleases under this
Lease whether or not expressly incorporated therein:
(a) Tenant hereby assigns and transfers to Landlord all of
Tenant's interest in all rentals and income arising from any sublease
heretofore or hereafter made by Tenant, and Landlord may collect such rent
and income and apply same toward Tenant's obligations under this Lease;
provided, however, that until a default shall occur in the performance of
Tenant's obligations under this Lease, Tenant may receive, collect, and enjoy
the rents accruing under such sublease. Landlord shall not, by reason of this
or any other assignment of such sublease to Landlord nor by reason of the
collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Tenant to perform and comply with any of Tenant's
obligations to such sublessee under such sublease. Tenant hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice
from Landlord stating that a default exists in the performance of Tenant's
obligations under this Lease, to pay to Landlord the rents due and to become
due under the sublease. Tenant agrees that such sublessee shall have the
right to rely upon any such statement and request from Landlord, and that
such sublessee shall pay such rent to Landlord without any obligations or
inquire as to whether such default exists and notwithstanding any notice from
or claim from Tenant to the contrary, Tenant shall have no right or claim
against said sublessee or Landlord for any such rents so paid by said
sublessee to Landlord.
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(b) No sublease entered into by Tenant shall be effective
unless and until it has been approved in writing by Landlord. In entering
into any sublease, Tenant shall use only Landlord's standard form office
space sublease, and once approved by Landlord, such sublease shall not be
changed or modified without Landlord's prior written consent, which consent
may be withheld for any reason. Any sublessee shall, by reason of entering
into a sublease under this Lease, be deemed, for the benefit of Landlord, to
have assumed and agreed to conform and comply with each and every obligation
herein to be performed by Tenant other than such obligations as are contrary
to or inconsistent with provisions contained in a sublease to which Landlord
has expressly consented in writing.
(c) In the event Tenant shall default in the performance of
its obligations under this Lease, Landlord, at its option and without any
obligation to do so, may require any sublessee to attorn to Landlord, in
which event Landlord shall undertake the obligations of Tenant, as sublessor
under such sublease from the time of the exercise of said option to the
termination of such sublease; provided, however, Landlord shall not be liable
for any prepaid rents or security deposit paid by such sublessee to Tenant or
for any other prior defaults of Tenant under such sublease. Landlord's
approval of a sublease shall not be construed as an agreement by Landlord to
recognize any sublessee upon the expiration or termination of Tenant's
obligations under this Lease, whether voluntary or involuntary.
(d) Subject to Landlord's right to require attornment by any
sublessee as provided in Subsection 21.6(c) above, any expiration or
termination of this Lease, whether voluntary or involuntary, shall cause each
sublease to terminate, notwithstanding Landlord's prior approval of the
sublease, and the sublessee thereunder shall have no further right to
possession of the Premises. In the event of voluntary termination of this
Lease by agreement between Landlord and Tenant, the foregoing sentence shall
fully apply, and to the extent that any sublessee has any claim or cause of
action arising from or related to such voluntary termination of this Lease,
and resulting termination of the sublease, the sublessee shall be
conclusively presumed to have waived such claim or cause of action as against
Landlord (including Landlord's Affiliates), the Premises, the Building, and
the Project, and to have agreed that any such claim or cause of action shall
be asserted solely against Tenant.
(e) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Landlord herein.
21.9 MISCELLANEOUS PROVISIONS.
(a) If this Lease is assigned, or it the Premises or any part
thereof are sublet or occupied by anyone other than Tenant, without first
obtaining Landlord's written consent and complying with all conditions to
such consent, then Tenant shall be in default under this Lease and Landlord
may collect rent from the assignee, sublessee, or occupant, and apply the net
amount collected to the rent herein reserved, but no such assignment,
subletting, occupancy, or collection shall be deemed a waiver by Landlord of
any default by Tenant or of the obligation of Tenant to perform all covenants
and comply with all conditions contained in this Lease, or a release of
Tenant from the performance by Tenant of the covenants on the part of Tenant
contained in this Lease. In the event of any default under this Lease,
Landlord may proceed directly against Tenant, any guarantors or anyone else
responsible for the performance of this Lease, including the transferee,
without first exhausting Landlord's remedies against any other person or
entity responsible therefor to Landlord, or any security held by Landlord or
Tenant.
(b) Landlord shall have the right to sell, transfer, or assign
its interest hereunder, or any part thereof, without the prior consent of
Tenant. After such sale, transfer, or assignment, upon request by the
purchaser, transferee, or assignee, Tenant shall attorn to such purchaser,
transferee, or assignee.
(c) No merger shall result from Tenant's sublease of the
Premises under this Article 21, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord
may, at its election, terminate any or all subtenancies or succeed to the
interest of Tenant as sublessor thereunder.
22. SUBORDINATION AND ESTOPPEL.
22.1 SUBORDINATION. At the election of Landlord, or the holder of
any mortgage or deed of trust affecting real property of which the Premises
are a part, this Lease and all of the rights of Tenant hereunder shall be
subject and subordinate at all times to all deeds of trust or mortgages which
may now or hereafter affect the real property of which the Premises are a
part, and to all renewals, modifications, consolidations, replacements, and
extensions thereof, and at the request of Landlord or the holder of such
mortgage or deed of trust, Tenant shall execute, acknowledge, and deliver
promptly in recordable form any instrument or subordination agreement that
Landlord or such holder may request; provided, however, that such instrument
shall include a provision requiring the purchaser at any foreclosure sale or
other execution sale to continue this Lease in full force and effect in the
same manner as if such purchaser were the Landlord so long as Tenant is not
otherwise in default and requiring Tenant to attorn to such purchaser. If
Tenant fails to execute such instrument within ten (10) days after a request
to do so, such failure shall be a material default under this Lease.
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22.2 ESTOPPEL. Within ten (10) days after request therefor by
Landlord, Tenant agrees to execute and deliver in recordable form an estoppel
certificate to any holder of a mortgage or proposed mortgage or proposed
purchaser or to Landlord certifying (if such is the case) that this Lease is
unmodified and in full force and effect (and if there has been any
modification, that the same is in full force and effect as modified and
stating the modifications): that there are no uncured defaults by Landlord;
that there are no defenses or offsets against the enforcement thereof or
stating those claimed by Tenant; stating the date to which rent and other
sums due hereunder are paid; and containing such other statements regarding
this Lease, the Premises or Tenant as Landlord, the proposed mortgagee or
purchaser shall reasonably require. Such certificate shall also include such
other information and agreements by Tenant to protect the security interest
of any lender as may reasonably be required or requested by such lender. The
failure by Tenant to deliver any such certificate within ten (10) days after
request therefor shall be deemed to constitute the certification by Tenant
that this Lease is in full force and effect and has not been modified except
as may be represented by Landlord, that no rent or other payment has been
paid more than one month in advance, and that there are no uncured defaults
by Landlord and no defenses or offsets against the enforcement thereof. If
Tenant fails to deliver such estoppel certificate within said ten (10) days,
Tenant shall and does hereby irrevocably appoint Landlord as Tenant's
attorney in fact to execute and deliver such certificate. Failure of Tenant
to provide such statement, whether Landlord acts as agent to provide a
statement or not, shall be a material default under this Lease, and Tenant
shall defend, indemnify, and hold Landlord harmless from all liabilities,
costs, expenses, and losses (including forfeited deposits, lost opportunity
to pay lower interest or to obtain additional investment funds and other
consequential damages, costs, and attorneys' fees).
23. BUILDING PLANNING.
If Landlord requires the Premises for use in conjunction with another
suite or for other reasons connected with the Landlord's Building planning
program, upon notifying Tenant in writing, Landlord shall have the right to
move Tenant, within three (3) months after receipt of such notice, to other
space in the Building, which is or shall be built out by Landlord in a manner
comparable to the Premises, and the terms and conditions of the original
Lease shall remain in full force and effect, save and excepting that a
revised Exhibit A shall become part of this Lease and shall reflect the
location of the new space. Landlord shall pay the reasonable costs of moving
Tenant's furniture, equipment, and personal property to the new space and
shall reimburse Tenant for reasonable incidental costs of moving such as
reprinting stationery with Tenant's new location.
24. NOTICES.
Any and all notices, approvals, or demands required or permitted under
this Lease shall be in writing and shall be served either personally or by
United States Certified Mail, postage prepaid, return receipt requested. The
service of any notice by fax shall not constitute acceptable service. If
served personally, service shall be deemed conclusively to occur at the time
of service. If served by Certified Mail, service shall be deemed conclusively
to occur on the second business day after the postmark, postage meter date,
or the date stamped by the United States Postal Service on a certified mail
receipt provided such item of mail reflects the correct postage and the
latest known address of the party to whom such notice or demand is to be
given. Such item of mail shall be presumed to have the correct postage the
latest known address of the addressee and to have been mailed on the date
asserted by the party giving notice. The burden of proving improper postage,
and/or address and/or date shall be on the party seeking to prove improper
notice. Any notice or demand to a party shall be sent to its address as set
forth in the Basic Lease Provisions, or to such other address of which such
party shall advise the other in writing in the manner provided in this
Article; provided, however, that any notice or demand made upon Tenant may be
made and shall be complete if delivered to the Premises. All notices to
Landlord shall be deemed incomplete and not made unless delivered to each of
the addresses set forth in the Basic Lease Provisions and/or such other
address or addresses as Landlord shall advise Tenant of by delivery of
written notice to Tenant in accordance with this Article.
25. BROKERS.
Tenant warrants that it has had no dealings with any real estate broker
or agent in connection with the negotiation of this Lease, except the
broker(s) listed in the Basic Lease Provisions whose commission shall be
payable by Landlord, and that Tenant knows of no other real estate broker or
agent who is or might be entitled to a commission in connection with this
Lease. If Tenant has dealt with any other person or real estate broker with
respect to leasing or renting space in the Building, Tenant shall be solely
responsible for the payment of any fee due such person or broker, and Tenant
shall defend, indemnify, and hold Landlord harmless, against any liability in
respect thereto, including attorneys' fees and costs.
26. HOLDING OVER.
If Tenant holds over after the expiration or earlier termination of the
term of this Lease without the express written consent of Landlord, Tenant
shall become a Tenant at sufferance only, at a rental rate equal to one
hundred fifty percent (150%) of the rent in effect upon the date of such
expiration (subject
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to adjustment as provided in Section 5.2 hereof and prorated on a daily
basis), and otherwise subject to the terms, covenants, and conditions
specified in this Lease, so far as applicable, except that all options, if
any, granted under the terms of this Lease shall be deemed terminated and of
no further effect. Acceptance by Landlord of rent after such expiration or
earlier termination shall not result in a renewal of this Lease or waiver of
any default or circumstances of termination. The foregoing provisions of this
Article are in addition to and do not affect Landlord's right of re-entry or
any rights of Landlord otherwise provided in this Lease or as otherwise
provided by law, If Tenant fails to surrender the Premises upon the
expiration of this Lease despite demand to do so by Landlord, Tenant shall
indemnify and hold Landlord harmless from all loss, cost, expense, or
liability, including without limitation, any claim made by any succeeding
tenant founded on or resulting from such failure to surrender and any
attorneys' fees and other costs of legal proceedings.
27. MISCELLANEOUS.
27.1 RULES AND REGULATIONS. Tenant shall faithfully observe and
comply with the "Rules and Regulations," a copy of which is attached hereto
and marked Exhibit C, and all reasonable and nondiscriminatory modifications
thereof and additions thereto from time to time put into effect by Landlord.
Landlord shall not be responsible to Tenant for the violation or
non-performance by any other tenant or occupant of the Building of any of the
Rules and Regulations.
27.2 INTERPRETATION. This Lease shall be construed fairly as to all
parties and not in favor of or against any party regardless of which party
prepared this Lease. This Lease and the rights of the parties hereunder shall
be interpreted in accordance with the laws of the State of California, and
any issue or proceeding arising out of this Lease shall be determined by a
court of competent jurisdiction in the County of San Diego, California.
27.3 SUCCESSORS AND ASSIGNS. Subject to the provisions of Article
21, this Lease and the respective rights and obligations of the parties
hereto shall inure to the benefit of and be binding upon the successors and
assigns of the parties hereto as well as the parties themselves; provided,
however, that Landlord, its successors, and assigns shall be obligated to
perform Landlord's covenants under this Lease only during and in respect of
their successive periods of ownership during the term of this Lease.
27.4 SURRENDER OF PREMISES. The voluntary or other surrender of this
Lease by Tenant, or a mutual cancellation thereof, shall not work a merger,
and shall, at the option of Landlord, operate as an assignment to it of any
or all subleases or subtenancies.
27.5 ATTORNEYS' FEES.
(a) If Landlord should bring suit for possession of the
Premises, for the recovery of any sum due under this Lease, or because of the
breach of any provisions of this Lease, or for any other relief against
Tenant hereunder, or in the event of any other litigation between the parties
with respect to this Lease, then all costs and expenses, including reasonable
attorneys' fees, incurred by the prevailing party therein shall be paid by
the other party, which obligation on the part of the other party shall be
deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgment. The
"prevailing party" in any action involving recovery of possession of the
Premises shall be the Landlord if it recovers the right to possession, or if
the Landlord obtains an award of damages against Tenant even if it does
not recover the right to possession, and shall be Tenant if Tenant retains
the right to possession and does not suffer an award of damage.
(b) If Landlord is named as a defendant in any suit arising
from or related to Tenant's rights or occupancy hereunder, Tenant shall pay
Landlord's costs and expenses incurred in such suit, including reasonable
attorneys' fees.
27.6 PERFORMANCE BY TENANT. All covenants and agreements to be
performed by Tenant under any of the terms of this Lease shall be performed
by Tenant at Tenant's sole cost and expense and without any abatement of
rent. If Tenant shall fail to pay any sum of money owed to any party other
than Landlord, for which it is liable hereunder, or if Tenant shall fail to
perform any other act on its part to be performed hereunder, Landlord may,
without the obligation to do so and/or waiving or releasing Tenant from its
obligations, make any such payment or perform any such other act to be made
or performed by Tenant. All sums so paid by Landlord and all necessary
incidental costs, together with interest thereon at the maximum contract rate
permissible by law, from the date of such payment by Landlord, shall be
payable by Tenant to Landlord on demand. Tenant covenants to pay any such
sums, and Landlord shall have (in addition to any other right or remedy of
Landlord) all rights and remedies in the event of the nonpayment thereof by
Tenant as are set forth in Article 20 hereof.
27.7 MORTGAGEE PROTECTION. In the event of any default on the part
of Landlord, Tenant shall notify, by registered or certified mail, any
beneficiary of a deed of trust or mortgage covering the Premises whose
address shall have been furnished to Tenant, and shall offer such beneficiary
or
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mortgagee a reasonable opportunity to cure the default, including time to
obtain possession of the Premises by power of sale or a judicial foreclosure,
if such should prove necessary to effect a cure.
27.8 WAIVER. The waiver by Landlord of any breach of any term,
covenant, or condition herein contained shall not be deemed to be a waiver of
any subsequent breach of the same or any other term, covenant, or condition
herein contained, nor shall any custom or practice which may grow up between
the parties in the administration of the terms hereof be deemed a waiver of
or in any way affect the right of Landlord to insist upon the performance by
Tenant in strict accordance with said terms. The subsequent acceptance of
rent hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant, or condition of this Lease,
other than the failure of Tenant to pay the particular rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rent.
27.9 IDENTIFICATION OF TENANT. If more than one person executes
this Lease as Tenant:
(a) Each of them is jointly and severally liable for the
keeping, observing, and performing of all of the terms, covenants,
conditions, provisions, and agreements of this Lease to be kept, observed,
and performed by Tenant;
(b) The term "Tenant" as used in this Lease shall mean and
include each of them jointly and severally; and
(c) The act of or notice from, or notice or refund to, or the
signature of any one or more of them, with respect to the tenancy of this
Lease, including, but not limited to any renewal, extension, expiration,
termination, or modification of this Lease, shall be binding upon each and
all of the persons executing this Lease as Tenant and binding upon any
guarantor, with the same force and effect as if each and all of them had so
acted or so given or received such notice or refund or so signed or consented.
27.10 PARKING. Tenant shall have the right to lease, on a monthly
basis, the number of unreserved parking spaces in the Project's on-site and
off-site parking facilities, as are set forth in the Basic Lease Provisions.
Permits for such parking spaces shall be available at the same rates as
established from time to time by Landlord or Landlord's parking operator for
other spaces made available to the general public within the designated
parking structure or lot. The use by Tenant, its employees and invitees of
the parking facilities of the Project shall be subject to such rules and
regulations as from time to time are established by Landlord or Landlord's
parking operator. The number of parking permits shall be subject to
reasonable adjustment by Landlord if such adjustment is required by any
governmental authority in connection with any traffic, pollution, or other
control program of such governmental authority.
27.11 CAPTIONS, NUMBER, GENDER, AND JOINT AND SEVERAL LIABILITY.
The article, title, or section headings of the various provisions of this
Lease are intended solely for convenience of reference and shall not in any
manner amplify, limit, or modify or otherwise be used in the interpretation
of any of such provisions. As used in this Lease, the masculine, feminine, or
neuter gender and the singular or plural number shall be deemed to include
the other whether the context so indicates or requires. This Lease shall be
construed without regard to any presumption or other rule requiring
construction against the party drafting a document.
27.12 LEASE EXAMINATION. Submission of this instrument for
examination or signature by Tenant does not constitute an offer or option to
lease, and it shall not be effective as a lease or otherwise until execution
and delivery by both Landlord and Tenant.
27.13 TIME OF THE ESSENCE. Time is of the essence of this Lease in
all circumstances where time is an element.
27.14 ENTIRE AGREEMENT. This Lease, together with its exhibits and
attachments referenced herein, which are incorporated herein by such
reference and shall constitute a part of this Lease, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof,
and the final, complete, and exclusive expression of the terms and conditions
of this Lease, all prior agreements, promises, representations, negotiations,
and understandings of the parties hereto, oral or written, express or
implied, are hereby superseded and merged herein, except for representations
of financial condition of Tenant delivered to Landlord upon which Landlord
has relied in connection with leasing of the Premises or consent to any
matter.
27.15 SEVERABILITY. If any provision of this Lease, as applied to
any party or to any circumstance, shall be adjudged by a court of competent
jurisdiction to be void or unenforceable for any reason, the same shall not
affect (to the maximum extent permissible by law) any other provision of this
Lease, the application of such provision under circumstances different from
those adjudged by the court, or the validity or enforceability of this Lease
as whole.
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27.16 RECORDING. Neither Landlord nor Tenant shall attempt to
record this Lease or any memorandum or short form of this Lease.
27.17 MODIFICATIONS FOR LENDER. If, in connection with obtaining
construction, interim, or permanent financing for the Building or the
Project, any lender or proposed lender shall request reasonable modifications
in this Lease as a condition to such financing, then Tenant shall not
unreasonably withhold or delay its consent thereto, provided that such
modifications do not increase the obligations of Tenant hereunder or
materially, adversely affect the leasehold interest or Tenant's rights
hereunder.
27.18 PAYMENTS TO AFFILIATES. Nothing in this Lease shall be
construed to prevent Landlord from paying for services rendered or materials
delivered with respect to the Building, the Project, or to the Premises
(including, without limitation, management services and contracting out
capital improvements or other capital repairs or construction items) by
affiliates of Landlord or its beneficiary, provided that the fees or costs of
such services and materials are at market rates in the metropolitan area of
which the Project is a part. All such fees or costs paid by Landlord to such
affiliates shall be deemed to constitute expenses of maintenance and repair
on the same terms and conditions as if such fees and costs were paid to
nonaffiliates of Landlord or its beneficiaries.
27.19 LANDLORD'S INABILITY TO PERFORM. Landlord shall not be in
default hereunder if Landlord is unable to fulfill any of its obligations
under this Lease because of delay, from so doing by any accident, breakage,
repair, alteration, improvement, strike, or labor troubles, moratorium, war,
civil unrest, act of God, or any outside cause whatsoever beyond the
reasonable control of Landlord, including, but not limited to, energy
shortages or governmental preemption in connection with a national emergency,
or by reason of law or any rule, order, or regulation of any department, or
division of any governmental agency, or by reason of the conditions of supply
and demand which have been or are affected by war, hostilities, or other
emergency. The performance by Landlord of its covenants contained in this
Lease shall be independent of Tenant's covenants to pay rent and perform
Tenant's obligations under this Lease. The failure of Landlord to perform its
covenants under this Lease shall not relieve Tenant of its covenants to pay
rent and perform under this Lease or entitle Tenant to any offset or
abatement of rent, except as otherwise expressly provided in this Lease, and
Tenant waives the benefit of any statute or rule of law now or hereafter in
effect to the contrary.
27.20 INTEREST. Any sum due from Tenant to Landlord not paid when
due shall bear interest from the date due until the date paid at the annual
rate of two (2) percentage points per annum above the rate of interest then
most recently announced by Citibank, N.A., New York, New York, or its
successor, as its prime rate of interest, as such rate may change from time
to time during this Lease; provided, however, that such rate shall not exceed
the maximum lawful rate per annum for commercial transactions as of the date
such sum was due. The payment of such amount shall not excuse or cure any
default of Tenant under this Lease except as to the nonpayment of such amount.
27.21 AUTHORIZED SIGNATORY. If Tenant signs as a corporation, each
person executing this Lease on behalf of Tenant does hereby covenant and
warrant that Tenant is a duly authorized and existing corporation, that
Tenant has and is qualified to do business in California, that the
corporation has full right and authority to enter into this Lease, that each
person executing this Lease on behalf of the corporation is authorized to do
so, and that such execution is fully binding on the corporation. If Tenant
signs as a partnership, joint venture, or sole proprietorship (each being
herein called "Entity") each person executing on behalf of Tenant does hereby
covenant and warrant that Tenant is a duly authorized and existing Entity,
that Tenant has full right and authority to enter into this Lease, that each
person executing this Lease on behalf of the Entity is authorized to do so,
and that such execution is fully binding on the Entity and its partners,
joint venturers, or principals, as the case may be.
27.22 COVENANTS AND CONDITIONS. Each provision of this Lease
required to be performed by Tenant shall be deemed both a covenant and a
condition.
27.23 RESERVATIONS OF LANDLORD. Landlord shall have the right to
change the name, number, or designation of the Building or the Project
without notice or liability to Tenant. In addition, Tenant shall not, without
Landlord's prior written consent, use the name of the Building or the Project
for any purpose other than as the address of the business to be conducted by
Tenant at the Premises, and in no event shall Tenant acquire any rights in or
to such names. Landlord shall have the right to (i) at Landlord's expense,
provide and install Building standard graphics or art on the door to the
Premises and/or such portions of the Common Areas as Landlord shall
reasonably deem appropriate; (ii) permit any Tenant the exclusive right to
conduct any business as long as such exclusive right does not conflict with
any rights expressly given herein; (iii) place such signs, notices or
displays as Landlord reasonably deems necessary or advisable upon the roof,
exterior of the buildings or the Project or on pole signs in the Common
Areas. Landlord reserves to itself the right, from time to time, to grant
such easements, rights, and dedications that Landlord deems necessary or
desirable and to cause the recordation of Parcel Maps and restrictions, so
long as such easements, rights, dedications, Maps, and restrictions do not
unreasonably interfere with the use of the Premises by Tenant. Tenant shall
sign any of the aforementioned documents within ten (10) days after written
request by Landlord, and failure to do so
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shall constitute a material default under this Lease by Tenant without the
need for further notice to Tenant. Landlord reserves the right at any time to
make alterations or additions to the Building and to build adjoining the
same. Landlord reserves the right to construct other buildings or
improvements in the vicinity of the Building from time to time, to make
alterations thereof or additions thereto, and to build additional stories on
any such buildings and to build adjoining the same. Landlord further reserves
the exclusive right to the roof of the Building. No easement for light, air,
or view is included in the leasing of the Promises to Tenant. Accordingly,
any diminution or shutting off of light, air, or view by any structure which
may be erected in the vicinity of the Building shall in no way affect this
Lease or impose any liability upon Landlord.
27.24 QUIET ENJOYMENT. Subject to payment of all rents and other
sums required of Tenant under this Lease and observance and performance of
all of the covenants, terms, and conditions required to be performed on the
Tenant's part and subject to the rights of any mortgagee or ground lessor
having priority over this Lease, Tenant shall peaceably hold the Premises for
the Term hereby demised without hindrance or interruption by Landlord or any
other person or persons lawfully or equitably claiming by, through, or under
the Landlord, subject, nevertheless, to the terms and conditions of this
Lease.
27.25 AMENDMENT. No amendment or addition, modification of, or
alteration of any provision contained in this Lease shall be effective
unless fully set forth in writing and executed by Landlord and Tenant.
27.26 CUMULATIVE RIGHTS. All rights, elections, and remedies of
Landlord contained in this Lease shall be construed and held to be
cumulative, and no one of them shall be exclusive of the other, and Landlord
shall have the right to pursue any one or all of such remedies or any other
remedy or relief which may be provided by law or equity, whether or not
stated in this Lease.
27.27 FINANCIAL STATEMENTS. Tenant represents and warrants that all
financial statements and financial information provided to Landlord prior to
execution of this Lease or in connection with obtaining any consent are true
and correct and accurately reflect the financial condition of the person or
entity covered by such statements, as of the date of such statements and that
no material adverse change has occurred since such date. Tenant further
agrees to provide additional financial statements certified to be true and
correct and accurately presenting Tenant's financial condition as of Tenant's
last annual and quarterly accounting periods as from time to time requested
by Landlord, within fifteen (15) days after such request.
27.28 WAIVER OF RIGHT TO TRIAL BY JURY. Tenant waives the right to
trial by jury.
27.29 SIGNS. Tenant shall not erect or maintain any temporary or
permanent sign on or about the Premises, the Building, or the Project, or
visible from the Common Areas or exterior, without obtaining prior written
approval from Landlord, which may be granted or withheld in Landlord's sole
and absolute discretion. Any request for approval of a sign shall be made in
such detail as Landlord shall request. Tenant may place a sign, at Tenant's
expense, used to identify Tenant's business name at the entrance of the
Premises, subject to the prior written approval of Landlord, which approval
shall not be unreasonably withheld. All signs, whether erected by Landlord or
Tenant, shall conform to Landlord's building standard signage and to all
laws, ordinances, rules, regulations, permits, covenants, conditions,
restrictions, and easements pertaining to signs. In the event of a violation
of the foregoing by Tenant, Landlord may remove same without any liability,
and may charge the expense incurred in such removal to Tenant. Tenant shall
remove all approved signs which it has erected upon the termination of the
Lease and repair all damage caused by such removal.
27.30 DIRECTORY BOARD. Tenant shall have the right to include two
(2) listings per thousand rentable square feet occupied on the Building
directory board in the main Building lobby.
27.31 NON-DISCRIMINATION. Tenant covenants by and for itself, its
successors and assigns, and all persons claiming under or through them, and
this Lease is made and accepted upon and subject to the following conditions:
That there shall be no discrimination against or segregation of any person or
group of persons, on account of sex, marital status, race, color, creed,
religion, national origin or ancestry in the leasing, subleasing, renting,
transferring, use, occupancy, tenure, or enjoyment of the land herein leased,
nor shall Tenant itself, or any person claiming under or through it, establish
or permit such practice or practices of discrimination or segregation with
reference to the selection, location, number, use, or occupancy of tenants,
lessees, sublessees, or vendees in the land herein leased.
28. TERMINATION OPTION. Provided that Tenant is not in default under the
terms of this Lease nor any event or condition has occurred which after
notice or passage of time or both shall constitute a default, Tenant shall
have a one-time right to terminate this Lease exercisable after the end of
the forty eighth (48th) month of the Term. Tenant shall exercise such right
by delivery of written notice of its intention to terminate this Lease to
Landlord at least one hundred eighty (180) days before the date Tenant
desires to terminate this Lease ("Termination Date"). In the event Tenant
exercises said option to terminate, Tenant shall, at the time of delivering
notice of such exercise, pay Landlord a termination
-30-
<PAGE>
fee equal to the sum of nine (9) months of Monthly Basic Rent payable during
the fifth year of the Term (i.e., ($137,065.50). Tenant shall continue to pay
Basic Rent, Additional Rent, and all other amounts payable by Tenant under
this Lease, and Tenant shall continue to have all rights and obligations
under this Lease, through the Termination Date. The rights granted to Tenant
hereunder are personal to Tenant and may only be executed by Tenant when
Tenant is in possession of the entire Premises. Any assignment or subletting
by Tenant of the Lease or of all or a portion of the Premises (even if such
assignment or subletting does not require the consent of Landlord or is
approved by Landlord) terminates Tenant's rights under this Article 28,
unless Landlord consents to the contrary in writing at the time of such
assignment or subletting.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
LANDLORD: TENANT:
SAN DIEGO 225 RPFIII LIMITED LIABILITY THE TITAN CORPORATION,
COMPANY, a Delaware limited liability company a Delaware corporation
By: GEIRP III Holding Corporation, a Delaware
corporation By: /s/ [Illegible]
------------------------
Its: Corp. V. P.
--------------------
By: /s/ [Illegible]
-------------------------------
Its: V. P.
------------------------------
-31-
<PAGE>
EXHIBIT A
[GRAPH]
<PAGE>
EXHIBIT B
STANDARDS FOR UTILITIES AND SERVICES
This Exhibit B Standards for Utilities and Services, supplements the
Lease between Landlord and Tenant to which this Exhibit is attached.
Landlord shall provide the utilities and services set forth in this
Exhibit at all times during the Term of the Lease subject to the provisions
of the Lease concerning Landlord's inability to supply such utilities and
services due to causes beyond Landlord's control, Landlord reserves the right
to adopt such reasonable nondiscriminatory modifications and additions to the
following standards as it deems necessary and appropriate from time to time.
Landlord shall not be obligated to supply any utilities or services to Tenant
at any time during which Tenant is in default under the terms of the Lease.
1. Landlord shall provide automatic elevator services on Monday through
Friday from 8:00 a.m. to 6:00 p.m. and on Saturday from 8:00 a.m. to 1:00 p.m
(such times referred to in this Exhibit as "Business Hours"); provided,
however, that Landlord shall not be obligated to provide such elevator
services on any day which is designated as a federal holiday or on any
Saturday which precedes or follows any federal holiday. At all other times
Landlord shall provide at least one elevator operated by security personnel
or by an automatic security access system.
2. Landlord shall provide to the Premises, during Business Hours (and at
other times for an additional charge to be fixed by Landlord), heating,
ventilation, and air conditioning ("HVAC") when and to the extent in the
judgment of Landlord any such sources may be required for the comfortable
occupancy of the Premises for general office purposes. Landlord shall not be
responsible for room temperatures and conditions in the Premises if the
lighting or receptacle load for Tenant's equipment and fixtures exceed those
listed in Section 3 of this Exhibit, if the Premises are used for other than
general office purposes or if the building standard blinds and curtains in
the Premises are not used and/or closed to screen the rays of direct
sunlight. If any lights, machines, or equipment (including, without
limitation, computers) are used by Tenant in the Premises which materially
affect the temperature otherwise maintained by the Building HVAC or generate
substantially more heat in the Premises than would be generated by the
Building standard lights and usual fractional horsepower office equipment,
Landlord shall have the right to install any machinery and equipment which
Landlord reasonably deems necessary to restore temperature balance
(including, without limitation, modifications to the standard air
conditioning equipment) and the cost thereof, including the cost of
installation and any additional cost of operation and maintenance occasioned
thereby, shall be paid by Tenant to Landlord upon demand by Landlord.
3. Landlord shall furnish to the Premises during Business Hours electric
current for routine lighting and operation of general office machines such as
typewriters, dictating equipment, desk model adding machines, and similar
devices which operate on 110 volt alternating current electrical power with
demands, wattages, and ampere draws which do not exceed the reasonable
capacity of building standard office lighting and receptacles and are not in
excess of limits imposed or recommended by governmental authorities. Landlord
shall replace bulbs and/or ballasts in building standard flourescent lighting
fixtures within the Premises. Tenant shall be responsible for replacing all
other non building standard items (non standard bulbs, ballasts, ceiling
tiles, etc.). Landlord shall furnish to the lavatories within the Premises or
within the Common Areas water for normal lavatory and drinking purposes.
4. No computers, data processing equipment, photocopying machines. or
other special electrical equipment air conditioning systems, heating systems,
or space heaters which affect or exceed the electrical or HVAC systems of the
Building shall be installed nor shall any changes be made to the HVAC,
electrical, or plumbing systems in the Building without the prior written
approval of Landlord in accordance with the provisions of the Lease governing
alterations requested by Tenant, Tenant shall not without the prior written
consent of Landlord, which consent shall not be unreasonably withheld, use
any apparatus, machines, or devices in the Premises (including, without
limitation, photocopier duplicating machines, computers, printers, vending
machines, or other equipment) which uses current in excess of 110 volts AC or
which has a demand, wattage, or ampere draw which exceeds the electrical
systems installed in the Building or in any way which will increase the
amount of electricity or water usually supplied for the use of the Premises
for general office purposes,
5. Landlord may impose reasonable conditions upon any consent for use of
any apparatus, machine, or device which exceeds the limitations set forth in
this Exhibit, Tenant agrees to cooperate fully with Landlord at all times to
abide by all regulations and requirements which Landlord may prescribe for
proper functioning and protection of the Building HVAC, electrical, and
plumbing systems. Tenant shall comply with all laws, statutes, ordinances,
and governmental rules and regulations now in force or which may be enacted
or promulgated in connection with building services furnished to the
Premises, including, without limitation, any governmental rule or regulation
relating to the heating or cooling of the Building.
6. Landlord shall provide janitorial services to the Premises on each
day Sunday through Thursday (except federal holidays) provided the Premises
are used exclusively for the uses permitted
B-1
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by the Lease and are kept in reasonable order by Tenant. Tenant shall pay to
Landlord any extra cost for cleaning or removal of any rubbish or garbage to the
extent the nature or amount of such cleaning, refuse, or garbage exceeds the
amount which is generally produced by use of the Promises for general office
purposes.
B-2
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the
nonperformance of any of the Rules and Regulations by or otherwise with
respect to the acts or omissions of any other tenants or occupants of, or
visitors to, the Project.
1. Tenant shall not alter any lock or install any new or additional
locks or bolts on any doors or windows of the Premises without obtaining
Landlord's prior written consent. Tenant shall bear the cost of any lock
changes or repairs required by Tenant. Two keys will be furnished by Landlord
for the Premises, and any additional keys required by Tenant must be obtained
from Landlord at a reasonable cost to be established by Landlord. Upon
termination of the Lease, all keys to the Building and the Premises shall be
surrendered to Landlord.
2. All doors opening to public corridors shall be kept closed at all
times except for normal ingress and egress to the Premises.
3. Landlord reserves the right to close and keep locked all entrance and
exit doors of the Building during such hours as are customary for comparable
buildings in the San Diego area. Tenant, its employees, and agents must be
sure that the doors to the Building are securely closed and locked when
leaving the Premises if it is after the normal hours of business for the
Building. Any tenant, its employees, agents, or any other persons entering or
leaving the Building at any time when it is so looked, or any time when it is
considered to be after normal business hours for the Building, may be
required to sign the Building Register when so doing, Access to the Building
may be refused unless the person seeking access has proper identification, as
reasonably defined by Landlord, or has a previously arranged a pass for
access to the Building. The Landlord and Landlord's Affiliates shall in no
case be liable for damages for any error with regard to the admission to or
exclusion from the Building of any person. In case of invasion, mob riot
public excitement, or other commotion, Landlord reserves the right to prevent
access to the Building during the continuance of same by any means it deems
appropriate for the safety and protection of life and property.
4. No furniture, freight, or equipment of any kind shall be brought into
the Building without prior notice to Landlord. All moving of the same into or
out of the Building shall be scheduled with Landlord, utilizing the freight
elevator only, and only at such time and in such manner as Landlord shall
designate. Landlord shall have the right to prescribe the weight. size, and
position of all safes and other heavy property brought into the Building and
also the times and manner of moving the same in and out of the Building.
Safes and other heavy objects shall, if considered necessary by Landlord,
stand on supports of such thickness as is necessary to properly distribute
the weight. Landlord will not be responsible for loss of or damage to any
such safe or property in any case. All damage done to any part of the
Building, its contents, occupants, or visitors by moving or maintaining any
such safe or other property shall be the sole responsibility of Tenant and
any expense of said damage or injury shall be borne by Tenant.
5. No furniture, packages, supplies, equipment, or merchandise will be
received in the Building or carried up or down in the elevators, except
between such hours and in such specific elevator as shall be designated by
Landlord.
6. Landlord shall have the right to control and operate the public
portions of the Project, the public facilities, and any other facilities
furnished for the common use of Tenants, in such manner as determined
appropriate by Landlord, in its sole discretion.
7. The requirements of Tenant will be attended to only upon application
at the Office of the Building or at such office location designated by
Landlord. Employees of Landlord shall not perform any work or do anything
outside their regular duties unless under special instructions from Landlord.
8. Tenant shall not employ any service or contractor for services or
work to be performed in the Building, except as approved by Landlord.
9. No Tenant, employee, or invitee shall go upon the roof of the
Building.
10. Tenant shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate with Landlord or agent of Landlord to prevent
same.
11. The toilet rooms, urinals, wash bowls, and other apparatus shall not
be used for any purpose other than that for which they were constructed, and
no foreign substance of any kind whatsoever shall be thrown therein. The
expense of any breakage, stoppage, or damage resulting from the violation of
this rule shall be borne by the tenant who, or whose employees or agents
shall have caused it
C-1
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11.1 Tenant shall not overload the floor of the Premises, nor mark,
drive nails or screws, or drill into the partitions woodwork, or plaster or
in any way deface the Premises or any part thereof without Landlord's
reasonable consent first had and obtained.
12. No vending machine or machines of any description other than
fractional horsepower office machines shall be installed. maintained, or
operated upon the Premises without the written consent of Landlord.
13. Tenant shall not use or keep in or on the Premises of the Building
any kerosene, gasoline, or other inflammable or combustible fluid or material.
14. Tenant shall not use any method of heating or air conditioning other
than that which may be supplied by Landlord, without the prior written
consent from Landlord.
15. Tenant shall not use, keep, or permit to be used or kept, any foul
or noxious gas or substance in or on the Premises, or permit or allow the
Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of noise, odors, or
vibrations, or interfere in any way with other Tenants or those having
business therein.
16. Tenant shall not suffer or permit smoking or carrying of lighted
cigars, cigarettes, or pipes in areas designated by Landlord or by applicable
government agencies as non-smoking areas.
17. Tenant shall not bring into or keep within the Building or the
Premises any animals, birds, bicycles, or other vehicles.
18. No cooking shall be done or permitted by any Tenant on the Premises,
nor shall the Premises be used for the storage of merchandise, for lodging,
or for any improper, objectionable, or immoral purposes, Notwithstanding the
foregoing, Underwriters' Laboratory-approved proved equipment may be used in
the Premises for brewing coffee, tea, hot chocolate, and similar beverages,
provided that such use is in accordance with all applicable Federal, state,
and city laws, codes, ordinances, rules, and regulations.
19. Landlord will approve where and how telephone, telegraph, computer,
and any other cables and/or wires are to be introduced to the Premises. No
boring or cutting for cables or wires shall be allowed without the consent
of Landlord. The location of telephones, call boxes, and other office
equipment affixed to the Premises shall be subject to the approval of
Landlord.
20. Landlord reserves the right to exclude or expel from the Building
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of these Rules and Regulations.
21. Tenant, its employees, visitors, and agents shall not loiter in the
entrances, corridors or any Common Areas, nor in any way obstruct the
sidewalks, lobby, halls, stairways, restrooms, or elevators, and shall use
the same only as a means of ingress and egress for the Premises.
22. In all carpeted areas where desks and chairs are utilized, Landlord
shall require Tenant, at Tenant's own cost, to place mats under each and
every chair in order to protect said carpeting from unnecessary wear and tear.
23. Tenant shall not waste electricity, water, or air conditioning and
agrees to cooperate fully with Landlord to ensure the most effective
operation of the Building's HVAC system, and shall refrain from attempting to
adjust any controls. Tenant shall cooperate fully with any energy or resource
conservation program implemented by Landlord with regard to the Building.
24. Tenant shall store all its trash and garbage within the Interior of
the Premises. No material shall be placed in the trash boxes or receptacles
if such material is of such nature that it may not be disposed of in the
ordinary and customary manner of removing and disposing of trash and garbage
in the area without violation of any law or ordinance governing such
disposal. All trash, garbage, and refuse disposal shall be made only through
entry-ways and elevators provided for such purposes at such times as Landlord
shall designate.
25. Tenant shall comply with all safety, fire protection, and evacuation
procedures and regulations established by Landlord or any governmental agency.
26. Tenant shall assume any and all responsibility for protecting the
Premises from theft, robbery, and pilferage, which includes keeping doom
locked and other means of entry to the Premises closed.
27. Landlord may waive any one or more of these Rules and Regulations
for the benefit of any particular tenant or tenants, but no such waiver by
Landlord shall be construed as a waiver of such
C-2
<PAGE>
Rules and Regulations in favor of any other tenant or tenants, nor prevent
Landlord from thereafter enforcing any such Rules and Regulations against any
or all tenants of the Building.
28. No awnings or other projection shall be attached to the outside
walls of the Building without the prior written consent of Landlord. No
curtains, blinds, shades, or screens shall be attached to or hung in, or used
in connection with, any window or door of the Premises without the prior
written consent of Landlord. All electrical ceiling fixtures hung in offices
or spaces along the perimeter of the Building must be fluorescent and/or of a
quality, type, design, and bulb color approved by Landlord.
29. The sashes, sash doors, skylights, windows, and doors that reflect
or admit light and air into the halls, passageways, or other public places in
the Building shall not be covered or obstructed by Tenant, nor shall any
bottles, parcels, or other articles be placed on the windowsills.
30. No sign, placard, picture, name, advertisement, or notice visible
from the exterior or the Premises shall be inscribed, painted, affixed, or
otherwise displayed by Tenant on any part of the Building without the prior
written consent of Landlord. Landlord will adopt and furnish to Tenant
guidelines relating to signs inside the Building on the office floors. Tenant
agrees to conform to such guidelines, but may request approval of Landlord
for modifications, which approval may be granted or withheld in Landlord's
sole and absolute discretion. All approved signs or lettering on doors shall
be printed, painted, affixed, or inscribed at the expense of Tenant by a
person approved by Landlord. Material visible from outside the Building will
not be permitted.
31. Landlord reserves the right at any time to change or rescind any one
or more of these Rules and Regulations, or to make such other and further
reasonable Rules and Regulations as in Landlord's judgment may from time to
time be necessary for the management, safety, care, and cleanliness of the
Premises and Building, and for the preservation of good order therein, as
well as for the convenience of other occupants and tenants therein. Landlord
shall not be responsible to Tenant or to any other person for the
nonobservance of the Rules and Regulations by another tenant or other person,
Tenant shall be deemed to have read these Rules and Regulations and to have
agreed to abide by them as a condition of its occupancy of the Premises.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer
than full size passenger automobiles.
2. Tenant shall not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees, suppliers, shippers, customers,
or invitees to be loaded, unloaded, or parked in areas other than those
Landlord designated by Landlord or Landlord's parking operator for such
activities,
3. Parking stickers or identification devices shall be the property of
Landlord or Landlord's parking operator and be returned to Landlord or
Landlord's parking operator by the holder thereof upon termination of the
holder's parking privileges. Tenant will pay such replacement charge as is
reasonably established by Landlord or Landlord's parking operator for the
loss of such devices.
4. Landlord or Landlord's parking operator reserves the right to refuse
the sale of monthly identification devices to any person or entity that
willfully refuses to comply with the applicable rules, regulations, laws,
and/or agreements.
5, Landlord or Landlord's parking operator reserves the right to
relocate all or a part of parking spaces from floor to floor, within one
floor, and/or reasonably adjacent offsite location(s), and to reasonably
allocate them between compact and standard size spaces, as long as the same
complies with applicable laws, ordinances, and regulations.
6. Users of the parking area will obey all posted signs and park only in
the areas designated for vehicle parking. The speed limit within all parking
areas shall be five (5) miles per hour.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle, Landlord or Landlord's operator
will not be responsible for any damage to vehicles, injury to persons or loss
of property, all of which risks are assumed by the party using the parking
area.
8. Validation, if established. will be permissible only by such method
or methods as Landlord or Landlord's parking operator may establish at rates
generally applicable to visitor parking.
9. The maintenance, washing, waxing, or cleaning of vehicles in the
parking structure or Common Areas is prohibited.
10. Tenant shall be responsible for seeing that all of its employees,
agents, and invitees comply with the applicable parking rules, regulations,
laws, and agreements.
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11. Landlord or Landlord's parking operator reserves the right to modify
these rules and/or adopt such other reasonable and non-discriminatory rules
and regulations as it may deem necessary for the proper operation of the
parking area.
12. Such parking use as is herein provided is intended merely as a
license only and no bailment is intended or shall be created hereby,
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EXHIBIT D
LANDLORD'S WORK
Promptly after full execution and delivery of the Lease, Landlord shall
construct the items described below, at Landlord's sole cost and expense and
using Building-standard materials only as shown on the attached Exhibit D-1
(collectively, the "Landlord's Work"): (i) add a demising wall at the area
marked #1 on the attached plans; (ii) remove and fill in at the existing door
in the computer room marked #2; (iii) remove existing base cabinets from the
computer room marked #3 (upper cabinets to remain); (iv) clean the two (2)
existing sinks; (v) provide new sink/plumbing in the existing cabinet at the
area marked #4; (vi) clean carpet throughout, (vii) repair/touch up reception
desk, reception area pillars, cabinetry and built-in workstations as
necessary; (viii) re-paint all existing painted surfaces; and (ix) provide
lights and blinds in good working order. Except as specifically set forth in
this Exhibit, Landlord shall not be obligated to provide or pay for any other
improvement work or services related to the improvement of the Premises.
Tenant also acknowledges that Landlord has made no representation or warranty
regarding the condition of the Premises or the Building except as
specifically set forth in the Lease.
D-1
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[GRAPHIC]
<PAGE>
Exhibit 10.23
SUBORDINATED PROMISSORY NOTE
$ Not to Exceed $70,000,000 DECEMBER 27, 1999
San Diego, California
FOR VALUE RECEIVED, CAYENTA OPERATING COMPANY, INC., a Delaware
corporation ("BORROWER"), hereby unconditionally promises to pay to the order of
THE TITAN CORPORATION, an individual ("LENDER"), in lawful money of the United
States of America and in immediately available funds, the principal sum not to
exceed seventy million Dollars ($70,000,000) (the "LOAN") together with accrued
and unpaid interest thereon, each due and payable on the dates and in the manner
set forth below.
1. PRINCIPAL REPAYMENT. The outstanding principal amount of the Loan
shall be due and payable on December 27, 2004, provided that Borrower shall not
use any proceeds from the initial public offering of Cayenta, Inc. to pay any
principal or interest on the Loan or pay principal or interest on any
re-financing of this indebtedness with outside third parties. If Borrower sells
any of its assets other than in the ordinary course of its business or if
Borrower obtains a credit facility from a third party lender and the facility
permits the use of proceeds to repay existing indebtedness, then Borrower may
with Titan's approval prepay the Loan in an amount equal to the net proceeds
from the sale of the assets or the net proceeds from the credit facility. Net
proceeds shall be the gross proceeds of the asset sale or credit facility, as
applicable, less all of the transaction costs, including commitment fees,
brokerage or investment banking fees, professional fees and other expenses, and
less any taxes payable by Borrower with respect to such transaction. There shall
be no prepayment penalty or premium for any early payment of principal.
2. INTEREST RATE. Borrower further promises to pay interest on the
outstanding principal amount hereof from the date hereof until payment in full,
which interest shall be payable at the rate of higher of (i) the interest rate
payable by Lender on its senior credit facility during the period for which
interest is accruing or (ii) ten percent (10%) per annum, subject to the maximum
rate permitted by law (which under the laws of the State of California shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans). Interest shall be due and payable quarterly in arrears on April 15, July
15, October 15 and January 15, commencing on April 15, 2000 and shall be
calculated on the basis of a 360-day year for the actual number of days elapsed.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable at
the Lender, unless another place of payment shall be specified in writing by
Lender.
4. APPLICATION OF PAYMENTS. Payment on this Note shall be applied first
to accrued interest, and thereafter to the outstanding principal balance hereof.
5. DEFAULT. Each of the following events shall be an "EVENT OF DEFAULT"
hereunder:
(a) Borrower fails to pay timely any of the principal amount due
under this Note on the date the same becomes due and payable or any accrued
interest or other amounts due
<PAGE>
under this Note on the date the same becomes due and payable or within five (5)
business days thereafter;
(b) Borrower files any petition or action for relief under any
bankruptcy, reorganization, insolvency or moratorium law or any other law for
the relief of, or relating to, debtors, now or hereafter in effect, or makes any
assignment for the benefit of creditors or takes any corporate action in
furtherance of any of the foregoing; or
(c) An involuntary petition is filed against Borrower (unless such
petition is dismissed or discharged within sixty (60) days) under any bankruptcy
statute now or hereafter in effect, or a custodian, receiver, trustee, assignee
for the benefit of creditors (or other similar official) is appointed to take
possession, custody or control of any property of Borrower.
Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder shall, at the option of
Lender, and, in the case of an Event of Default pursuant to (B) or (C) above,
automatically, be immediately due, payable and collectible by Lender pursuant to
applicable law.
6. SUBORDINATION. The indebtedness evidenced by this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of the Senior Indebtedness.
"SENIOR INDEBTEDNESS" shall mean, unless expressly subordinated to or
made on a parity with the amounts due under this Note, the principal of, unpaid
interest on and amounts reimbursable, fees, expenses, costs of enforcement and
other amounts due in connection with (a) indebtedness of Borrower to banks or
commercial finance or other lending institutions regularly engaged in the
business of lending money excluding venture capital, investment banking or
similar institutions and their affiliates which sometimes engage in lending
activities but which are primarily engaged in investments in equity securities),
whether or not secured, and (b) any such indebtedness or any debentures, notes
or other evidence of indebtedness issued in exchange for such Senior
Indebtedness, or any indebtedness arising from the satisfaction of such Senior
Indebtedness by a guarantor.
6.1 INSOLVENCY PROCEEDINGS. If there shall occur any receivership,
insolvency, assignment for the benefit of creditors, bankruptcy, reorganization,
or arrangements with creditors (whether or not pursuant to bankruptcy or other
insolvency laws), sale of all or substantially all of the assets, dissolution,
liquidation, or any other marshaling of the assets and liabilities of Borrower,
(a) no amount shall be paid by Borrower in respect of the principal of, interest
on or other amounts due with respect to this Note at the time outstanding,
unless and until the principal of and interest on the Senior Indebtedness then
outstanding shall be paid in full, and (b) no claim or proof of claim shall be
filed by or on behalf of Lender which shall assert any right to receive any
payments in respect of the principal of and interest on this Note except subject
to the payment in full of the principal of and interest on all of the Senior
Indebtedness then outstanding.
6.2 DEFAULT ON SENIOR INDEBTEDNESS. If there shall occur an event of
default which has been declared in writing with respect to any Senior
Indebtedness, as defined therein,
<PAGE>
or in the instrument under which it is outstanding, permitting the holder to
accelerate the maturity thereof and Lender shall have received written notice
thereof from the holder of such Senior Indebtedness, then, unless and until such
event of default shall have been cured or waived or shall have ceased to exist,
or all Senior Indebtedness shall have been paid in full, no payment shall be
made in respect of the principal of or interest on this Note unless within one
hundred eighty (180) days after the happening of such event of default the
maturity of such Senior Indebtedness shall not have been accelerated. Not more
than one notice may be given to Lender pursuant to the terms of this SECTION 7.2
during any 365 day period.
6.3 FURTHER ASSURANCES. By acceptance of this Note Lender agrees to
execute and deliver customary forms of subordination agreement requested from
time to time by the holders of Senior Indebtedness and, as a condition to
Lender's rights hereunder, Borrower may require that Lender execute such forms
of subordination agreement, provided that such forms shall not impose on Lender
terms less favorable than those provided herein.
6.4 OTHER INDEBTEDNESS. No indebtedness which does not constitute
Senior Indebtedness shall be senior in any respect to the indebtedness
represented by this Note.
6.5 SUBROGATION. Subject to the payment in full of all Senior
Indebtedness, Lender shall be subrogated to the rights of the holder(s) of such
Senior Indebtedness (to the extent of the payments or distributions made to the
holder(s) of such Senior Indebtedness pursuant to the provisions of this SECTION
7) to receive payments and distributions of assets of Borrower applicable to the
Senior Indebtedness. No such payments or distributions applicable to the Senior
Indebtedness shall, as between Borrower and its creditors, other than the
holders of Senior Indebtedness and Lender, be deemed to be a payment by Borrower
to or on account of this Note; and for purposes of such subrogation, no payments
or distributions to the holders of Senior Indebtedness to which Lender would be
entitled except for the provisions of this SECTION 7 shall, as between Borrower
and its creditors, other than the holders of Senior Indebtedness and Lender, be
deemed to be a payment by Borrower to or on account of the Senior Indebtedness.
6.6 NO IMPAIRMENT. Subject to the rights, if any, of the holders of
Senior Indebtedness under this SECTION 7 to receive cash, securities or other
properties otherwise payable or deliverable to Lender, nothing contained in this
SECTION 7 shall impair, as between Borrower and Lender, the obligation of
Borrower, subject to the terms and conditions hereof, to pay to Lender the
principal hereof and interest hereon as and when the same become due and
payable, or shall prevent Lender, upon default hereunder, from exercising all
rights, powers and remedies otherwise provided herein or by applicable law.
6.7 LIEN SUBORDINATION. Any lien or security interest of Lender,
whether now or hereafter existing in connection with the amounts due under this
Note, on any assets or property of Borrower or any proceeds or revenues
therefrom which Lender may have at any time as security for any amounts due and
obligations under this Note, shall be subordinate to all liens or security
interests now or hereafter granted to a holder of Senior Indebtedness by
Borrower or by law notwithstanding the date, order or method of attachment or
perfection of any such lien or security interest or the provisions of any
applicable law.
<PAGE>
6.8 APPLICABILITY OF PRIORITIES. The priority of the holder of the
Senior Indebtedness provided for herein with respect to security interests and
liens are applicable only to the extent that such security interests and liens
are enforceable and perfected and have not been avoided; if a security interest
or lien is judicially determined to be unenforceable or unperfected or is
judicially avoided with respect to any claim of the holder of the Senior
Indebtedness or any part thereof, the priority provided for herein shall not be
available to such security interest or lien to the extent that it is avoided or
determined to be unenforceable or unperfected. The foregoing notwithstanding,
Lender covenants and agrees that it shall not challenge, attack or seek to avoid
any security interest or lien to the extent that it secures any holder of the
Senior Indebtedness. Nothing in this SECTION 7.8 affects the operation of any
subordination of indebtedness or turnover of payment provisions hereof, or of
any other agreements among any of the parties hereto.
6.9 RELIANCE OF HOLDERS OF SENIOR INDEBTEDNESS. Lender, by its
acceptance hereof, shall be deemed to acknowledge and agree that the foregoing
subordination provisions are, and are intended to be, an inducement to and a
consideration of each holder of Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the creation of the
indebtedness evidenced by this Note, and each such holder of Senior Indebtedness
shall be deemed conclusively to have relied on such subordination provisions in
acquiring and holding, or in continuing to hold, such Senior Indebtedness.
7. WAIVER. Borrower waives presentment and demand for payment, notice
of dishonor, protest and notice of protest of this Note, and shall pay all costs
of collection when incurred, including, without limitation, reasonable
attorneys' fees, costs and other expenses.
The right to plead any and all statutes of limitations as a defense to
any demands hereunder is hereby waived to the full extent permitted by law.
8. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
9. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to
the benefit of and be binding on any successor to Borrower and shall extend to
any holder hereof.
BORROWER CAYENTA OPERATING COMPANY, INC.
By:_______________________________
Printed Name:_____________________
Title:____________________________
<PAGE>
EXHIBIT 11.1
CAYENTA, INC
COMPUTATION OF NET INCOME PER COMMON SHARE - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended Nine months ended
December 31, September 30,
------------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BASIC:
Net income $ 371 $ 1,099 $ 1,311 $ 653 $ 2,589
Weighted average number of common shares outstanding 10,000 10,000 10,000 10,000 10,000
------- ------- ------- ------- -------
Net income (loss) per common share - basic - $ 0.04 $ 0.11 $ 0.13 $ 0.07 $ 0.26
======= ======= ======= ======= =======
ASSUMING DILUTION:
Net income (loss) $ 371 $ 1.099 $ 1.311 $ 653 $ 2,589
Weighted average number of common shares outstanding 10,000 10,000 10,000 10,000 10,000
The number of shares resulting from the assumed
conversion of convertible preferred stock -- -- -- -- 2,345
The number of shares resulting from the assumed
exercise of stock options reduced by the number
of shares which could have been purchased with
the proceeds from such exercise, using the average
market price during the period -- 30 148 117 293
------- ------- ------- ------ ------
Weighted average number of common and
common equivalent shares 10,000 10,030 10,148 10,117 12,638
Net income per common share, assuming dilution $ 0.04 $ 0.11 $ 0.13 $ 0.06 $ 0.21
======= ======= ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARY LIST
Cayenta Operating Company, a Delaware corporation.
J. B. Systems, Inc., dba Mainsaver, a California corporation.
Assist Cornerstone Technologies, Inc., a Utah corporation.
SFG Technologies, Inc., a corporation formed under the laws of Canada.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
on the consolidated financial statements of Cayenta, Inc. as of December 31,
1997 and 1998 and for each of the three years in the period ended
December 31, 1998 dated December 28, 1999, and to all references to our Firm
included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
San Diego, California
December 28, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on the financial statements of Transnational Partners II, LLC, as of
December 31, 1997 and 1998 and for the period from February 9, 1997
(commencement of operations) to December 31, 1997, and for the year ended
December 31, 1998 dated December 28, 1999 and to all references to our Firm
included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
San Diego, California
December 28, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
on the financial statements of J.B Systems, Inc. (d.b.a.: mainsaver), as of
December 31, 1997 and 1998 and for each of the three years in the period
ended December 31, 1998 dated December 28, 1999, and to all references to
our Firm included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
San Diego, California
December 28, 1999
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the use of our report dated June 22, 1999, except as to note 13
which is as of November 26, 1999, relating to the consolidated balance sheets
of SFG Technologies Inc. as at December 31, 1998 and April 30, 1998 and the
consolidated statements of operations, deficit, and cash flows for the eight
month period ended December 31, 1998 and for each of the years in the three
year period ended April 30, 1998, in the registration statement on Form S-1
of Cayenta, Inc.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
December 28, 1999
<PAGE>
Exhibit 23.5
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 28, 1999 (except Note 9, as to which the date
is September 22, 1999), with respect to the financial statements of Assist
Cornerstone Technologies, Inc. included in the Registration Statement (Form
S-1 No. 33-00000) and related Prospectus of Cayenta, Inc. dated December 29,
1999.
/s/ Ernst & Young LLP
Salt Lake City, Utah
December 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CAYENTA,
INC. CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1996 JAN-01-1997 JAN-01-1998 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 SEP-30-1998 SEP-30-1999
<CASH> 0 0 0 0 0
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 0 3,651 10,984 0 18,253
<ALLOWANCES> 0 0 0 0 0
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 0 3,722 11,038 0 18,290
<PP&E> 0 624 649 0 882
<DEPRECIATION> 0 0 0 0 0
<TOTAL-ASSETS> 0 4,641 11,923 0 36,747
<CURRENT-LIABILITIES> 0 636 3,002 0 13,173
<BONDS> 0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
<COMMON> 0 10 10 0 10
<OTHER-SE> 0 0 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 3,980 8,906 0 14,118
<SALES> 0 0 0 0 0
<TOTAL-REVENUES> 8,633 10,191 12,095 7,073 25,148
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 6,068 6,514 7,413 4,298 16,917
<OTHER-EXPENSES> 1,831 1,705 2,259 1,629 3,225
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 116 139 204 123 691
<INCOME-PRETAX> 618 1,833 2,219 1,023 4,315
<INCOME-TAX> 247 734 908 370 1,726
<INCOME-CONTINUING> 0 0 0 0 0
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 371 1,099 1,311 653 2,589
<EPS-BASIC> 0.04 0.11 0.13 0.07 0.26
<EPS-DILUTED> 0.04 0.11 0.13 0.06 0.21
</TABLE>
