SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
-OR-
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to
____________________
Commission file number 1-6035
THE TITAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2588754
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3033 Science Park Road
San Diego, CA 92121-1199
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (619) 552-9500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
$1.00 Cumulative Convertible Preferred Stock, $1.00 par value
New York Stock Exchange
Common Stock, $.01 par value
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
Aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 17, 1997: $ 58,476,049.
Number of shares of Common Stock outstanding at March 17, 1997:
16,035,157
Document Incorporated By Reference
Proxy Statement for the 1997 Annual Meeting of Stockholders on May
15, 1997. (The Company has or will have filed a definitive proxy statement
with the Commission within 120 days after the close of the fiscal year
pursuant to Regulation 14A.) With the exception of those portions which are
incorporated by reference in this Form 10-K Annual Report, the Proxy
Statement for the 1997 Annual Meeting of Stockholders is not deemed to be
filed as part of this Report, Part III.
<PAGE>
PART I
Item 1. Business
General Development and Description of Business
The Titan Corporation ("Titan" or the "Company") is an innovative high
technology company which groups its businesses in four industry segments:
Communications Systems, Software Systems, Defense Systems, and Emerging
Technologies. The Communications Systems segment contains two start-up
business units, both targeting rapidly growing commercial markets. The
first business unit is satellite communications, which develops and sells
satellite earth station networks and related systems. The second business
unit, broadband communications, specializes in providing complete turnkey
security for television delivery systems. The Software Systems segment
provides custom software products and services to assist customers in
moving from older mainframe systems to distributed computing systems
utilizing client/server software. The Defense Systems segment, serving
primarily the U.S. Government, includes satellite communications products,
systems analysis and design, object-oriented software development services,
and systems integration services for customers with large data management
needs. The Emerging Technologies segment contains environmental consulting
and medical product sterilization, together with established businesses
generally involved in Department of Defense (DoD) funded research and
development contracts and the manufacture of pulsed power electron systems
and linear accelerators for both government and industrial customers.
For the past several years, the Company has pursued a strategy to use the
technology and experience gained in its defense business to build
commercial business. At the same time, the Company has continued to focus
on growing its defense business in key market areas. As part of this
strategy to strengthen its core defense operations, the Company acquired
three information technology companies, Eldyne, Inc., Unidyne Corporation,
and Diversified Control Systems, Inc. in May 1996.
COMMUNICATIONS SYSTEMS SEGMENT
The Communications Systems segment contains two start-up business units,
both targeting rapidly growing commercial markets. The first business is
satellite communications, which develops and sells bandwidth-efficient,
cost-effective satellite earth station networks and related systems which
address the demand for telephony services. Some of these products include
high-efficiency network management systems and voice processing and
redundant control circuitry for reliable transmissions. A key feature of
the Company's products is its defense-derived DAMALink(TM) network management
software system, which allows for multiple simultaneous users to access
efficiently the same satellite channel, resulting in cost savings and
improved operational flexibility for the customer. To address the need for
telecommunications infrastructure in developing countries, the Company has
designed and developed its Xpress Connection system as a cost-effective
means to link remote locations into the public switched network in
developing countries. These systems are being marketed in Asia and Latin
America.
In the third quarter of 1995, the Company received a $9.6 million fixed
price contract to develop a rural telephony system in Indonesia. In
September 1996, the contract was amended to add a Singapore company as a
second party. The revised contract provides the two parties the option to
purchase additional terminals and other equipment. In addition, the two
parties have the exclusive right to market and sell the Xpress Connection
for use in Indonesia and jointly with the Company in the remainder of the
Asian Palapa C1 and C2 satellites' coverage area. Delivery of certain
components of the telephony system commenced in 1996. In addition, in the
third quarter of 1996, the Company received a $4 million contract to
provide a communications network for a bank in Thailand.
The second business unit, broadband communications, specializes in
providing complete turnkey security for television delivery systems, with
applications for delivery of television programming via wireless,
satellite, coaxial cable, and fiber optics. In January 1995, the Company
signed its first equipment purchase agreement to provide analog equipment
and software to control access to a wireless television service in New York
City. During 1996, the Company received a $12.75 million purchase order
from this customer for delivery of additional conditional access system
equipment and set-top box decoders. In addition, the Company was awarded a
$2.7 million contract with this customer for a system in Thailand.
During 1996, the Company continued to make significant investments adapting
its analog system for use in digital video transmission systems in order to
address the digital and wireless direct-to-home satellite and private
business television markets. The Company is actively marketing its systems
in domestic and international markets. The Company has been pursuing a
process to identify potential strategic investors for the broadband
communications business. To date, an appropriate strategic investor has not
been identified. Furthermore, the Company is assessing other strategic
alternatives related to the broadband communications business. The Company
has taken certain actions early in 1997 to significantly reduce the
broadband unit's operating costs.
SOFTWARE SYSTEMS SEGMENT
The Software Systems segment provides custom software products and services
to clients desiring to upgrade their information systems. These services
assist customers in moving from older mainframe systems to distributed
computing systems utilizing client/server object-oriented software. The
Company provides the services and resources necessary to design, develop
and implement these projects, including systems consulting, project
management, work-flow analysis, industry and application knowledge,
implementation, training and program maintenance.
To date, the Company's software systems work has focused on the
telecommunications industry, the FAA, and financial institutions. The
Company's work has included development and support for access carrier
client/server applications, system-to-system communications for the
real-time exchange of maintenance information between an access customer
and long-distance providers, real time customer support applications, new
client/server data management architectures and improved trouble shooting
and reporting for telecommunications systems.
The Software Systems segment has been, and for at least the near future is
anticipated to be, substantially dependent on business from a major
telecommunications customer. Revenues in 1996 from this customer were
approximately $8.3 million. The Company continues to do a significant
amount of work for this customer, and has been actively seeking to build on
its work for this customer to obtain additional clients in the
telecommunications and other industries. The Company is also developing and
implementing enterprise-wide information networks for a federal agency and
is providing information services activities, which include process
re-engineering and development for network management, for a major
financial institution.
DEFENSE SYSTEMS SEGMENT
The Defense Systems segment includes two business units, information and
communications systems. These units provide their information and
communications systems solutions primarily to the U.S. Department of
Defense (DoD) and intelligence agencies, focusing on key areas of secure
satellite communications and information process re-engineering using
distributed computing and client/server software.
The Company provides information systems solutions to government customers
with large data management and control requirements. The Company's services
include systems analysis and design, object-oriented software development
services and systems integration. The Company focuses on marketing its
services to intelligence agencies, NATO and other government agencies where
the Company has extensive knowledge of the enterprise's operations and
information systems needs. This knowledge assists the Company in providing
a comprehensive solution to a customer's problem which is compatible with
the customer's overall information systems architecture and strategy, as
opposed to developing merely a technical solution to a specific problem.
The Company's initial work generally involves a thorough analysis of the
customer's enterprise structure and processes and information system needs.
Once this strategic analysis is completed, the Company designs the
technology solution to meet the customer's needs. This process typically
involves software development by the Company, coupled with integration of
commercial "off-the-shelf" software and hardware as available. On many
procurements, the Company will team with other industry participants in
order to offer a multi-company solution to the customer.
In May 1996, the Company acquired Eldyne, Unidyne and DCS, which provide
the Department of Defense and other government customers with systems
research, development and prototyping, and integration and life cycle
support of electronic, information and control systems. In particular,
Eldyne provides engineering, assembly and installation services for
communications, sonar and navigation systems. These services include
designing digital communications hardware and software, planning and
managing U.S. Navy programs, designing high-speed data acquisition and
process control software, researching electromagnetic interference and
control, performing communciations hardware integration, testing and
evaluating prototype shipboard electronic systems, and performing complex
computer simulations of magnetic and electrical fields. Unidyne provides
its customers with a variety of technical support services, including
electronics and mechanical design, computer-aided drafting and
computer-aided manufacturing services, technical documentation,
prototyping, electronics and mechanical fabrication and various industrial
activities such as equipment installation, overhaul/refurbishment and
providing skilled trades personnel. Subsequent to year-end, the Company
received a $50 million task order contract to provide communications
systems integration support for the U.S. government. In addition, Titan
received new awards from the U.S. Navy, with an initial value of $5 million
in 1997 and a total potential value of $25.3 million over the next five
years for electronic systems, support and equipment for submarine undersea
warfare.
The defense communications business develops and produces advanced
satellite terminals and associated voice/data processing modems using DAMA
(Demand Assigned Multiple Access) technologies. These products are
specifically tailored to meet defense requirements, provide highly secure
communications and are produced in relatively small quantities. Until
recently, the government generally obtained new products that were designed
and developed under fixed price development contracts which require the
products to meet very rigorous military specifications. The government has
now shifted to a nondevelopment procurement approach under which companies
are encouraged to perform their own research and development programs to
have products readily available for purchase and to incorporate commercial
"off-the-shelf" components where feasible in order to reduce costs. To
address this trend, the Company has combined expertise gained under
government-sponsored development projects and its own internal development
efforts to enable it to provide advanced technology solutions based on
commercial components. The Company was contracted by the U.S. Air Force in
1987 to develop a satellite communications technique called DAMA, and has
subsequently been awarded more than $100 million in government funded
development projects related to this technology. The Company has enhanced
this position by investing significant resources in internal development
projects to create a variety of DAMA-based products which utilize
commercial components. These efforts have resulted in the Mini-DAMA
terminal used by the U.S. Navy, as well as other satellite communications
products based on DAMA technology. In early 1997, the Company was awarded a
$4.5 million contract to provide Mini-DAMA terminals for installation on
patrol aircraft for the Royal Australian Air Force.
Marketing for the Defense Systems segment involves identifying the
requirements of the U.S. Government and other potential customers for the
types of products and services provided by the Company. The information is
then evaluated to determine if the Company can prepare a responsive
proposal to the customer. This business is highly dependent upon continued
funding of certain U.S. Government contracts.
EMERGING TECHNOLOGIES SEGMENT
The Emerging Technologies segment contains a group of mature businesses
generally involved in Department of Defense funded research and development
contracts, the design and manufacture of pulsed power systems, and various
early stage commercial businesses, involved in medical product
sterilization services and systems and environmental consulting services.
The Company's strategy is to cultivate the research and development
activities as a source of additional DoD and commercial products, systems
or services.
The Emerging Technologies segment performs various government-sponsored
research and development projects, primarily comprised of cost-reimbursable
contracts. These research and development activities involve a number of
technologies including those necessary to develop and manufacture
high-powered microwave tubes. The Company also designs and manufactures
custom particle accelerators and pulsed power systems. These systems
include linear electron accelerators for applications including medical
products sterilization and food pasteurization.
The Company's medical product sterilization business is based upon advanced
linear accelerator technology developed from the Company's research and
development activities. This business provides sterilization services and
systems to the medical device marketplace in two ways; (i) its
owner-operated facilities; and (ii) sales and installations of turnkey
sterilization systems. The Company owns and operates two medical
sterilization facilities -- one in Denver, Colorado and one in San Diego,
California. These facilities provide electron beam sterilization services
using Titan's SureBeam(R) process to producers of disposable medical products.
The facility in Denver, now operating at near full capacity, has been
operational since July 1993, and the facility in San Diego became
operational in January 1996. In 1996, the Company secured a five-year
contract with a customer in San Diego as its anchor customer. In December
1996, the Company sold its second turnkey electron beam sterilization
system.
The environmental consulting and services business provides a range of
professional environmental consulting and engineering services to
commercial customers. These services include remediation strategy
development, site assessment, risk assessment, remediation technology
selection, contract management and oversight of regulatory agency
approvals.
Government Contracts
Sales to the United States Government, including both defense and
non-defense agencies, and sales as a subcontractor as well as direct sales,
aggregated $102,925,000 in 1996, $81,632,000 in 1995 and $93,107,000 in
1994. These amounts represent 75%, 61% and 68% of total revenues in 1996,
1995, and 1994, respectively.
Titan's Government customers include the Navy, the Army, the Air Force, and
other Government agencies, including the Federal Aviation Administration,
the Federal Emergency Management Agency, the Department of Commerce, the
National Aeronautics and Space Administration, the Defense Nuclear Agency
and others. The Company's business is dependent to a large extent upon
continued funding from these and other government agencies.
The Company's contracts with the Government and subcontracts to prime
contractors are subject to termination for the convenience of the
Government; termination, reduction, or modification in the event of change
in the Government's requirements or budgetary constraints; and, when the
Company participates as a subcontractor, the failure or inability of the
prime contractor to perform its prime contract. In addition, the Company's
contract costs and fees, including allocated indirect costs, are subject to
audits and adjustments by negotiation between the Company and the
Government.
In addition to the right to terminate, Government contracts are conditioned
upon the continuing availability of Congressional appropriations. Congress
usually appropriates funds on a fiscal year basis even though contract
performance may take several years. Consequently, at the outset of a major
program, the contract is usually incrementally funded and additional funds
are normally committed to the contract by the procuring agency as
appropriations are made by Congress for future fiscal years.
The Company's business with the Government and prime contractors is
generally performed under cost reimbursement, fixed price or time and
materials contracts. Cost reimbursement contracts for the Government
provide for reimbursement of costs plus the payment of a fee. Under fixed
price contracts, the Company agrees to perform certain work for a fixed
price. Under time and materials contracts, the Company is reimbursed for
labor hours at negotiated hourly billing rates and is reimbursed for travel
and other direct expenses at actual costs plus applied general and
administrative expense.
The following table gives the percentage of revenues realized by the
Company from the three primary types of Government contracts during the
years indicated.
<TABLE>
<CAPTION>
Contract Type 1996 1995 1994
<S> <C> <C> <C>
Cost Reimbursement.............. 52.9% 54.7% 59.9%
Fixed Price..................... 40.9 40.2 36.8
Time and Materials.............. 6.2 5.1 3.3
100.0% 100.0% 100.0%
</TABLE>
Industry Segments, Significant Customers and Export Revenues
Reference is made to Note 5 to the accompanying consolidated financial
statements.
Raw Materials
The Company operates both fabrication and assembly facilities and also
purchases certain components and assemblies from other suppliers. No one
supplier accounts for a significant portion of total purchases.
Patents, Trademarks and Trade Secrets
The policy of the Company is to apply for patents and other appropriate
statutory protection when it develops new or improved technology. The
Company presently holds over 40 U.S. patents, as well as a number of
trademarks and copyrights. However, it does not rely solely on such
statutory protection to protect its technology and intellectual property.
In addition to seeking patent protection for its inventions, the Company
relies on the laws of unfair competition and trade secrets to protect its
unpatented proprietary rights. The Company attempts to protect its trade
secrets and other unpatented proprietary information through agreements
with customers, vendors, employees and consultants. In addition, various
names used by the Company for its products and services have been
registered with the U.S. Patent and Trademark Office.
Backlog
Contracts undertaken by the Company may extend beyond one year, and
accordingly, portions are carried forward from one year to the next as part
of backlog. Because many factors affect the scheduling of projects, no
assurance can be given as to when revenue will be realized on projects
included in the Company's backlog. Although backlog represents only
business which is considered to be firm, there can be no assurance that
cancellations or scope adjustments will not occur. The majority of backlog
represents contracts under the terms of which cancellation by the customer
would entitle the Company to all or a portion of its costs incurred and
potential fees.
The Company's commercial backlog represents contracts primarily for
services. By segment, the commercial backlog is approximately $26.3
million, $12.5 million, $5.2 million and $3.1 million for Communications
Systems, Emerging Technologies, Software Systems and Defense Systems,
respectively.
Many of the Company's contracts with the U.S. Government are funded by the
procuring agency from year to year, primarily based on its fiscal
requirements. This results in two different categories of U.S. Government
backlog: funded and unfunded backlog. "Funded backlog" consists of the
aggregate contract revenues remaining to be earned by the Company at a
given time, but only to the extent such amounts have been appropriated by
Congress and allocated to the contract by the procuring Government agency.
"Unfunded backlog" consists of (i) the aggregate contract revenues which
are expected to be earned as the Company's customers incrementally allot
funding to existing contracts, whether the Company is acting as a prime
contractor or subcontractor, and (ii) the aggregate contract revenues which
remain to be funded on contracts which have been newly awarded to the
Company. "Backlog" is the total of the commercial and government funded and
unfunded backlog.
The Company's backlog consists of the following approximate amounts as of
December 31:
<TABLE>
<CAPTION>
Backlog 1996 1995
<S> <C> <C>
Commercial backlog................... $ 47,113,000 $ 25,949,000
U.S. Government funded backlog....... 49,256,000 32,903,000
U.S. Government unfunded backlog..... 98,881,000 19,883,000
$195,250,000 $ 78,735,000
</TABLE>
Backlog at December 31, 1996 includes $97.7 million from Eldyne, Unidyne
and DCS, which were acquired by the Company in May 1996 and excludes
backlog of the Company's Electronics division which was sold in July 1996.
In addition to the backlog described above, at December 31, 1996, the
Company had remaining priced options of over $60 million from the U.S. Navy
for full-scale production of its Mini-DAMA satellite communications
terminal. The Company expects that a substantial number of these options
will be exercised in the future, although there is no assurance that any
options will be exercised.
Management believes that year-to-year comparisons of backlog are difficult
and not necessarily indicative of future revenues. The Company's backlog is
typically subject to large variations from quarter to quarter as existing
contracts are renewed or new contracts are awarded. Additionally, all U.S.
Government contracts included in backlog, whether or not funded, may be
terminated at the convenience of the U.S. Government.
The Company expects to realize approximately 75% of its 1996 backlog by the
end of 1997.
Research and Development
The Company maintains a staff of engineers, other scientific professionals
and support personnel engaged in development of new applications of
technology and improvement of existing products. These programs' costs are
expensed as incurred. Total expenditures for research and development were
$9,295,000, $16,667,000, and $12,699,000 in 1996, 1995, and 1994,
respectively. These expenditures included company funded research and
development of $4,789,000, $5,904,000, and $5,339,000, and customer
sponsored research and development of $4,506,000, $10,763,000, and
$7,360,000, in 1996, 1995, and 1994, respectively. The majority of the
Company's customer sponsored research and development activity is funded
under contract to the U.S. Government.
Competitive Conditions
Communications Systems. The Company is one of many companies providing
satellite earth station networks and related subsystems in commercial
markets. The products compete based primarily on quality, reliability,
service and price. Competition is intense, and many competitors have
greater financial and personnel resources than does the Company.
The Company is one of a few companies in the secure distribution of
television business. These products compete based primarily on quality,
reliability, service and price. The Company's major competitors include
General Instrument Corporation and Scientific Atlanta, Inc., both of whom
have significantly greater resources than the Company.
Software Systems. The Company is one of many developers producing custom
software for high technology clients. The custom software industry is
rapidly changing and is subject to technological obsolescence. Many of the
Company's customers in this business have their own in-house capabilities
to perform certain types of services that might otherwise be performed by
the Company. The primary factors of competition in the business in which
the Company is engaged include technical skills, knowledge of specific
industry operations for which the software is being developed, management
and marketing expertise and price.
Defense Systems. The Company designs, manufactures and sells earth stations
and related subsystems for use in military satellite communications
systems. Although the Company has significant market share in certain
segments of the military satellite communications systems market, some
competitors have greater financial and personnel resources than the
Company.
The Company is one of many involved in providing sophisticated systems
engineering for a variety of programs for agencies of the United States
Government and prime contractors for these agencies. Most activities in
which the Company engages are very competitive and require highly skilled
and experienced technical personnel. Numerous companies compete in the
service areas in which the Company is engaged, many of which have
significantly greater financial and personnel resources than does the
Company. As is customary in the business, the Company expends time and
effort in preparing competitive proposals, only a portion of which may
result in the award of contracts.
Emerging Technologies. The Company is one of a few companies involved in
the sterilization of disposable medical products prior to their use. This
service competes primarily on quality, reliability, service, safety,
environmental acceptability and price. The Company's major competitors are
Isomedix, Inc. and Sterigenics International, Inc.
The Company competes against a wide variety of companies to perform funded
research and development contracts for the Government. Many of these
companies have substantially greater financial and technical resources than
the Company.
The Government's own in-house capabilities and federally-funded
(non-profit) research and development centers are also, in effect,
competitors of the Company in that they perform certain types of services
that might otherwise be performed by the Company. The primary factors of
competition in the business in which the Company is engaged include
technical skills, management and marketing expertise and price.
Employees
At the end of fiscal 1996, the Company employed approximately 1,449
employees, predominantly located in the United States.
Item 2. Properties
The Company's operations occupy approximately 680,650 square feet of space
located throughout the United States. The large majority of the space is
office space. Substantially all of the Company's facilities are leased. For
lease commitment information, reference is made to Note 8 to the
accompanying financial statements.
It is management's policy to maintain the Company's facilities and
equipment in good condition and at a high level of efficiency. Existing
facilities are considered to be generally suitable and adequate for the
Company's present needs. Substantially all of the machinery and equipment
employed by Titan in its business is owned by the Company.
The locations of the principal operating facilities of the Company and its
consolidated subsidiaries at the end of 1996 were as follows:
Communications Systems Software Systems
San Diego, California San Diego, California
Reston, Virginia
Washington, D.C.
Colorado Springs, Colorado
Defense Systems Tampa, Florida
San Diego, California Dallas, Texas
Reston, Virginia
Norfolk, Virginia
Richmond, Virginia
Hanover, Maryland
Vallejo, California Emerging Technologies
Heathrow, Florida San Diego, California
Denver, Colorado San Leandro, California
Boston, Massachusetts Dublin, California
Dayton, Ohio Chatsworth, California
Huntsville, Alabama Albuquerque, New Mexico
Niantic, Connecticut Denver, Colorado
Bozeman, Montana
Princeton, New Jersey
Tempe, Arizona
Item 3. Legal Proceedings
In the ordinary course of business, defense contractors are subject to many
levels of audit and investigation by various government agencies. Further,
the Company and its subsidiaries are subject to claims and from
time-to-time are named as defendants in legal proceedings. In the opinion
of management, the amount of ultimate liability with respect to these
actions will not materially affect the financial position or results of
operations of the Company.
The Company is involved in appeals of the judgments resulting from the
trials of two separate lawsuits filed by former employees claiming, among
other things, wrongful termination and discrimination. The Company intends
to vigourously pursue and defend against the appeals of these cases. While
it is not feasible to predict the outcome of these cases, management
believes that their ultimate disposition will not have a material adverse
effect on the financial position or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock and cumulative convertible preferred stock are
traded on the New York Stock Exchange ("NYSE"). As of March 3, 1997, there
were approximately 3,400 holders of record of the Company's common stock
and 740 holders of record of the Company's preferred stock, excluding
beneficial owners of shares held in the names of brokers or other nominees.
The closing prices for the common and preferred stock on the New York Stock
Exchange as of March 3, 1997, were $3.50 and $10.75, respectively. The
quarterly market price ranges for the Company's common and preferred stock
on the New York Stock Exchange in 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Common Stock 1996 1995
Fiscal Quarter High Low High Low
<S> <C> <C> <C> <C>
First $7.38 $6.00 $7.13 $5.63
Second 7.13 5.50 9.38 6.25
Third 5.63 3.63 10.38 8.50
Fourth 4.38 2.50 9.63 6.63
</TABLE>
<TABLE>
<CAPTION>
Cumulative Convertible
Preferred Stock 1996 1995
Fiscal Quarter High Low High Low
<S> <C> <C> <C> <C>
First $12.63 $12.00 $11.88 $10.88
Second 12.13 11.38 12.25 11.63
Third 11.50 10.88 13.25 11.75
Fourth 10.88 10.00 12.88 11.88
</TABLE>
No dividends were paid on the Company's common stock in 1996 or 1995.
Regular quarterly dividends of $.25 per share were paid on the cumulative
convertible preferred stock in both years.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
(in thousands of dollars,
except per share data) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Operating Results:
Revenues $137,722 $133,967 $136,206 $149,414 $148,762
Net income (loss) (3,378) (3,807) 5,953 (7,906) 3,631
Net income (loss) per common
share (.27) (.33) .40 (.73) .26
Financial Position:
Cash and cash equivalents 2,052 5,833 5,129 5,374 4,344
Total assets 127,848 95,170 81,903 93,214 90,679
Long-term debt 40,071 4,281 765 -- 9,500
Redeemable preferred stock 3,000 -- -- -- --
Stockholders' equity 46,645 38,639 38,768 29,321 36,016
Preferred dividends 803 695 695 695 695
</TABLE>
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition (The following should be read in conjunction
with the consolidated financial statements and related notes. Dollar
amounts are expressed in thousands.)
COMPANY OVERVIEW
Throughout 1996, Titan continued to pursue its strategy of strengthening
its core defense businesses and investing in its early stage commercial
businesses. Investment dollars were provided from the issuance of $34.5
million of convertible subordinated debentures, proceeds of which were used
to repay borrowings under its bank credit facilities and to fund working
capital requirements.
Significant accomplishments achieved by Titan's emerging commercial
businesses this year included the award of a $12.75 million purchase
agreement for delivery of additional conditional access system equipment
and set-top box decoders to a U.S. company and a $2.7 million award for a
similar system in Thailand, the initial shipments on the Company's rural
telephony development contract in Indonesia, the award of a $4 million
contract to provide a communications network in Bangkok, and the opening of
the San Diego medical sterilization facility. These accomplishments marked
significant progress for Titan. However, the need to complete product
development and realize positive profit contributions from the
commercialization process has heightened the challenge of internally
funding these start-up activities. Titan's strategic plan focuses on the
pursuit of various financing alternatives including, but not limited to,
public and private offerings of minority interests in certain of its
subsidiaries and the sale of non-core businesses, in order to provide
additional funding for the development and commercialization of new
products and services.
The Company is currently involved in a number of early stage businesses,
most notably commercial satellite communications, broadband communications,
and medical device sterilization. Certain investments made in these early
stage businesses have been capitalized and are included in the balance
sheet, primarily within the captions of Inventories, Property and
Equipment, and Other Assets, which includes capitalized software costs. At
December 31, 1996, these capitalized investments aggregate approximately
$18.8 million. These early stage businesses are in various growth stages
and have not yet generated sufficient revenues to achieve profitability.
The capitalized investments in these businesses are substantially complete.
However, significant sales and marketing efforts related to the
commercialization process are expected to continue. Management intends to
carefully monitor its return on investment from all of its early stage
businesses. The Company has been pursuing a process to identify potential
strategic investors for the broadband communications business. To date, an
appropriate strategic investor has not been identified. The Company intends
to reduce its investment in this area in 1997, and has taken actions to
significantly reduce the broadband communications business operating costs.
An essential element of the Company's long-term strategy is the growth
associated with its core Defense Systems segment. As part of this strategy,
Titan acquired Eldyne, Unidyne, and Diversified Control Systems ("the
Acquired Companies") in May 1996. The Acquired Companies provide the
Department of Defense and other government customers with systems research,
development and prototyping, and integration and life cycle support of
electronic, information and control systems. The services and systems
provided by the Acquired Companies are complementary to those provided by
the existing Defense Systems businesses. During 1996, achievements in this
segment included the exercise of an additional $8.3 million production
option and additional orders aggregating $6 million for Mini-DAMA satellite
communications terminals, and a $2.9 million contract with NATO to provide
hardware and software products, as well as systems integration. Subsequent
to year-end, the Company received a $50 million task order contract to
provide communications systems integration support for the U.S. government.
In addition, Titan received new awards from the U.S. Navy, with an initial
value of $5 million in 1997 and a total potential value of $25.3 million
over the next five years for electronic systems, support and equipment for
submarine undersea warfare.
OPERATING RESULTS
The table below sets forth Titan's consolidated revenues, operating profit
(loss), net interest expense, income tax provision (benefit) and net
income (loss) for each of the three years ended December 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues $ 137,722 $ 133,967 $ 136,206
Operating profit (loss) (2,157) (3,955) 9,635
Interest expense, net 2,961 1,059 632
Income tax provision (benefit) (1,740) (1,207) 3,050
Net income (loss) (3,378) (3,807) 5,953
</TABLE>
Titan's consolidated revenues were $137,722, $133,967 and $136,206 in 1996,
1995 and 1994, respectively. The revenue growth in 1996 was attributable to
the Defense Systems segment, primarily reflecting the revenues generated by
Eldyne, Unidyne and DCS from the date of acquisition, offset by revenue
declines in the Communications Systems, Software Systems and Emerging
Technologies segments. Excluding revenues from Titan's Applications Group,
which was sold in April 1994, Titan's pro forma 1994 revenues were
$124,293. Increased revenues in 1995 over pro forma 1994 were generated in
all segments.
Titan's consolidated operating profit (loss) has been significantly
impacted by a number of factors in each of the three years shown above.
Combined selling, marketing, and research and development expenses were
$11,121, $12,008 and $9,686 in 1996, 1995 and 1994, respectively,
reflecting Titan's efforts to expand commercial applications of its
technologies and to continue developing certain defense communication
technologies. General and administrative expenses have remained relatively
constant over the 3 year period, with savings from cost-cutting actions
offset by increased investment in the Company's emerging commercial
businesses, primarily the Communications Systems segment. Restructuring
charges were recorded in both 1995 and 1994 reflecting management's efforts
to adapt to both internal and external forces impacting Titan's long-term
operating strategy. The 1994 charge was offset by a $12,700 pre-tax gain
resulting from the sale of Titan's Applications Group.
Net interest expense has fluctuated significantly over the three year
period ended December 31, 1996. Generally, the principal component of
interest expense is the Company's borrowings under its bank lines of
credit. In addition, the 1996 interest expense includes the interest
related to the convertible subordinated debentures issued by the Company in
November 1996. Borrowings from the Company's bank lines of credit averaged
$12,315, $6,400, and $4,180 at weighted average interest rates of 8.2%,
8.8% and 7.6% during 1996, 1995 and 1994, respectively. Also affecting
interest expense is interest on the Company's deferred compensation and
retiree medical obligations. Interest expense related to these items was
$801, $726 and $529 for 1996, 1995 and 1994, respectively. Interest on the
deferred compensation obligation will continue to increase as the total
obligation increases, while interest on the retiree medical obligation is
expected to decrease.
Income taxes reflect effective rates of 34%, 24% and 34% in 1996, 1995 and
1994, respectively. The difference between the actual provision and the
effective provision (based on the United States statutory tax rate) in 1995
was due to the alternative minimum tax and to permanent differences between
financial statement income and taxable income.
Business Segments
Communications Systems: The Communications Systems segment contains two
business units, both targeting rapidly growing commercial markets. The
first business unit is satellite communications, which develops and sells
satellite earth station networks and related systems which address the
demand for telephony services. The second business unit, broadband
communications, specializes in providing complete turnkey security for
television delivery systems, with applications for delivery of television
programming via wireless, satellite, coaxial cable and fiber optics.
Revenues in this segment were $5,885, $7,490 and $6,319 in 1996, 1995 and
1994, respectively. The composition of the revenues was significantly
different over the three year period. Revenues in the satellite
communications business unit were approximately $3,600 in 1996, $5,100 in
1995, and $6,000 in 1994. However, in early 1995, Titan sold its
transceiver manufacturing division which was part of this business unit. On
a pro forma basis, excluding the sold division, the satellite
communications revenues were approximately $4,600 and $2,200 in 1995 and
1994, respectively. The decrease in pro forma revenues to $3,600 in 1996
from $4,600 in 1995 was principally due to delays in shipments on the
Company's rural telephony contract. The increase in pro forma revenues from
1994 to 1995 resulted primarily from obtaining and performing on a contract
to develop and integrate a satellite communications network in Thailand.
Revenues in 1996 included approximately $2,200 of broadband communications
revenues from the completion of the Company's first contract in this
business area and revenues from a follow-on order with this same customer.
The decrease in revenues from 1995 to 1996 was due to delays in receiving
the follow-on order mentioned above. The 1995 segment revenues included
approximately $2,400 of broadband communications revenues from the
Company's first contract in this business area. There were no broadband
communications revenues in 1994.
The segment's operating loss was $7,841 in 1996 compared to $4,488 in 1995
and $7,927 in 1994. The losses in 1996 and 1995 reflect the start-up nature
of this segment's businesses which requires significant selling, marketing
and research and development activities disproportionate to the level of
revenues generated. The Company has been pursuing a process to identify
potential strategic investors for the broadband communications business. To
date, an appropriate strategic investor has not been identified. The
Company intends to reduce its investment in this area in 1997, and has
taken certain actions to significantly reduce the broadband communications
business operating costs. The loss in 1994 includes approximately $5,400 of
losses and restructuring charges associated with Titan exiting its
transceiver manufacturing business.
Software Systems: The Software Systems segment provides custom software
products and services to assist customers in moving from older mainframe
systems to distributed computing systems utilizing client/server,
object-oriented software.
Revenues in this segment were $18,505 for 1996, $33,175 in 1995, and
$28,868 in 1994. One customer accounted for approximately $8,000 of this
segment's revenue in 1996 and $24,000 of this segment's revenue in both
1995 and 1994. In the second half of 1995, this segment experienced reduced
demand from this customer and this trend continued in 1996. Excluding the
revenues from this customer, there was moderate growth in other custom
software business.
Segment operating loss was $137 in 1996, compared to operating income of
$3,803 in 1995 and $6,237 in 1994. The 1996 results were due primarily to
reduced sales from the previously mentioned customer, the timing of
corresponding decreases in selling, general and administrative expense, and
additional costs associated with a negotiated conclusion of certain
programs with this customer. The 1995 decrease was principally due to the
effect of restructuring charges for severance and other reorganization
costs and the impact of reduced sales volume mentioned previously.
Defense Systems: The Defense Systems segment includes two business units,
information and communications systems, which provide systems solutions
primarily to U.S. and allied government and defense customers. The defense
information systems business supports high priority government programs by
providing information systems engineering services, development and
integration of systems and specialized products, as well as systems
research, development and prototyping. The defense communications business
develops and produces advanced satellite terminals and associated
voice/data processing modems. These products are specifically tailored to
meet defense requirements, provide highly secure communications and are
produced in relatively small quantities.
Revenues in this segment were $90,902, $67,948, and $78,780 for 1996, 1995
and 1994, respectively. However, excluding revenues attributable to the
Company's Applications Group, which was sold in 1994, pro forma segment
revenues were $66,867 in 1994. Revenues increased in 1996 principally due
to $33,600 revenues generated from the acquired companies Eldyne, Unidyne
and DCS. Revenue growth from the Mini-DAMA production contract also
contributed to the revenue increase in this segment. Revenues in 1996, 1995
and 1994 included approximately $6,100, $18,300 and $9,700, respectively,
for work subcontracted to the buyer of the Applications Group. There was no
operating profit associated with these revenues. This contract was
substantially completed in 1996. Revenues and operating profit for 1995
included approximately $1,400 recovered from a termination for convenience
claim with the U.S. Government for work performed in prior years.
Segment operating income in 1996 was $10,018, compared with $4,456 in 1995,
and $4,725 in 1994. The operating income increase in 1996 is attributable
to the revenue growth discussed previously, and certain non-recurring
credits resulting from the reevaluation of estimates of certain allowable
contract costs based upon favorable developments with certain government
audit agencies, as well as changes in the carrying value of assets being
disposed of. Operating results for 1994 include $2,500 of profit resulting
from a favorable settlement and from improved contract performance on the
Company's Mini-DAMA fixed price development contract. This profit was
offset by a charge of approximately $3,200 for restructuring costs related
to the Electronics division.
Emerging Technologies: Emerging Technologies contains a group of mature
businesses generally involved in Department of Defense (DoD) funded
research and development contracts and various early stage commercial
businesses, involved in medical product sterilization services and systems
and environmental consulting services. The Company's strategy is to use the
research and development activities as a source for developing additional
DoD and commercial products, systems and services.
Revenues in this segment were $22,430, $25,354 and $22,239 in 1996, 1995
and 1994, respectively. Approximately $7,600 of 1996 and $7,400 of 1995
revenue was generated by the segment's early stage businesses.
Substantially all remaining revenue for all periods presented was derived
from the various established business lines. The decline in 1996 revenue is
primarily attributable to the sale of the Company's shaped-charged
munitions business in September 1995 and the completion of certain pulsed
power systems contracts with the French government. This segment's
operating profit (loss) has not been material in relation to the Company's
consolidated operating results. Generally losses experienced by the
start-up operations have offset profits contributed by the segment's other
lines of business.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, Titan used $12,684 cash for operating requirements. In
addition to funding the net loss, other significant cash uses included an
increase in inventories of $5,461 principally related to commercial rural
telephony products and to government satellite communications, funding
requirements for certain accrued compensation obligations of $2,427 and
funding of $4,099 of restructuring activities. Cash was provided primarily
by collection of receivables in the Defense Systems segment of $3,633, the
proceeds from the issuance of the convertible subordinated debentures, net
of issuance costs and the repayments of borrowings under the Company's
revolving lines of credit, of $9,739, the refinancing of the Company's
Denver Scan facility for $1,773, and proceeds from the sale of the
Company's Electronics division of $2,492.
In November 1996, the Company issued $34,500 of 8.25% convertible
subordinated debentures due 2003. The net proceeds of approximately $32,400
were used to repay the borrowings under the Company's revolving lines of
credit. The remaining funds were used to fund working capital requirements
and other general purposes.
As of December 31, 1996, there were no borrowings outstanding under the
Company's $14,000 bank line of credit, and the Company had available cash
of $2,052. The Company had commitments under letters of credit at December
31, 1996 of $1,104, which reduced availability under the line of credit to
$12,896. The maturity date of the line of credit is May 31, 1997.
Subsequent to December 31, 1996, the Company received a commitment from the
bank to renew the facility through May 31, 1998.
In connection with the Company's acquisition of Eldyne, Unidyne and DCS in
May 1996, the Company's Eldyne and Unidyne subsidiaries assumed and
renegotiated a separate credit agreement with a lender which provides,
among other things, for a working capital line of credit facility of up to
$7,000 for Eldyne and Unidyne. The actual borrowing base is limited for
each of Eldyne and Unidyne to the sum of various percentages of billed and
certain unbilled government and commercial receivables. At December 31,
1996, there were no borrowings outstanding under this line of credit. The
Company had commitments under letters of credit at December 31, 1996 of
$85, which, in addition to borrowing base limitations, reduced availability
under the line of credit to $4,663. The Company has guaranteed up to $2,500
of indebtedness under this line of credit. The maturity date of the line of
credit is May 31, 1997. The Company intends to renegotiate this line of
credit with the lender and/or other banks.
Cash requirements for 1997 are expected to continue to be significant.
Investments in product development within the Communications Systems
segment were substantially complete in 1996, however, the Company plans to
continue aggressive sales and marketing efforts. The Company has been
pursuing a process to identify potential strategic investors for the
broadband communications business. To date, an appropriate strategic
investor has not been identified. Because there can be no assurance that
the Company will be successful in obtaining outside funding, the Company
will continue to reassess its investment in all its early stage businesses,
in relation to the availability of funding sources, both internal and
external. As part of this assessment, the Company has taken certain actions
in early 1997 to reduce operating costs in the broadband communications
business.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this Management's Discussion and Analysis
of Results of Operations and Financial Condition that are not related to
historical results are forward looking statements. Actual results may
differ materially from those stated or implied in the forward looking
statements. Further, certain forward looking statements are based upon
assumptions of future events which may not prove to be accurate. These
forward looking statements involve risks and uncertainties including but
not limited to those referred to below.
Entry Into Commercial Business. Prior to 1992, the Company's revenues had
been derived principally from business with the Department of Defense and
other government agencies. Since that time, the Company has pursued a
strategy of using the technology from its defense business to build
commercial businesses. This strategy presents certain significant risks for
the Company. Many of the Company's commercial businesses, such as satellite
communications, broadband communications, and medical sterilization, remain
in an early stage. As such, the Company is subject to all the risks
inherent in the operation of a start-up venture, including the need to
develop and maintain marketing, sales and customer support capabilities, to
secure appropriate third party manufacturing arrangements, to respond to
the rapid technological advances inherent in these markets, to secure the
necessary financing to support these activities and, ultimately, to design
and manufacture products or provide services acceptable to buyers in its
target markets. Certain of the Company's new products, including products
for which the Company has contracts for delivery, are still in the testing
stage. There can be no assurance that such tests will be completed
satisfactorily or that the Company will be able to satisfy all of the
requirements for delivery of and payment for these products. In addition,
many of the opportunities in the satellite communications and broadband
communications businesses are large, international projects which involve
lengthy sales cycles. The Company's efforts to address these risks have
required, and will continue to require, significant expenditures and
dedicated management time and other resources. There can be no assurance
that the Company will be successful in addressing these risks or in
developing these commercial businesses.
Reliance on Major Software Customer. The Company's Software Systems
business is substantially dependent on business from a major
telecommunications company to develop and support access carrier
client/server software applications. Revenues from this customer totaled
approximately $8.3 million, $24.5 million, and $24.3 million or 6%, 18%,
and 18% of total Company revenues in 1996, 1995, and 1994, respectively. In
the second half of 1995, the Company experienced reduced demand from this
customer and this trend continued in 1996. The loss of this customer, or a
substantial delay or continued decrease in the amount of its business,
could have a material adverse effect on the Software Systems segment's
results of operations and financial condition.
Dependence on Defense Spending. The Company's Defense Systems segment is
dependent upon continued funding of U.S. Department of Defense programs.
Titan, like other companies doing business with the U.S. Department of
Defense, has been affected by declining defense budgets and has experienced
increased competition in certain of its defense business areas. The size
and scope of any reductions in future defense budgets is uncertain, and
management anticipates that competition in most defense-related areas will
continue to be intense.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Financial Statement
Schedules
Page
Report of Independent Public Accountants............................ 15
Financial Statements
Consolidated Statements of Operations............................ 16
Consolidated Balance Sheets...................................... 17
Consolidated Statements of Cash Flows............................ 18
Consolidated Statements of Stockholders' Equity.................. 19
Notes to Consolidated Financial Statements....................... 20-31
Supporting Financial Statement Schedule Covered by the Foregoing Report of
Independent Accountants:
Schedule II - Valuation and Qualifying Accounts..................... 38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Titan Corporation:
We have audited the accompanying consolidated balance sheets of The Titan
Corporation (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 The Titan Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
/S/
ARTHUR ANDERSEN LLP
San Diego, California
February 20, 1997
<TABLE>
<CAPTION>
The Titan Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
For the years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Revenues $137,722 $133,967 $136,206
Costs and expenses:
Cost of revenues 110,589 102,231 99,921
Selling, general and
administrative expense 24,501 23,538 22,511
Research and development expense 4,789 5,904 5,339
Restructuring and other (income)
expense, net -- 6,249 (1,200)
Total costs and expenses 139,879 137,922 126,571
Operating profit (loss) (2,157) (3,955) 9,635
Interest expense (3,026) (1,154) (923)
Interest income 65 95 291
Income (loss) before income taxes (5,118) (5,014) 9,003
Income tax provision (benefit) (1,740) (1,207) 3,050
Net income (loss) (3,378) (3,807) 5,953
Dividend requirements on preferred stock (803) (695) (695)
Net income (loss) applicable
to common stock $(4,181) $ (4,502) $ 5,258
Net income (loss) per weighted
average common share $ (.27) $ (.33) $ .40
Weighted average common shares outstanding 15,278 13,445 13,288
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
The Titan Corporation
Consolidated Balance Sheets
(in thousands of dollars, except shares and per share values)
As of December 31,
1996 1995
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 2,052 $ 5,833
Accounts receivable - net 47,509 39,360
Inventories 13,157 10,399
Prepaid expenses and other 2,059 2,872
Deferred income taxes 6,037 4,809
Total current assets 70,814 63,273
Property and equipment - net 21,005 18,295
Goodwill - net of accumulated amortization
of $4,723 and $3,842 21,348 3,550
Other assets - net 14,681 10,052
Total assets $127,848 $95,170
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 8,394 $10,184
Line of credit -- 9,200
Note payable to related party 1,000 --
Current portion of long-term debt 1,010 1,019
Accrued compensation and benefits 8,680 9,192
Other accrued liabilities 10,615 13,803
Total current liabilities 29,699 43,398
Long-term debt 40,071 4,281
Other non-current liabilities 8,433 8,852
Commitments and contingencies
Series B cumulative convertible
redeemable preferred stock,
$3,000 liquidation preference,
6% cumulative annual dividend,
500,000 shares issued and outstanding 3,000 --
Stockholders' Equity:
Preferred stock: $1 par value, authorized
2,500,000 shares:
Cumulative convertible, $13,897
liquidation preference:
694,872 shares issued and outstanding 695 695
Series A junior participating,
authorized 250,000 shares: none issued -- --
Common stock: $.01 par value, authorized 30,000,000
shares, issued and outstanding: 17,133,680 and
15,087,087 shares 171 151
Capital in excess of par value 42,751 31,148
Retained earnings 5,988 10,169
Treasury stock
(1,106,114 and 1,161,147 shares), at cost (2,960) (3,524)
Total stockholders'equity 46,645 38,639
Total liabilities and stockholders' equity $127,848 $95,170
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
The Titan Corporation
Consolidated Statements of Cash Flows
(in thousands of dollars)
For the years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(3,378) $(3,807) $ 5,953
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 5,793 4,117 3,424
Deferred income taxes and other (1,909) 178 681
Change in operating assets
and liabilities, net of effects
from businesses sold and acquired:
Accounts receivable 3,453 (3,196) 8,091
Inventories (5,461) (3,287) (494)
Prepaid expenses and
other assets 344 811 160
Accounts payable (3,496) 2,782 (44)
Income taxes payable (653) -- --
Accrued compensation
and benefits (2,427) (1,808) 1,559
Restructuring activities (4,099) (486) (1,200)
Other liabilities (851) (1,249) (12,218)
Net cash provided by (used for) operating
activities (12,684) (5,945) 5,912
Cash Flows from Investing Activities:
Proceeds, net of transaction costs, from sale
of businesses 2,492 1,835 16,766
Capital expenditures (6,179) (8,988) (6,244)
Capitalized software costs (3,570) (1,957) (1,345)
Payment for purchase of businesses,
net of cash acquired (2,679) -- --
Other 170 117 33
Net cash provided by (used for)
investing activities (9,766) (8,993) 9,210
Cash Flows from Financing Activities:
Additions to debt 37,000 13,800 --
Retirements of debt (15,841) (621) (16,871)
Deferred debt issuance costs (2,035) -- --
Proceeds from stock issuances 348 3,158 2,199
Dividends paid (803) (695) (695)
Net cash provided by (used for)
financing activities 18,669 15,642 (15,367)
Net increase (decrease) in cash
and cash equivalents (3,781) 704 (245)
Cash and cash equivalents at
beginning of year 5,833 5,129 5,374
Cash and cash equivalents at end of year $ 2,052 $ 5,833 $ 5,129
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
The Titan Corporation
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 1996, 1995 and 1994
(in thousands of dollars, except per share data)
Cumulative
Convertible Capital
Preferred Common in Excess of Retained Treasury
Stock Stock Par Value Earnings Stock Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 $ 695 $ 138 $ 24,974 $ 9,413 $ (5,899) $ 29,321
Exercise of stock options -- 8 2,191 -- -- 2,199
Shares contributed to employee
benefit plans and other -- -- -- -- 1,295 1,295
Income tax benefit from
employee stock transactions -- -- 695 -- -- 695
Dividends on preferred stock -
$1 per share -- -- -- (695) -- (695)
Net income -- -- -- 5,953 -- 5,953
---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1994 695 146 27,860 14,671 (4,604) 38,768
Stock issuance -- -- 1,413 -- 912 2,325
Exercise of stock options -- 5 1,209 -- (381) 833
Shares contributed to employee
benefit plans -- -- 322 -- 549 871
Income tax benefit from employee
stock transactions -- -- 344 -- -- 344
Dividends on preferred stock -
$1 per share -- -- -- (695) -- (695)
Net loss -- -- -- (3,807) -- (3,807)
---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1995 695 151 31,148 10,169 (3,524) 38,639
Stock issuance for acquisition -- 18 10,659 -- -- 10,677
Exercise of stock options and other -- 2 408 -- (62) 348
Shares contributed to
employee benefit plans -- -- 466 -- 626 1,092
Income tax benefit from employee stock
transactions -- -- 70 -- -- 70
Dividends on preferred stock --
Cumulative Convertible, $1.00 per share -- -- -- (695) -- (695)
Series B, 6% annual -- -- -- (108) -- (108)
Net loss -- -- -- (3,378) -- (3,378)
---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1996 $ 695 $ 171 $ 42,751 $ 5,988 $ (2,960) $ 46,645
========== ========== ========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
The Titan Corporation
Notes to Consolidated Financial Statements
(in thousands of dollars, except per share data)
Note 1. Summary of Significant Accounting Policies
Nature of Operations. The Titan Corporation provides engineering,
technical, management and consulting services in the areas of national
security, software systems, communication systems, information systems,
electronic control systems, advanced research and development,
sterilization and the environment. The Company also develops, designs,
manufactures and markets satellite communications subsystems, broadband
communications systems, and pulsed power products including linear
accelerators.
Principles of Consolidation. The consolidated financial statements include
the accounts of The Titan Corporation ("Titan" or "the Company") and its
subsidiaries. All significant intercompany transactions and balances have
been eliminated. Also, certain prior year amounts have been reclassified to
conform to the 1996 presentation.
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.
Start-up Activities. The Company is involved in a number of start-up
ventures, most notably commercial satellite communications, broadband
communications, and medical device sterilization. Certain investments made
in these start-up ventures are reflected in the balance sheet, primarily
within the captions of Inventories, Property and Equipment, and Other
Assets, which includes capitalized software costs. These capitalized
investments aggregate approximately $18,810 at December 31, 1996. The
capitalized investments in these businesses were substantially complete in
1996. These start-up ventures are in various early growth stages and have
not yet generated sufficient revenues to achieve profitability. At this
time, management plans to continue to invest in these ventures, though the
level of such investment may change based on the business' operating
performance and cash flows. Furthermore, management will continue to review
and evaluate all alternatives related to these investments, including
strategic partnering, joint venturing, or sale. The realizability of the
related assets is routinely assessed by management from both an operating
perspective, as well as through giving consideration to strategic
alternatives believed to be available.
Revenue Recognition. A majority of the Company's revenue, both commercial
and government, is derived from products manufactured and services
performed under cost-reimbursement and fixed-price contracts wherein
revenues are generally recognized using the percentage-of-completion
method. Certain other revenues are recognized as units are delivered.
Estimated contract losses are fully charged to operations when identified.
Cash Equivalents. All highly liquid investments purchased with an original
maturity of three months or less are classified as cash equivalents.
Inventories. Inventories include the cost of material, labor and overhead,
and are stated at the lower of cost, determined on the first-in, first-out
(FIFO) and weighted average methods, or market.
Property and Equipment. Property and equipment are stated at cost.
Depreciation is provided using the straight-line method, with estimated
useful lives of 32 years for buildings, 2 to 15 years for leasehold
improvements and 3 to 7 years for machinery and equipment and furniture and
fixtures. Certain machinery and equipment in the Company's medical
sterilization business is depreciated based on units of production.
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 varying lives ranging from 5 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 these assets.
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.
Capitalized Software Costs. The Company's policy is to amortize capitalized
software costs over the greater of (a) the ratio that current gross
revenues for a product bears to the total of current and amortized future
gross revenues for that product, or (b) the straight-line method over the
remaining estimated economic life of the product, including the period
being reported on. Notwithstanding the above, the maximum amortization
period is four years. It is reasonably possible that those estimates of
anticipated future gross revenues, the remaining estimated economic life of
the product, or both, could be reduced in the future which could
significantly impact the carrying amount of the capitalized software costs.
Impairment of Long-Lived Assets. Effective January 1, 1996, the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" (SFAS 121). The statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
fully recoverable. The adoption of this statement had no material effect on
the Company's financial statements.
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. Therefore, the adoption of SFAS 123 by
the Company had no effect on the Company's financial position and results
of operations.
Income Taxes. The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109), 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 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.
Per Share Information. Per share information is based on the weighted
average number of common shares and all dilutive common share equivalents
outstanding. Common stock equivalents consist primarily of shares issuable
upon the exercise of stock options. Conversion of the Series A Preferred
Stock has not been assumed as the effect of the conversion would not be
dilutive in any of the periods presented. Neither the Series B Preferred
Stock nor the Company's convertible subordinated debentures are considered
common stock equivalents for the purpose of earnings per share
calculations. Common stock equivalents were not considered in the
calculation of net loss per share in 1996 and 1995, as the impact would be
antidilutive.
Note 2. Acquisition
On May 24, 1996, the Company completed the acquisition of three
privately-held affiliated businesses -- Eldyne, Inc. ("Eldyne"), Unidyne
Corporation ("Unidyne") and Diversified Control Systems, LLC ("DCS").
Eldyne, Unidyne, and DCS are information technology businesses that provide
the Department of Defense and other government customers with systems
research, development and prototyping, and integration and life cycle
support of electronic, information, and control systems. The overall
transaction consideration, excluding associated transaction costs and
expenses, consisted of $1 million cash, 1,921,534 shares of Titan common
stock with an assigned value of $6.00 per share, the issuance of 500,000
shares of a new class of cumulative convertible redeemable preferred stock
(see Note 9), assumption of indebtedness (see Note 7), and a promissory
note for $1 million issued to the principal stockholder of the acquired
companies. The $1 million note is due on March 15, 1997, and interest of
10% per annum is due quarterly and at maturity. The Company also entered
into a retainer agreement for the services of the principal stockholder,
providing for an annual retainer of $.3 million, payable monthly, for 6
years beginning May 24, 1996. The net present value of the remaining
balance of the retainer agreement ($1.5 million) was paid to the principal
stockholder on January 2, 1997. Estimated other direct costs of the
acquisition were approximately $3 million.
The acquisition has been accounted for as a purchase, and, accordingly, the
Company's consolidated financial statements include the operating results
of the three acquired companies since May 24, 1996. The purchase agreements
provided for a post-closing adjustment to the purchase price based on the
final valuation of the acquired assets and assumed liabilities, pursuant to
which 142,036 shares of the Company's common stock were returned to the
Company by the seller in December 1996. This transaction was recorded as a
reduction of $852 to the purchase price in the fourth quarter of 1996. The
excess of the purchase price over the estimated fair value of net assets
acquired of $18,200 at December 31, 1996 is being amortized using a
straight-line method over 30 years.
Unaudited pro forma data giving effect to the purchase of Eldyne, Unidyne
and DCS as if they had been acquired at the beginning of 1995 are shown
below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues $162,058 $185,052
Net loss (5,068) (3,356)
Net loss per share (.37) (.28)
</TABLE>
The pro forma net loss for 1996 includes certain unanticipated operating
adjustments made to the Eldyne, Unidyne and DCS historical financial
statements including, but not limited to, long-term contract earnings
revisions, and changes to the carrying value of certain assets, primarily
receivables.
Note 3. Restructuring
In 1995, the Board of Directors adopted a formal plan of restructuring that
redefined Titan's businesses into four business segments: Communications
Systems, Software Systems, Defense Systems, and Emerging Technologies. The
plan was an integral part of management's strategy to position the Company
for access to capital markets as a significant source of continued
development funding. The plan resulted in charges of approximately $5,431
that provided for disposition of businesses not central to the Company's
long-term strategy, as well as significant reorganization of the Software
Systems and sterilization businesses, reductions of personnel, and other
actions associated with reorganizing the structure of the Company. As of
December 31, 1996, the planned restructure activities have been
substantially accomplished. Management currently anticipates that the
remaining reserves will be applied to costs estimated to be incurred in the
first half of 1997. During 1996, charges against restructuring reserves for
severance were $1,125, related to 85 employees terminated throughout the
Company, and other charges to the reserves, primarily related to the
exiting of businesses, were $2,974. These other charges reflect the sale on
July 26, 1996 of the Company's Electronics division, which was part of the
Defense Systems segment. At December 31, 1996, approximately $815 of the
initial restructuring accrual remained in other accrued liabilities for
costs associated with the exiting of businesses and the termination of
certain agreements. The group of businesses planned to be exited in the
restructuring plan had revenues of $14,160 and $19,384 and operating income
(loss) of $2,802 and $(298) for 1996 and 1995, respectively.
In early 1994, Titan sold its Applications Group (its Army training and
simulation service business) as part of a formal plan of restructuring
adopted at that time. The sale resulted in a pre-tax gain of approximately
$12,700 and generated net cash proceeds of approximately $17,000. The gain
on sale was substantially offset by provisions made for the estimated costs
of planned disposals and/or consolidations of certain operations deemed not
compatible with the Company's long range strategy at that time. Such
strategy was primarily reliant upon Titan internally funding the product
development efforts and commercialization activities relating to its
start-up ventures.
Note 4. Other Financial Data
Following are details concerning certain balance sheet accounts:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accounts Receivable:
U.S. Government - billed $ 17,768 $ 14,449
U.S. Government - unbilled 19,885 10,758
Trade 10,093 14,447
Less allowance for doubtful accounts (237) (294)
$ 47,509 $ 39,360
</TABLE>
Unbilled receivables include approximately $11,200 and $5,000 at December
31, 1996 and 1995 representing work-in-process which will be billed in
accordance with contract terms and delivery schedules. Also included in
unbilled receivables are amounts billable upon final execution of
contracts, contract completion, milestones or completion of rate
negotiations. Generally, unbilled receivables are expected to be collected
within one year. Payments to the Company for performance on certain U.S.
Government contracts are subject to audit by the Defense Contract Audit
Agency. Revenues have been recorded at amounts expected to be realized upon
final settlement.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Inventories:
Materials $ 2,051 $ 3,152
Work-in-process 9,840 4,159
Finished goods 1,266 3,088
$ 13,157 $ 10,399
Property and Equipment:
Machinery and equipment $ 29,986 $ 23,429
Furniture and fixtures 5,351 3,207
Land, buildings and leasehold improvements 7,584 3,503
Construction in progress 996 6,041
$ 43,917 $ 36,180
Less accumulated depreciation and amortization (22,912) (17,885)
$ 21,005 $ 18,295
</TABLE>
Deferred income taxes of $4,094 and $5,904 and capitalized software costs
of $6,413 and $3,088 are included in Other Assets at December 31, 1996 and
1995, respectively. At December 31, 1996 and 1995, respectively, other
liabilities, current and non-current, include $1,352 and $958 related to
estimated losses on contracts. In addition, these captions include
liabilities for post-retirement benefits for employees of previously
discontinued operations of $2,923 and $3,016 at December 31, 1996 and 1995,
respectively. Also included in other accrued liabilities are customer
advance payments of approximately $2,414 and $1,653 at December 31, 1996
and 1995, respectively, and $815 and $4,914 related to restructuring
activities at December 31, 1996 and 1995, respectively.
Note 5. Segment Information
Titan classifies its businesses in four industry segments, Communications
Systems, Software Systems, Defense Systems, and Emerging Technologies. The
Communications Systems segment contains two start-up business units, both
targeting rapidly growing commercial markets. The first business unit is
satellite communications, which develops, manufactures and sells satellite
earth station networks and related subsystems. The second business unit,
broadband communications, specializes in providing complete turnkey
security for television delivery systems. The Software Systems segment
provides custom and semi-custom software development services to assist
customers in moving from older mainframe systems to distributed computing
systems utilizing client/server software. The Defense Systems segment,
serving primarily the U.S. Government, includes satellite communications
products; test and evaluation of complex systems; management and technical
consulting; training and simulation support; and other consulting and
engineering services. The Emerging Technologies segment contains a group of
businesses including the start-up medical product sterilization services
and systems and environmental consulting services businesses as well as
several established businesses generally involved in broad-based technology
development primarily for the U.S. Government. Substantially all operations
are located in the United States. Export revenues amounted to approximately
$10,713, $14,240, and $8,498 in 1996, 1995 and 1994, respectively,
primarily to countries in Western Europe and the Far East.
The following tables summarize industry segment data for 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Communications Systems $ 5,885 $ 7,490 $ 6,319
Software Systems 18,505 33,175 28,868
Defense Systems 90,902 67,948 78,780
Emerging Technologies 22,430 25,354 22,239
$137,722 $133,967 $136,206
</TABLE>
Sales to the United States Government, including both defense and
non-defense agencies, and sales as a subcontractor as well as direct sales,
aggregated approximately $102,925 in 1996, $81,632 in 1995, and $93,107 in
1994. In the Defense Systems segment, revenues in 1996, 1995 and 1994
included approximately $6,100, $18,300, and $9,700, respectively, for work
subcontracted to the buyer of the Applications Group which was sold in
April 1994. There was no operating profit associated with these revenues.
This contract was substantially completed in 1996. Defense Systems 1995
revenues and operating profit included approximately $1,400 recovered from
a termination for convenience claim with the U.S. Government for work
performed in prior years. Within the Software Systems segment, sales to one
customer, a telephone company, totaled $8,325, $24,451, and $24,323, in
1996, 1995 and 1994, respectively. No other single customer accounted for
10% or more of the consolidated revenues for these years. Intersegment
sales were not significant in any year.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Operating Profit (Loss):
Communications Systems $ (7,841) $ (4,488) $ (7,927)
Software Systems (137) 3,803 6,237
Defense Systems 10,018 4,456 4,725
Emerging Technologies 355 14 (305)
Corporate (4,552) (7,740) 6,905
$(2,157) $ (3,955) $ 9,635
</TABLE>
The Defense Systems segment includes Applications Group revenue of $11,913
and operating profit of $919 in 1994 through the date of sale.
Corporate includes corporate general and administrative expenses, certain
Corporate restructuring charges, and gains or losses from the sale of
businesses. Corporate general and administrative expenses are generally
recoverable from contract revenues by allocation to operations.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Identifiable Assets:
Communications Systems $ 19,035 $ 8,287 $ 4,813
Software Systems 6,139 8,945 6,084
Defense Systems 66,204 39,587 38,859
Emerging Technologies 20,014 19,191 12,165
General corporate assets 16,456 19,160 19,982
$127,848 $95,170 $81,903
</TABLE>
General corporate assets are principally cash, prepaid expenses, deferred
income taxes, and other assets.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Depreciation and Amortization
of Property and Equipment,
Goodwill, and Other Assets:
Communications Systems $ 1,072 $ 366 $ 387
Software Systems 1,152 1,044 533
Defense Systems 2,346 1,744 1,838
Emerging Technologies 1,094 712 630
Corporate 129 251 36
$ 5,793 $ 4,117 $3,424
Capital Expenditures:
Communications Systems $ 1,837 $ 697 $ 397
Software Systems 261 1,709 1,784
Defense Systems 2,266 1,431 2,003
Emerging Technologies 1,726 5,007 1,963
Corporate 89 144 97
$ 6,179 $ 8,988 $ 6,244
</TABLE>
Note 6. Income Taxes
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $ -- $(2,232) $1,377
State -- (220) 203
-- (2,452) 1,580
Deferred (1,740) 1,245 1,470
$(1,740) $(1,207) $3,050
</TABLE>
Following is a reconciliation of the income tax provision (benefit)
expected (based on the United States federal income tax rate applicable in
each year) to the actual tax provision (benefit) on income (loss):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Expected Federal tax provision
(benefit) $(1,740) $(1,705) $3,061
State income taxes, net
of Federal income tax benefits (256) (44) 450
Loss carryforwards/carrybacks -- -- (216)
Research credit -- -- (338)
Goodwill amortization 88 160 149
Alternative minimum tax -- 100 --
Keyman life insurance 36 75 83
Other 132 207 (139)
Actual tax provision (benefit) $(1,740) $(1,207) $ 3,050
</TABLE>
The deferred tax assets as of December 31, 1996 and 1995, result from the
following temporary differences:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Inventory and contract loss reserves $ 1,678 $ 3,005
Employee benefits 4,507 4,289
Restructuring 361 2,786
Tax credit carryforwards 1,383 815
Depreciation (3,051) (1,875)
Loss carryforward 6,932 1,680
Other (479) 1,213
11,331 11,913
Valuation allowance (1,200) (1,200)
Net deferred tax assets $10,131 $10,713
</TABLE>
Realization of certain components of the net deferred tax asset is
dependent upon Titan generating sufficient taxable income prior to
expiration of loss and credit carryforwards. Although realization is not
assured, management believes it is more likely than not that the net
deferred tax asset will be realized. The amount of the net deferred tax
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are
changed. Also, under Federal tax law, certain potential changes in
ownership of the Company which may not be within the Company's control may
limit annual future utilization of these carryforwards.
Net tax refunds in 1996 and 1995 were $322 and $828, respectively. Cash
paid for income taxes was $1,252 in 1994.
Note 7. Debt
In November 1996, the Company issued $34,500 of 8.25% convertible
subordinated debentures due 2003. The debentures are convertible into
common stock of the Company at a conversion price of $3.50 per share,
subject to adjustment upon the occurrence of certain events. The debentures
are redeemable, on or after November 2, 1999, initially at 104.125% of
principal amount and at decreasing prices thereafter to 100% of principal
amount through maturity, in each case together with accrued interest. The
debentures also may be repaid at the option of the holder upon a change in
control, as defined in the indenture governing the debentures, at 100% of
principal amount plus accrued interest. The net proceeds of the offering
were used to repay borrowings under the Company's bank lines of credit and
for working capital and general corporate purposes. At December 31, 1996,
other assets include $1,987 in capitalized costs related to the issuance,
which are being amortized to interest expense ratably over the life of the
debt.
At December 31, 1996, the Company had no borrowings outstanding under a
$14,000 bank line of credit with a maturity date of May 31, 1997. The
Company had commitments under letters of credit at December 31, 1996 of
$1,104, which reduced availability under the line of credit. The Company
currently has the option to borrow at prime plus 0.5 percent or at LIBOR
plus 2.5 percent, decreasing to prime or to LIBOR plus 2% after two
consecutive quarters of positive net income. Subsequent to December 31,
1996, the Company received a commitment from the bank to renew the facility
through May 31, 1998. At December 31, 1995, borrowings outstanding under
this agreement were $9,200 at a weighted average interest rate of 8.13%.
Borrowings under the Company's lines of credit, including the line with a
lender discussed below, averaged $12,315, $6,400, and $4,180 at weighted
average interest rates of 8.2%, 8.8% and 7.6% during 1996, 1995 and 1994,
respectively.
In September 1996, the Company entered into an amendment to the line of
credit under which the Company and its wholly owned subsidiary, Titan
Information Systems Corporation ("TIS"), granted the bank a security
interest in substantially all of their non-real property assets, including
accounts receivable, inventory, equipment and patents, and the Company
pledged the stock of TIS, Eldyne and Unidyne to the bank. The amendment
also eliminated or revised certain financial covenants. The amended line of
credit does, however, contain financial covenants which require the Company
to maintain stipulated levels of net worth, a specified ratio of total
liabilities to tangible net worth and a specified quick ratio. The Company
was in compliance with these covenants as of December 31, 1996.
In connection with the acquisition of Eldyne, Unidyne, and DCS, the
Company's Eldyne and Unidyne subsidiaries assumed and renegotiated a
separate credit agreement with a lender which provides for a working
capital line of credit facility, a mortgage note and an equipment note. The
agreement allows borrowings on the line through May 31, 1997, at an
interest rate of LIBOR plus 2.75% and up to an aggregate of $7,000, limited
by the sum of various percentages of billed and certain unbilled government
and commercial receivables. At December 31, 1996, there were no borrowings
outstanding under the line of credit facility. The Company had commitments
of $85 under letters of credit, which, in addition to limitations based on
receivables, reduced availability under the line of credit to $4,663. The
line of credit is collateralized by substantially all of the assets of the
acquired companies, and borrowings up to $2,500 under the line have been
guaranteed by the Company. The line of credit also requires that borrowings
be used only for Eldyne and Unidyne, and prohibits these entities and DCS
from transferring funds to the Company. The mortgage note of $1,244 and the
equipment note of $122 at December 31, 1996, are collateralized by real
estate and equipment, bear interest at LIBOR plus 2.5% and require monthly
payments through February 15, 2000 and December 15, 1998, respectively.
This credit agreement contains, among other financial covenants, provisions
which require Eldyne and Unidyne to maintain stipulated levels of tangible
net worth and working capital. Eldyne and Unidyne were in compliance with
these covenants as of December 31, 1996.
At December 31, 1996 and 1995, the Company had $5,215 and $5,300,
respectively, outstanding under two promissory notes, secured by certain
machinery and equipment, at interest rates of 8.5% and 7.42%, and 8.5% and
8.56%, respectively.
Cash paid for interest, primarily on these borrowings, was $2,000, $572,
and $578, in 1996, 1995, and 1994, respectively.
Note 8. Commitments and Contingencies
Titan is obligated for aggregate rentals of $37,502 under operating lease
agreements, principally for facilities. These leases generally include
renewal options and require minimum payments of $5,460 in 1997, $4,861 in
1998, $4,152 in 1999, $3,536 in 2000, $3,522 in 2001, and $15,971 for the
years thereafter. Rental expense under these leases was $7,975 in 1996,
$7,496 in 1995 and $7,367 in 1994. The Company has entered into a long-term
lease agreement for facilities which are owned by an entity in which the
Company has a minority ownership interest. Rental expense in 1996, 1995 and
1994 includes $884, $868, and $838, respectively, paid under this
agreement.
The Company is involved in appeals of the judgments resulting from the
trials of two separate lawsuits filed by former employees claiming, among
other things, wrongful termination and discrimination. The Company intends
to vigourously pursue and defend against the appeals of these cases. While
it is not feasible to predict the outcome of these cases, management
believes that their ultimate disposition will not have a material adverse
effect on the financial position or results of operations of the Company.
In the ordinary course of business, defense contractors are subject to many
levels of audit and investigation by various government agencies. Further,
the Company and its subsidiaries are subject to claims and from time to
time are named as defendants in legal proceedings. In the opinion of
management, the amount of ultimate liability with respect to these actions
will not materially affect the financial position or results of operations
of the Company.
Note 9. Series B Cumulative Convertible Redeemable Preferred Stock
In connection with the acquisition of Eldyne, Unidyne and DCS, the Company
issued 500,000 shares of Series B Cumulative Convertible Redeemable
Preferred Stock (the "Series B Preferred Stock"). The Series B Preferred
Stock accrues dividends at a rate of 6% per annum payable quarterly in
arrears cumulatively, has a liquidation preference of $6.00 per share plus
accrued and unpaid dividends (the "Series B Liquidation Preference") and
entitles the holder thereof to one vote per outstanding share, voting
together as a class with the holders of shares of outstanding Common Stock
(and any other series or classes entitled to vote therewith) on all matters
submitted for a shareholder vote. The Series B Preferred Stock is
convertible at the holder's option into shares of the Company's common
stock at a conversion price of $9.00 per share (subject to customary anti-
dilution adjustments) on or after November 24, 1996 until November 24,
1997. The Series B Preferred Stock also is redeemable at the Series B
Liquidation Preference (i) at the holder's option, after May 24, 1998 until
May 24, 2001, and (ii) at the Company's option, after May 24, 2001 until
May 24, 2006. The Series B Preferred Stock is not considered a common stock
equivalent for the purpose of earnings per share calculations.
Note 10. Cumulative Convertible Preferred Stock
Each share of $1.00 cumulative convertible preferred stock is entitled to
1/3 vote, annual dividends of $1 per share and is convertible at any time
into 2/3 share of the Company's common stock. Common stock of 463,248
shares has been reserved for this purpose. Upon liquidation, the $1.00
cumulative convertible preferred stockholders are entitled to receive $20
per share, plus cumulative dividends in arrears, before any distribution is
made to the common stockholders.
Note 11. Common Stock
At December 31, 1996, 12,800,181 aggregate common shares were reserved for
future issuance for conversion of convertible subordinated debentures,
preferred stock, all stock incentive plans and warrants.
On August 17, 1995, the Board of Directors adopted a Shareholder Rights
Agreement and subsequently distributed one preferred stock purchase right
("Right") for each outstanding share of the Company's common stock. Each
Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock,
par value $1.00 per share (the "Preferred Shares") at a price of $42.00 per
one one-hundredth of a Preferred Share, subject to adjustment. The Rights
become exercisable if a person or group acquires, in a transaction not
approved by the Company's Board of Directors ("Board"), 15% or more of the
Company's common stock or announces a tender offer for 15% or more of the
stock.
If a person or group acquires 15% or more of the Company's common stock,
each Right (other than Rights held by the acquiring person or group which
become void) will entitle the holder to receive upon exercise a number of
shares of Company common stock having a market value of twice the Right's
exercise price. If the Company is acquired in a transaction not approved by
the Board, each Right may be exercised for common shares of the acquiring
company having a market value of twice the Right's exercise price. The
Company may redeem the Rights at $.01 per Right, subject to certain
conditions. The Rights expire on August 17, 2005.
In September 1995, the Company completed a private placement of 300,000
shares of its common stock, receiving net proceeds of $2,325. Treasury
shares were used for the issuance. The Company's shares were placed with
offshore institutional investors pursuant to Regulation S under the
Securities Act of 1933, as amended.
Note 12. Stock-Based Compensation Plans
The Company provides stock-based compensation to officers, directors and
key employees through various fixed stock option plans and to all
non-executive employees through an employee stock purchase plan. The
Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for
the fixed stock option or stock purchase plans. Had compensation cost for
the Company's stock-based compensation plans been determined based on the
fair value at the grant dates for awards under those plans consistent with
the method of SFAS 123, the Company's results of operations would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net loss As reported $(3,378) $(3,807)
Pro forma (3,795) (3,981)
Net loss per share As reported $ (.27) $ (.33)
Pro forma (.30) (.35)
</TABLE>
The Company currently has options available for grant under the Stock
Option Plans of 1990 and 1994, The 1992 Directors' Stock Option Plan and
The 1996 Directors' Stock Option and Equity Participation Plan (the "1996
Directors' Plan"). Options authorized for grant under the employee plans
and under the directors' plans are 2,000,000 and 230,000, respectively.
Under the 1996 Directors' Plan, a director may elect to receive stock in
lieu of fees, such stock to have a fair market value equal to the fees.
Under all plans, the exercise price of each option equals the market price
of the Company's stock on the date of grant. Under the employee plans, an
option's maximum term is ten years. Under the directors' plans, options
expire 90 days after the option holder ceases to be a director. Employee
options may be granted throughout the year; directors' options are granted
annually during the first two or three years as a director. All options
vest in 25% increments beginning one year after the grant date.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: zero dividend yield; expected
volatility of 87%; a risk-free interest rate of 6.57%; and an expected
life of 5 years.
A summary of the status of the Company's fixed stock option plans as of
December 31, 1996 and 1995, and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
1996 1995
Shares Weighted-Average Shares Weighted-Average
(000) Exercise Price (000) Exercise Price
<S> <C> <C> <C> <C>
Fixed Options
Outstanding at beginning of year 1,219 $ 5.05 1,429 $3.41
Granted 723 4.42 429 8.02
Exercised (125) 3.28 (454) 2.71
Cancelled (305) 6.20 (185) 5.16
Outstanding at end of year 1,512 4.66 1,219 5.05
Options exercisable at year-end 480 452
Weighted-average fair value of
options granted during the year $3.18 $5.76
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
<S>
Range of Number Weighted-Average Number
Exercise Outstanding Remaining Weighted-Average Exercisable Weighted Average
Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
<C> <C> <C> <C> <C> <C>
$2.63-3.50 470,400 6.67 years $3.23 331,300 $ 3.24
4.00-5.88 792,500 9.07 4.33 105,500 4.86
6.25-9.50 249,500 8.84 8.41 43,400 9.03
1,512,400 8.28 4.66 480,200 4.12
</TABLE>
Under the 1995 Employee Stock Purchase Plan, the Company is authorized to
issue up to 500,000 shares of common stock to its full-time employees.
Elected officers are not eligible to participate. Under the terms of the
plan, employees may elect to have between 1 and 10 percent of their regular
earnings, as defined in the plan, withheld to purchase the Company's common
stock. The purchase price of the stock is 85 percent of the lower of its
market price at the beginning or at the end of each subscription period. A
subscription period is six months, beginning January 1 and July 1 of each
year. The first subscription period under the plan began January 1, 1996.
Approximately 11% of eligible employees participated in the Plan and
purchased 89,865 shares of Company stock in 1996. Pro forma compensation
cost is recognized for the fair value of the employees' purchase rights,
which was estimated using the Black-Scholes model with the following
assumptions: zero dividend yield; a life of 1 year; expected volatility of
87%; and a risk-free interest rate of 6.57%. The weighted-average fair
value of the purchase rights granted in 1996 was $1.71.
Three of the Company's emerging business subsidiaries have issued stock
options for subsidiary stock, which is not publicly traded.
Note 13. Benefit Plans
The Company has various defined contribution benefit plans covering certain
employees. The Company's contributions to these plans were $2,269, $2,514,
and $2,291 in 1996, 1995 and 1994, respectively. The Company's
discretionary contribution to its Employee Stock Ownership Plan was $339 in
1994. There were no discretionary contributions for 1996 or 1995. During
1996, 1995 and 1994, the Company utilized treasury stock of $1,092, $871,
and $1,267, respectively, for benefit plan contributions.
The Company has a non-qualified executive deferred compensation plan for
certain officers and key employees. The Company's expense for this plan was
$901, $970, and $668 in 1996, 1995, and 1994, respectively. At December 31,
1996 and 1995, respectively, Other non-current liabilities include $3,492
and $2,975 for obligations under this plan. Interest expense for the years
ended December 31, 1996, 1995, and 1994 includes $561, $486, and $229,
respectively, related to the plan. The Company also has performance bonus
plans for certain of its employees. Related expense amounted to
approximately $1,169, $2,679, and $5,220 in 1996, 1995 and 1994,
respectively.
The Company has previously provided for post-retirement benefit obligations
of operations discontinued in prior years. The Company has no
post-retirement benefit obligations for any of its continuing operations.
Note 14. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
<S> First Second Third Fourth Total
1996 Quarter Quarter Quarter Quarter Year
<C> <C> <C> <C> <C>
Revenues $ 31,172 $ 29,162 $ 34,854 $ 42,534 $ 137,722
Gross profit 6,317 7,051 5,889 7,876 27,133
Net income (loss) (864) (747) (1,969) 202 (3,378)
Net income (loss) per
common share (.07) (.06) (.14) .00 (.27)
</TABLE>
<TABLE>
<CAPTION>
<S> First Second Third Fourth Total
1995 Quarter Quarter Quarter Quarter(a) Year
<C> <C> <C> <C> <C>
Revenues $ 30,165 $ 34,307 $ 34,983 $ 34,512 $ 133,967
Gross profit 8,464 9,222 7,346 6,704 31,736
Net income (loss) 535 719 470 (5,531) (3,807)
Net income (loss) per
common share .03 .04 .02 (.41) (.33)
</TABLE>
(a) Net loss in the fourth quarter of 1995 includes a net restructuring
charge (see Note 3 of Notes to Consolidated Financial Statements).
The above financial information for each quarter reflects all normal and
recurring adjustments.
Item 9. Disagreements with Accountants on Accounting and Financial
Disclosure
Not applicable.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 with respect to the directors and the
executive officers of the Company is incorporated herein by this reference
to such information in the definitive proxy statement for the 1997 Annual
Meeting of Stockholders.
Item 11. Executive Compensation
The information required by Item 11 is incorporated herein by this
reference to such information in the definitive proxy statement for the
1997 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated herein by this
reference to such information in the definitive proxy statement for the
1997 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated herein by this
reference to such information in the definitive proxy statement for the
1997 Annual Meeting of Stockholders.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1 and 2. Financial statements being filed as part of this report are
listed in the index in Item 8 on page 14.
.
(b) The Company filed a current report on Form 8-K dated October 22, 1996
to report preliminary unaudited results for the three months and nine
months ended September 30, 1996.
(c) Exhibits
3.1 Titan's Restated Certificate of Incorporation dated as of November 6,
1986, which was Exhibit 3.1 to Registrant's 1987 Annual Report on Form
10-K is incorporated herein by this reference. Titan's Certificate of
Amendment of Restated Certificate of Incorporation dated as of June
30, 1987, which was Exhibit 3.2 to Registrant's 1987 Annual Report on
Form 10-K is incorporated herein by this reference.
3.2 Titan's by-laws, as amended, which was Exhibit 6(a)(3) to Registrant's
Quarterly Report on Form 10-Q dated November 13, 1995, is incorporated
herein by this reference.
4.1 Warrant to Purchase Common Stock of Registrant issued to Corporate
Property Associates 9, L.P., a Delaware limited partnership, which
was Exhibit 4.1 to Registrant's Form 8-K dated July 11, 1991, is
incorporated herein by this reference.
4.2 Amendment to Warrant dated December 3, 1996, between the Registrant and
Corporate Property Associates 9, L.P.
4.3 Warrant to Purchase Common Stock of Registrant issued to Corporate
Property Associates 10 Incorporated, a Maryland corporation, which
was Exhibit 4.2 to Registrant's Form 8-K dated July 11, 1991, is
incorporated herein by this reference.
4.4 Amendment to Warrant dated December 3, 1996, between the Registrant and
Corporate Property Associates 10, Incorporated.
4.5 Rights Amendment, dated as of August 21, 1995, between The Titan
Corporation and American Stock Transfer and Trust Company, which was
Exhibit 1 to Registrant's Form 8-A dated September 5, 1995, is
incorporated herein by this reference.
4.6 Certificate of Designations of Series B Cumulative Convertible
Redeemable Preferred Stock which was Exhibit 4.1 to Registrant's
Registration Statement on Form S-3 (No. 333-10919) is incorporated
herein by this reference.
4.7 Registration Rights Agreement, dated May 24, 1996, which was Exhibit 2
to Schedule 13D filed on behalf of Mr. Jack D. Witt on June 5, 1996,
is incorporated herein by this reference.
4.8 Stockholders Agreement, dated May 24, 1996, which was Exhibit 1 to
Schedule 13D filed on behalf of Mr. Jack D. Witt on June 5, 1996, is
incorporated herein by this reference.
4.9 Form of Indenture relating to the Registrant's 8 1/4% Convertible
Subordinated Debentures due November 1, 2003, which was Exhibit 4.1
to Amendment No. 1 to Registrant's Registration Statement on Form S-3
(No. 333-10695) is incorporated herein by this reference.
10.1 Stock Option Plan of 1983, as amended though January 1, 1987, which
was Exhibit 10.2 to Registrant's 1987 Annual Report on Form 10-K is
incorporated herein by this reference.
10.2 Stock Option Plan of 1986, as amended through January 1, 1987, which
was Exhibit 10.3 to Registrant's 1987 Annual Report on Form 10-K is
incorporated herein by this reference.
10.3 Stock Option Plan of 1990, which was filed in the 1990 definitive
proxy statement and was Exhibit 10.11 to Registrant's 1989 Annual
Report on Form 10-K is incorporated herein by this reference.
10.4 Stock Option Plan of 1994, which was filed in the 1994 definitive
proxy statement and was Exhibit 10.17 to Registrant's 1993 Annual
Report on Form 10-K is incorporated herein by this reference.
10.5 1989 Directors' Stock Option Plan which was filed in the 1990
definitive proxy statement and was Exhibit 10.12 to Registrant's 1989
Annual Report on Form 10-K is incorporated herein by this reference.
10.6 1992 Directors' Stock Option Plan which was filed in the 1993
definitive proxy statement and was Exhibit 10.14 to Registrant's 1992
Annual Report on Form 10-K is incorporated herein by this reference.
10.7 1996 Directors' Stock Option and Equity Participation Plan which was
filed in the 1996 definitive proxy statement and was Exhibit 10.7 to
Registrant's 1995 Annual Report on Form 10-K is incorporated herein
by this reference.
10.8 Supplemental Retirement Plan for Key Executives which was filed in the
1990 definitive proxy statement and was Exhibit 10.13 to Registrant's
1989 Annual Report on Form 10-K is incorporated herein by this
reference.
10.9 1995 Employee Stock Purchase Plan, which was Exhibit 4 to Registrant's
Form S-8 dated December 18, 1995, is incorporated herein by this
reference.
10.10 Lease Agreement dated as of July 9, 1991, by and between Torrey Pines
Limited Partnership, a California limited partnership, as landlord,
and Registrant, as tenant, which was Exhibit 10.1 to Registrant's Form
8-K dated July 11, 1991 is incorporated herein by this reference.
10.11 Agreement and Plan of Reorganization of Eldyne, Inc. dated as of
April 19, 1996, by and among Eldyne, Inc., Jack Witt, ELD Acquisition
Sub, Inc. and Registrant, which was Exhibit 2.1 to Registrant's Form
8-K dated May 24, 1996, is incorporated herein by this reference.
10.12 Agreement and Plan of Reorganization of Unidyne Corporation dated as
of April 19, 1996, by and among Unidyne Corporation, Jack Witt, UNI
Acquisition Sub, Inc. and Registrant, which was Exhibit 2.2 to
Registrant's Form 8-K dated May 24, 1996, is incorporated herein by
this reference.
10.13 Asset Purchase Agreement as of March 5, 1994, by and between
Registrant and Cubic Corporation which was Exhibit 2 to Registrant's
Form 8-K dated March 5, 1994, is incorporated herein by this
reference.
10.14 Line of Credit Agreement dated as of August 8, 1994, by and between
Sumitomo Bank of California and Registrant, which was Exhibit 10.16
to Registrant's 1994 Annual Report on Form 10-K, is incorporated herein
by this reference.
10.15 Executive Severance Plan entered into by the Company with Gene W.
Ray, Eric M. DeMarco, Philip J. Englund, Ronald B. Gorda, Cornelius
L. Hensel, and Frederick L. Judge, which was Exhibit 6(a)(10) to
Registrant's Quarterly Report on Form 10-Q dated November 13, 1995,
is incorporated herein by this reference.
10.16 First Amendment to Commercial Loan Agreement dated May 25, 1995, by
and between Registrant and Sumitomo Bank of California, which was
Exhibit 10.15 to Registrant's 1995 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.17 Second Amendment to Commercial Loan Agreement dated December 29,
1995, by and between Registrant and Sumitomo Bank of California, which
was Exhibit 10.16 to Registrant's 1995 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.18 Third Amendment to Commercial Loan Agreement dated May 9, 1996, by
and between Registrant and Sumitomo Bank of California.
10.19 Fourth Amendment to Commercial Loan Agreement dated September 6,
1996, by and between Registrant and The Sumitomo Bank of California,
which was Exhibit 10.1 to the Company's Registration Statement on Form
S-3/A No. 333-10919, is incorporated herein by this reference.
10.20 Security Agreement dated September 6, 1996, made by Registrant in
favor of The Sumitomo Bank of California, which was Exhibit 10.19 to
the Company's Registration Statement on Form S-3/A No. 333-10919, is
incorporated herein by this reference.
10.21 Pledge Agreement executed as of September 6, 1996, by Registrant in
favor of The Sumitomo Bank of California, which was Exhibit 10.3 to
the Company's Registration Statement on Form S-3/A No. 333-10919, is
incorporated herein by this reference.
10.22 Patent Collateral Assignment made and entered into as of September 6,
1996, by Registrant in favor of The Sumitomo Bank of California, which
was Exhibit 10.4 to the Company's Registration Statement on Form S-3/A
No. 333-10919, is incorporated herein by this reference.
10.23 Security Agreement dated as of September 6, 1996, made by Titan
Information Systems Corporation in favor of The Sumitomo Bank of
California, which was Exhibit 10.5 to the Company's Registration
Statement on Form S-3/A No. 333-10919, is incorporated herein by this
reference.
10.24 Patent Collateral Assignment made and entered into as of September 6,
1996, by Titan Information Systems Corporation in favor of The Sumitomo
Bank of California, which was Exhibit 10.6 to the Company's
Registration Statement on Form S-3/A No. 333-10919, is incorporated
herein by this reference.
10.25 Continuing Guaranty executed as of September 6, 1996, by Titan
Information Systems Corporation in favor of The Sumitomo Bank of
California, which was Exhibit 10.7 to the Company's Registration
Statement on Form S-3/A No. 333-10919, is incorporated herein by this
reference.
10.26 Fifth Amendment to Commercial Loan Agreement dated October 18, 1996,
by and between Registrant and Sumitomo Bank of California.
10.27 Loan and Security Agreement, dated December 29, 1995, by and between
Registrant and Capital Associates International, Inc., which was
Exhibit 10.17 to Registrant's 1995 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.28 Rider dated August 13, 1996, to Loan and Security Agreement dated
December 29, 1995 by and between Registrant and Capital Associates
International, Inc.
10.29 Loan and Security Agreement dated January 31, 1996, by and between
Registrant and Sanwa General Equipment Leasing, a division of Sanwa
Business Credit Corporation, which was Exhibit 10.18 to Registrant's
1995 Annual Report on Form 10-K, is incorporated herein by this
reference.
10.30 Amended and Restated Loan and Security Agreement dated May 24, 1996,
by and between Crestar Bank and Eldyne, Inc., Unidyne Corporation and
DCS Acquisition Sub, Inc.
10.31 Formal modification dated December 23, 1996, of the Amended and
Restated Loan and Security Agreement dated May 24, 1996, by and between
Crestar Bank and Eldyne, Inc., Unidyne Corporation and DCS Acquisition
Sub, Inc.
21. Titan Subsidiaries as of December 31, 1996.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE TITAN CORPORATION
By: /S/ Gene W. Ray
Gene W. Ray
President and Chief Executive Officer
March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ J.S. Webb Chairman of the March 26, 1997
J.S. Webb Board of Directors
/s/ Gene W. Ray President, Chief March 26, 1997
Gene W. Ray Executive Officer and
Director
/s/ Eric M. DeMarco Senior Vice President and March 26, 1997
Eric M. DeMarco Chief Financial Officer
(Principal Financial Officer)
/s/ Deanna H. Petersen March 26, 1997
Deanna H. Petersen Corporate Controller
(Principal Accounting Officer)
/s/ Charles R. Allen Director March 26, 1997
Charles R. Allen
Director March __, 1997
Joseph F. Caligiuri
/s/ Daniel J. Fink Director March 26, 1997
Daniel J. Fink
Director March __, 1997
Robert E. La Blanc
/s/ Thomas G. Pownall Director March 25, 1997
Thomas G. Pownall
<PAGE>
<TABLE>
<CAPTION>
THE TITAN CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1996, 1995 and 1994
(in thousands of dollars)
Balance Balance
at at
beginning end
<S> of year Additions Deductions of year
1996: <C> <C> <C> <C>
Allowance for doubtful accounts $ 294 $ -- $ 57 $ 237
1995:
Allowance for doubtful accounts 412 193 311 294
1994:
Allowance for doubtful accounts 764 1 353 412
</TABLE>
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Form 10-K or are
incorporated herein by reference.
Exhibit
3.1 Titan's Restated Certificate of Incorporation dated as of November 6,
1986, which was Exhibit 3.1 to Registrant's 1987 Annual Report on Form
10-K is incorporated herein by this reference. Titan's Certificate of
Amendment of Restated Certificate of Incorporation dated as of June
30, 1987, which was Exhibit 3.2 to Registrant's 1987 Annual Report on
Form 10-K is incorporated herein by this reference.
3.2 Titan's by-laws, as amended, which was Exhibit 6(a)(3) to Registrant's
Quarterly Report on Form 10-Q dated November 13, 1995, is incorporated
herein by this reference.
4.1 Warrant to Purchase Common Stock of Registrant issued to Corporate
Property Associates 9, L.P., a Delaware limited partnership, which
was Exhibit 4.1 to Registrant's Form 8-K dated July 11, 1991, is
incorporated herein by this reference.
4.2 Amendment to Warrant dated December 3, 1996, between the Registrant and
Corporate Property Associates 9, L.P.
4.3 Warrant to Purchase Common Stock of Registrant issued to Corporate
Property Associates 10 Incorporated, a Maryland corporation, which
was Exhibit 4.2 to Registrant's Form 8-K dated July 11, 1991, is
incorporated herein by this reference.
4.4 Amendment to Warrant dated December 3, 1996, between the Registrant and
Corporate Property Associates 10, Incorporated.
4.5 Rights Amendment, dated as of August 21, 1995, between The Titan
Corporation and American Stock Transfer and Trust Company, which was
Exhibit 1 to Registrant's Form 8-A dated September 5, 1995, is
incorporated herein by this reference.
4.6 Certificate of Designations of Series B Cumulative Convertible
Redeemable Preferred Stock which was Exhibit 4.1 to Registrant's
Registration Statement on Form S-3 (No. 333-10919) is incorporated
herein by this reference.
4.7 Registration Rights Agreement, dated May 24, 1996, which was Exhibit 2
to Schedule 13D filed on behalf of Mr. Jack D. Witt on June 5, 1996,
is incorporated herein by this reference.
4.8 Stockholders Agreement, dated May 24, 1996, which was Exhibit 1 to
Schedule 13D filed on behalf of Mr. Jack D. Witt on June 5, 1996, is
incorporated herein by this reference.
4.9 Form of Indenture relating to the Registrant's 8 1/4% Convertible
Subordinated Debentures due November 1, 2003, which was Exhibit 4.1
to Amendment No. 1 to Registrant's Registration Statement on Form S-3
(No. 333-10695) is incorporated herein by this reference.
10.1 Stock Option Plan of 1983, as amended though January 1, 1987, which
was Exhibit 10.2 to Registrant's 1987 Annual Report on Form 10-K is
incorporated herein by this reference.
10.2 Stock Option Plan of 1986, as amended through January 1, 1987, which
was Exhibit 10.3 to Registrant's 1987 Annual Report on Form 10-K is
incorporated herein by this reference.
10.3 Stock Option Plan of 1990, which was filed in the 1990 definitive
proxy statement and was Exhibit 10.11 to Registrant's 1989 Annual
Report on Form 10-K is incorporated herein by this reference.
10.4 Stock Option Plan of 1994, which was filed in the 1994 definitive
proxy statement and was Exhibit 10.17 to Registrant's 1993 Annual
Report on Form 10-K is incorporated herein by this reference.
10.5 1989 Directors' Stock Option Plan which was filed in the 1990
definitive proxy statement and was Exhibit 10.12 to Registrant's 1989
Annual Report on Form 10-K is incorporated herein by this reference.
10.6 1992 Directors' Stock Option Plan which was filed in the 1993
definitive proxy statement and was Exhibit 10.14 to Registrant's 1992
Annual Report on Form 10-K is incorporated herein by this reference.
10.7 1996 Directors' Stock Option and Equity Participation Plan which was
filed in the 1996 definitive proxy statement and was Exhibit 10.7 to
Registrant's 1995 Annual Report on Form 10-K is incorporated herein
by this reference.
10.8 Supplemental Retirement Plan for Key Executives which was filed in the
1990 definitive proxy statement and was Exhibit 10.13 to Registrant's
1989 Annual Report on Form 10-K is incorporated herein by this
reference.
10.9 1995 Employee Stock Purchase Plan, which was Exhibit 4 to Registrant's
Form S-8 dated December 18, 1995, is incorporated herein by this
reference.
10.10 Lease Agreement dated as of July 9, 1991, by and between Torrey Pines
Limited Partnership, a California limited partnership, as landlord,
and Registrant, as tenant, which was Exhibit 10.1 to Registrant's Form
8-K dated July 11, 1991 is incorporated herein by this reference.
10.11 Agreement and Plan of Reorganization of Eldyne, Inc. dated as of
April 19, 1996, by and among Eldyne, Inc., Jack Witt, ELD Acquisition
Sub, Inc. and Registrant, which was Exhibit 2.1 to Registrant's Form
8-K dated May 24, 1996, is incorporated herein by this reference.
10.12 Agreement and Plan of Reorganization of Unidyne Corporation dated as
of April 19, 1996, by and among Unidyne Corporation, Jack Witt, UNI
Acquisition Sub, Inc. and Registrant, which was Exhibit 2.2 to
Registrant's Form 8-K dated May 24, 1996, is incorporated herein by
this reference.
10.13 Asset Purchase Agreement as of March 5, 1994, by and between
Registrant and Cubic Corporation which was Exhibit 2 to Registrant's
Form 8-K dated March 5, 1994, is incorporated herein by this
reference.
10.14 Line of Credit Agreement dated as of August 8, 1994, by and between
Sumitomo Bank of California and Registrant, which was Exhibit 10.16
to Registrant's 1994 Annual Report on Form 10-K, is incorporated herein
by this reference.
10.15 Executive Severance Plan entered into by the Company with Gene W.
Ray, Eric M. DeMarco, Philip J. Englund, Ronald B. Gorda, Cornelius
L. Hensel, and Frederick L. Judge, which was Exhibit 6(a)(10) to
Registrant's Quarterly Report on Form 10-Q dated November 13, 1995,
is incorporated herein by this reference.
10.16 First Amendment to Commercial Loan Agreement dated May 25, 1995, by
and between Registrant and Sumitomo Bank of California, which was
Exhibit 10.15 to Registrant's 1995 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.17 Second Amendment to Commercial Loan Agreement dated December 29,
1995, by and between Registrant and Sumitomo Bank of California, which
was Exhibit 10.16 to Registrant's 1995 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.18 Third Amendment to Commercial Loan Agreement dated May 9, 1996, by
and between Registrant and Sumitomo Bank of California.
10.19 Fourth Amendment to Commercial Loan Agreement dated September 6,
1996, by and between Registrant and The Sumitomo Bank of California,
which was Exhibit 10.1 to the Company's Registration Statement on Form
S-3/A No. 333-10919, is incorporated herein by this reference.
10.20 Security Agreement dated September 6, 1996, made by Registrant in
favor of The Sumitomo Bank of California, which was Exhibit 10.19 to
the Company's Registration Statement on Form S-3/A No. 333-10919, is
incorporated herein by this reference.
10.21 Pledge Agreement executed as of September 6, 1996, by Registrant in
favor of The Sumitomo Bank of California, which was Exhibit 10.3 to
the Company's Registration Statement on Form S-3/A No. 333-10919, is
incorporated herein by this reference.
10.22 Patent Collateral Assignment made and entered into as of September 6,
1996, by Registrant in favor of The Sumitomo Bank of California, which
was Exhibit 10.4 to the Company's Registration Statement on Form S-3/A
No. 333-10919, is incorporated herein by this reference.
10.23 Security Agreement dated as of September 6, 1996, made by Titan
Information Systems Corporation in favor of The Sumitomo Bank of
California, which was Exhibit 10.5 to the Company's Registration
Statement on Form S-3/A No. 333-10919, is incorporated herein by this
reference.
10.24 Patent Collateral Assignment made and entered into as of September 6,
1996, by Titan Information Systems Corporation in favor of The Sumitomo
Bank of California, which was Exhibit 10.6 to the Company's
Registration Statement on Form S-3/A No. 333-10919, is incorporated
herein by this reference.
10.25 Continuing Guaranty executed as of September 6, 1996, by Titan
Information Systems Corporation in favor of The Sumitomo Bank of
California, which was Exhibit 10.7 to the Company's Registration
Statement on Form S-3/A No. 333-10919, is incorporated herein by this
reference.
10.26 Fifth Amendment to Commercial Loan Agreement dated October 18, 1996,
by and between Registrant and Sumitomo Bank of California.
10.27 Loan and Security Agreement, dated December 29, 1995, by and between
Registrant and Capital Associates International, Inc., which was
Exhibit 10.17 to Registrant's 1995 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.28 Rider dated August 13, 1996, to Loan and Security Agreement dated
December 29, 1995 by and between Registrant and Capital Associates
International, Inc.
10.29 Loan and Security Agreement dated January 31, 1996, by and between
Registrant and Sanwa General Equipment Leasing, a division of Sanwa
Business Credit Corporation, which was Exhibit 10.18 to Registrant's
1995 Annual Report on Form 10-K, is incorporated herein by this
reference.
10.30 Amended and Restated Loan and Security Agreement dated May 24, 1996,
by and between Crestar Bank and Eldyne, Inc., Unidyne Corporation and
DCS Acquisition Sub, Inc.
10.31 Formal modification dated December 23, 1996, of the Amended and
Restated Loan and Security Agreement dated May 24, 1996, by and between
Crestar Bank and Eldyne, Inc., Unidyne Corporation and DCS Acquisition
Sub, Inc.
21. Titan Subsidiaries as of December 31, 1996.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule
EXHIBIT 21
SUBSIDIARIES OF THE TITAN CORPORATION
State of Incorporation
Name or Jurisdiction
Eldyne, Inc......................................... California
Unidyne Corporation................................. Virginia
Diversified Control Systems, Inc.................... Delaware
Federal Services, Inc............................... California
Pulse Sciences, Inc................................. California
Titan Environmental Corporation..................... Delaware
Titan Information Systems Corporation............... Delaware
ServNOW! NetTechnologies, Inc....................... Delaware
Titan Aerochem, Inc................................. Delaware
TomoTherapeutics, Inc............................... Delaware
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT,
dated as of the 24th day of May, 1996, is made by and
between CRESTAR BANK, a Virginia banking corporation (the
Lender), ELDYNE, INC., a California corporation (Eldyne),
UNIDYNE CORPORATION, a Virginia corporation (Unidyne), DCS
ACQUISITION SUB, INC., a Delaware corporation (DCS), and any
Subsidiary that subsequently becomes a party to this
Agreement in accordance with the provisions set forth below
(with Eldyne, Unidyne, DCS and any such Subsidiary being
referred to collectively as the Borrowers, and individually,
a Borrower).
RECITALS
A. The Lender, Eldyne, Unidyne and Diversified Control
Systems
L.L.C., a Nevada limited liability company (DCS LLC), are
parties to a Loan and Security Agreement, dated as of
February 8, 1995 (as amended to the date hereof, the
Original Agreement).
B. Pursuant to the Agreement and Plan of
Reorganization of Eldyne, Inc., dated as of April 19, 1996
(the Eldyne Acquisition Agreement) by and among Eldyne, Jack
Witt (Witt), ELD Acquisition Sub, Inc., and The Titan
Corporation, a Delaware corporation (Titan), Titan has
acquired all of the stock of Eldyne. Pursuant to the
Agreement and Plan of Reorganization of Unidyne, Inc., dated
as of April 19, 1996 (the Unidyne Acquisition Agreement), by
and among Unidyne, Witt, UNI Acquisition Sub, Inc., and
Titan, Titan has acquired all of the stock of Unidyne.
Pursuant to the Asset Purchase Agreement by and among DCS
LLC, Witt, DCS and Titan, dated as of April 19, 1996 (the
DCS Acquisition Agreement), DCS acquired certain of the
assets of, and assumed certain of the liabilities of, DCS
LLC. Titan owns all of the stock of DCS.
C. Titan and the Borrowers desire to continue the
credit relationship with the Lender arising out of the
Original Agreement, subject to the terms of this Agreement.
The Lender has consented to Titan's acquisition of the
Borrowers and is willing to continue the credit
relationship, subject to the terms of this Agreement.
D. The Borrowers have coordinated certain business
functions,
including finance, marketing and treasury functions and such
coordinated functions include applying for and making use of
credit on a joint basis. Each Borrower derives substantial
direct and indirect benefits from its relationships with the
other Borrowers, including the benefits of enhanced credit
availability.
E. The Lender has agreed to make the Loans
(hereinafter defined) provided for in this Agreement
available to the Borrowers on a group basis such that each
Borrower is jointly and severally liable for all amounts
owing in connection with the financing, regardless of which
Borrower actually receives the Loan proceeds. The Lender is
unwilling to provide this or similar financing to the
Borrowers on an individual basis. Consequently, the Loans
provided by this Agreement would be unavailable to the
individual Borrowers unless all participated in concert
hereunder.
F. In light of the foregoing, the Borrowers as
separate legal entities have joined together for the purpose
of obtaining the benefit of the extensions of credit under
this Agreement. All parties to this Agreement acknowledge
and agree that the Lender has been induced to enter into
this Agreement and to extend credit under this Agreement in
reliance upon the joint and several liability of the
Borrowers. Each Borrower acknowledges and agrees that it is
jointly and severally liable for all borrowings by the group
or any of its members under this Agreement, regardless of
whether such Borrower receives any portion of the proceeds
of a particular borrowing.
G. As one of the conditions for extending such credit to
all of
the
Borrowers jointly and severally, the Lender has required,
and the Borrowers have agreed, that the Borrowers shall
grant a perfected lien and security interest in the
Collateral of all the Borrowers as described in Section 3.1
of this Agreement.
Accordingly, for good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the
Lender and the Borrowers agree
that the Original Agreement is amended and restated to read
in its entirety as follows:
Section 1. Definitions. As used in this Agreement,
the following terms shall have the meanings assigned to them
below, which meanings shall be equally applicable to the
singular and plural forms of the terms defined.
"Accounts Receivable" means, collectively, and includes
all of the following, whether now owned or hereafter
acquired by any Borrower: all property included within the
definitions of "accounts," "chattel paper," "documents" and
"instruments" set forth in the UCC; all present and future
rights to payments for goods sold or leased or for services
rendered, whether or not represented by instruments or
chattel paper, and whether or not earned by performance;
contract rights; all present and future rights to payments
for computer software, computer hardware or computer systems
sold, leased or licensed; proceeds of any letter of credit
of which any Borrower is a beneficiary; all forms of
obligations whatsoever owed to any Borrower, together with
all instruments and documents of title representing any of
the foregoing; all rights in any goods that any of the
foregoing may represent; any and all rights in any returned
or repossessed goods; and all rights, security and
guaranties with respect to any of the foregoing, including,
without limitation, any right of stoppage in transit.
"Acquisition Agreements" means, collectively, the
Eldyne Acquisition Agreement, the Unidyne Acquisition
Agreement and the DCS Acquisition Agreement.
"Affiliate" means, with respect to any specified
Person, any other Person that, directly or indirectly,
through one or more intermediaries, controls or is
controlled by, or is under common control with, such
specified Person. The term "control" means the possession,
direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person,
whether through ownership of common stock, by contract or
otherwise.
"Aging" means a schedule of all outstanding Receivables
(including separate itemizations of notes and leases) of the
Borrowers showing the initial invoice date of each
Receivable and the age of the Receivables in intervals of 30
days.
"Agreement" means this Amended and Restated Loan and
Security Agreement, as the same may be amended, modified or
supplemented from time to time.
"Assignment of Claims Act" means, collectively, the
Assignment of Claims Act of 1940, as amended, 31 U.S.C.
Section 3727, 41 U.S.C. Section 15, any applicable rules,
regulations and interpretations issued pursuant thereto, and
any amendments to any of the foregoing.
"Assumption Agreement" means each Assumption Agreement,
substantially in the form of Exhibit A attached to this
Agreement, executed by a Subsidiary that becomes a party to
this Agreement and the other Loan Documents in accordance
with the provisions of Section 8.3 below.
"Borrowing Base" means, at the time in question, the sum of
the
Eldyne Borrowing Base and the Unidyne Borrowing Base.
"Borrowing Base Certificate" means a certificate of a
Borrower containing a computation of the Borrowing Base of
such Borrower and certifying that no Default has occurred
and is continuing, in form and substance satisfactory to the
Lender.
"Business Day" means any day other than a Saturday,
Sunday or other
day on which commercial banks are authorized or required to
close under the laws of the State.
"Capital Lease" means any lease that has been or should
be capitalized on the books of the lessee in accordance with
GAAP.
"Chief Financial Officer" means the Senior Vice
President, Chief Financial Officer and Principal Accounting
Officer of Titan and each Borrower, or his designee.
"Closing" means the initial disbursement of the Loans.
"Code" means the Internal Revenue Code of 1986, as
amended from time to time.
"Collateral" means, collectively, and includes all
Accounts Receivable, Equipment, General Intangibles,
Inventory, the Real Estate and all other property of the
Borrowers in which a Lien is granted to the Lender pursuant
to this Agreement, the Mortgages or any other Loan Document.
"Covenant Compliance Certificate" means a certificate
executed by the Chief Financial Officer substantially in the
form of Exhibit B attached to this Agreement, containing a
calculation of the financial covenants contained in Section
7 hereof and certifying that no Default has occurred and is
continuing.
"Customer" means any Person obligated on a Receivable.
"DCAA" means the Defense Contract Audit Agency and any
successor
thereto.
"Debt" means, collectively, and includes, with respect
to any specified Person (a) indebtedness or liability for
borrowed money or for the deferred purchase price of
property or services; (b) obligations as a lessee under a
Capital Lease; (c) obligations to reimburse the issuer of
letters of credit or acceptances; (d) all guaranties,
endorsements (other than for collection or deposit in the
ordinary course of business) and other contingent
obligations to purchase, to provide funds for payment, to
supply funds to invest in any other Person or otherwise to
assure a creditor against loss; (e) obligations under
interest rate swap agreements or similar agreements; and (f)
obligations secured by any Lien on property owned by the
specified Person, whether or not the obligations have been
assumed.
"Default" means any Event of Default or any event that,
with the giving of notice, the lapse of time, or both, would
constitute an Event of Default.
"EBIDA" means, for any Borrower for any fiscal period, the
sum of
(a) Net Income of such Borrower, plus (b) depreciation
expense, amortization expense and interest expense (to the
extent each is deducted in determining Net Income).
"EBIT" means, for any Borrower for any fiscal period, Net
Income of such Borrower plus, to the extent deducted to
determine Net Income, interest and income tax expense.
"Eldyne Borrowing Base" means, at any time, the sum of (a)
85% of
Eligible Billed Government Receivables of Eldyne, plus (b)
75% of Eligible Billed Commercial Receivables of Eldyne.
"Eldyne Sublimit" means $3,000,000.
"Eligible Billed Commercial Receivables" means Eligible
Billed Receivables that do not arise out of a prime contract
between the
Government and Eldyne or Unidyne which has been assigned to
the Lender pursuant to the Assignment of Claims Act.
"Eligible Billed Government Receivables" means Eligible
Billed Receivables that (a) arise out of a prime contract
between the Government and Eldyne or Unidyne, (b) have been
assigned directly to the Lender pursuant to the Assignment
of Claims Act, and (c) do not arise out of a classified
contract.
"Eligible Billed Receivables" means Eligible
Receivables that have been billed to the appropriate
Customer and are aged less than 90 days from the date of the
initial invoice. For the purposes of this definition, the
term "initial invoice" shall mean the first invoice relating
to the applicable goods shipped or services rendered, and
not any subsequent invoice relating thereto.
"Eligible Receivables" means Accounts Receivable of
Eldyne or Unidyne (a) that represent valid obligations
incurred by a Customer for goods shipped or delivered or
services completed under valid contracts of sale, lease or
service that have been formally awarded to such Borrower and
for which all required contract documents have been executed
by the Customer and such Borrower and, in the case of
Accounts Receivable owed by the Government, for which funds
have been appropriated and allocated; (b) on which the
Customer is not Titan, another Borrower, an Affiliate or
Subsidiary of a Borrower or an Affiliate or Subsidiary of
Titan; (c) with respect to which such Borrower has no
knowledge or notice of any inability of the Customer to make
full payment; (d) from the face amounts of which have been
deducted all payments, setoffs, amounts subject to adverse
claims made in writing to such Borrower, contractual
allowances, bad debt reserves and other credits applicable
thereto; (e) that are subject to no Liens other than those
permitted by this Agreement; (f) that continue to be in full
conformity with the representations and warranties made by
such Borrower to the Lender in this Agreement; (g) with
respect to which the Lender is and continues to be satisfied
with the credit standing of the Customer; (h) on which the
Customer is not a creditor of such Borrower; (i) on which
the Customer is not a foreign government or an entity
organized and existing under the laws of a country other
than the United States; (j) in which the Lender has a
perfected, first priority security interest; (k) that are
payable in United States dollars in the United States; (l)
that are not evidenced by notes; (m) that are not in
dispute; and (n) that do not arise out of a bill and hold
sale, a guaranteed sale, a sale and return, a sale on
approval or a consignment transaction; provided, however,
and without limiting any other provisions of this Agreement
with respect to the exclusion of Receivables from the
category of Eligible Receivables and the Borrowing Base,
that (1) if the Lender reasonably determines that the
collectibility of any Receivable makes it unacceptable for
inclusion in the Borrowing Base and gives written notice to
such Borrower indicating the reasons for such determination,
then such Receivable shall thereafter be excluded from the
category of Eligible Receivables, (2) if more than 50% of
the aggregate face amount of Receivables owed by a Customer
are aged more than 89 days from the dates of the initial
invoices, then all Receivables owed by such Customer shall
be included in a separate line item on the Borrowing Base
Certificate and, at the Lender's option, shall be excluded
from the category of Eligible Receivables, and (3) in no
case shall Eligible Receivables include any Accounts
Receivable representing or arising out of retainages due
more than 30 days from the date of determination, holdbacks,
revenues recognized or costs incurred in excess of approved
or allowed reimbursement rates, cost overruns, unauthorized
work or work beyond the scope of a contract, rebillings or
contracts secured by surety bonds.
"Equipment" means, collectively, and includes all of
the following, whether now owned or hereafter acquired by
any Borrower: all items that are included within the
definitions of "equipment" and "fixtures" as set forth in
the UCC, including, without limitation, computer software,
computer hardware, computer systems, furniture, machinery,
vehicles and trade fixtures, together with any and all
accessories, accessions, parts and appurtenances thereto,
substitutions therefor and replacements thereof.
"Equipment Loan" means the loan made by the Lender to
Unidyne
pursuant to Section 2.3.
"Equipment Note" means a promissory note, in form and
substance acceptable to the Lender, made by the Borrowers in
the principal amount of the Equipment Loan, and payable to
the Lender, as such note may be amended, modified,
supplemented or replaced from time to time.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time.
"Event of Default" means any of the events specified as
an "Event of Default" under this Agreement, provided that
any requirement for the giving of notice, the lapse of time,
or both, or any other condition, has been satisfied.
"GAAP" means generally accepted accounting principles
consistently
applied.
"General Intangibles" means collectively and includes
all of the following, whether now owned or hereafter
acquired by any Borrower: all property that is included
within the definition of "general intangibles" as set forth
in the UCC; choses in action, causes of action and all other
intangible property of every kind and nature, including,
without limitation, corporate or other business records,
inventions, designs, patents, patent applications,
trademarks, trademark applications, trade names, trade
secrets, good will, registrations, copyrights, licenses,
franchises, customer lists, tax refunds, tax refund claims,
rights of claims against carriers and shippers, leases and
rights to indemnification.
"Government" means the United States of America or any
agency or
instrumentality thereof.
"Guarantor" means The Titan Corporation, a Delaware
corporation.
"Guaranty" means a guaranty agreement, in form and
substance acceptable to the Lender, from the Guarantor in
favor of the Lender, as the same may be amended, modified or
supplemented from time to time.
"Interest Payment Date" means the first day of each
calendar month for the Working Capital Loans, and the 15th
day of each calendar month for the Mortgage Loan and the
Equipment Loan.
"Inventory" means, collectively, and includes all of
the following, whether now owned or hereafter acquired by
any Borrower: all property included within the definition
of "inventory" set forth in the UCC; all goods, computer
software, computer hardware or computer systems held or
intended for sale, lease or licensing by any Borrower or
furnished or to be furnished under contracts of sale,
leasing, licensing or service or used or consumed in the
business of any Borrower; and all raw materials, work in
process, finished goods, materials and supplies of every
nature used or usable in connection with the manufacture,
packing, shipping, advertising or sale of any such goods.
"Leverage Ratio" means for any Borrower at any time, the
ratio of
Total Liabilities of such Borrower to Tangible Net Worth of
such Borrower.
"LIBOR" means, as of the date of the Closing and as of
the first Business Day of each succeeding calendar month
(each, a LIBOR Calculation
Date), the rate at which dollar deposits with a one-month
maturity are offered to leading banks in the London
interbank market at 11:00 a.m. two business days prior to
the LIBOR Calculation Date, based on quotations published by
Reuters or The Wall Street Journal, plus adjustments
(expressed as a percentage) for reserve requirements,
deposit insurance premium assessments, broker's commissions
and other regulatory costs as determined by the Lender's
Funds Management Division in its sole discretion.
"Lien" means any mortgage, deed of trust, pledge,
security interest, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or
preference, priority or other security agreement, or
preferential arrangement, charge or encumbrance of any kind
or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any
Capital Lease and the filing of any financing statement
under the UCC or comparable law of any jurisdiction to
evidence any of the foregoing).
"Loans" means the Working Capital Loans, the Mortgage
Loan and the Equipment Loan to be made to the Borrowers by
the Lender pursuant to this Agreement.
"Loan Documents" means this Agreement, the Working
Capital Note, the Mortgage Note, the Equipment Note, the
Mortgages, the Guaranty, the Subordination Agreement and any
other document now or hereafter executed or delivered in
connection with the Obligations, in evidence thereof or as
security therefor, including, without limitation, any pledge
agreement, security agreement, deed of trust, mortgage,
promissory note or subordination agreement.
"Mortgage Loan" means the loan made by the Lender to Unidyne
pursuant to Section 2.2.
"Mortgage Note" means a promissory note, in form and
substance acceptable to the Lender, made by the Borrowers in
the principal amount of the Mortgage Loan and payable to the
Lender, as such note may be amended, modified, supplemented
or replaced from time to time.
"Mortgages" means a deed of trust with respect to the
Real Estate in Virginia and a mortgage with respect to the
Real Estate in Connecticut, each of which shall be in form
and substance acceptable to the Lender, and shall create a
first Lien against the Real Estate, as either such deed of
trust or mortgage may be amended, modified or supplemented
from time to time.
"Net Income" means for any Borrower for any fiscal
period, consolidated gross revenues less all operating and
non-operating expenses, including all charges of a proper
character, less extraordinary gains of a non-recurring
nature, with all of the foregoing accounting terms being
determined in accordance with GAAP.
"Notes" means the Working Capital Note, the Mortgage Note
and the
Equipment Note.
"Obligations" means the Working Capital Loans, the
Mortgage Loan, the Equipment Loan, the Notes, all
indebtedness and obligations of the Borrowers under this
Agreement and the other Loan Documents, as well as all other
obligations, indebtedness and liabilities of the Borrowers
to the Lender, now existing or hereafter arising, of every
kind and description, whether or not evidenced by notes or
other instruments, and whether such obligations,
indebtedness and liabilities are direct or indirect, fixed
or contingent, liquidated or unliquidated, due or to become
due, secured or unsecured, joint, several or joint and
several, related or unrelated to the Loans, similar or
dissimilar to the indebtedness arising out of this
Agreement, of the same or a different class of indebtedness
as the
indebtedness arising out of this Agreement, including,
without limitation, any overdrafts in any deposit account
maintained by any Borrower with the Lender, all obligations
of any Borrower with respect to letters of credit issued by
the Lender for the account of any Borrower, any indebtedness
of any Borrower that is assigned to the Lender and any
indebtedness of any Borrower to any assignee of this
Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation
established
under ERISA.
"Permitted Acquisition" means any transaction in which
a Borrower or a Subsidiary acquires all or substantially all
of the assets or outstanding capital stock of any Person or
merges or consolidates with any Person, provided that (a)
after giving effect thereto, no Default shall occur, (b) the
surviving entity, if not a Borrower, shall become a Borrower
under the terms of this Agreement within five Business Days
after the consummation of such transaction, (c) such
transaction must be approved by the Lender, which approval
shall be subject to the review by the Lender of all
documentation and financial analysis related to the
transaction as the Lender shall reasonably require, and
shall be granted or denied within 30 Business Days after the
Lender has received such documentation and analysis.
"Person" means an individual, partnership, limited
liability company, corporation, business trust, joint stock
company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"Prime Rate" means the rate of interest established and
announced from time to time by the Lender as its Prime Rate,
it being understood and agreed that the Prime Rate is used
as a reference for fixing the lending rate on commercial
loans and is not necessarily the lowest or most favorable
rate of interest charged by the Lender on such loans.
"Pro-Rated Current Maturities" means, for any Borrower,
as of the last day of a fiscal quarter, the current
maturities of long-term Debt of such Borrower then
outstanding, as determined in accordance with GAAP,
multiplied by a fraction, the numerator of which is the
number of fiscal quarters of the current fiscal year then
ended and the denomination of which is four.
"Real Estate" means the office and warehouse facilities
of Unidyne (a) of approximately 37,200 square feet of base
floor area and 6,050 square feet of office space located on
3.96 acres of land on Princess Anne Road in Norfolk,
Virginia, and (b) of approximately 18,348 square feet of
base floor area and 6,523 square feet of office space
located on 1.27 acres of land in East Lyme, Connecticut.
"Receivables" means the Accounts Receivable and the General
Intangibles.
"Regulatory Change" means any change, after the date of
this Agreement, in any federal or state laws, rules and
regulations, or interpretations thereof, or the adoption
after the date of this Agreement of any rules,
interpretations, directives or requests, applying to a class
of financial institutions including the Lender, under any
federal or state laws or regulations by any court or
regulatory authority charged with the interpretation or
administration thereof.
"State" means the Commonwealth of Virginia.
"Subordinated Unidyne Debt" means the Debt of Unidyne
to Eldyne that is subordinated to the Obligations of Unidyne
pursuant to the terms of the Subordination Agreement.
"Subordination Agreement" means the Subordination
Agreement, dated
as
of May 24, 1996, by and among Eldyne, Unidyne and the
Lender, as the same may be amended, modified or supplemented
from time to time.
"Subsidiary" means a corporation, partnership, limited
liability company or other entity of which shares of stock
or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other managers
of such corporation or entity are at the time owned, or the
management of which is otherwise controlled, directly or
indirectly, through one or more intermediaries, or both, by
the Borrowers or any one or more of them.
"Tangible Net Worth" means for any Borrower, at any date,
(a) all
amounts that, in accordance with GAAP, would be included
under stockholders' equity on the balance sheet of such
Borrower at such time, plus (b) in the case of Unidyne, the
Subordinated Unidyne Debt, and in the case of Eldyne, the
redeemable preferred stock minus (c) amounts carried on the
books of such Borrower for (1) any write-up in the book
value of any assets resulting from a revaluation thereof
subsequent to the date of this Agreement, or in connection
with the Acquisition Agreements; (2) treasury stock; (3)
unamortized debt discount expense; (4) any cost of
investments in excess of the value of net assets acquired at
any time of acquisition; (5) loans or advances to, or
Receivables or accruals due from, another Borrower, the
Guarantor or any Affiliate or Subsidiary of the Guarantor or
such Borrower (other than Receivables arising in the
ordinary course of business, payable within 90 days,
pursuant to which there is a prime contractor and
subcontractor relationship on a Government contract), or
directors, officers, employees or shareholders of such
Borrower, any Affiliate of such Borrower or any Subsidiary;
(6) unmarketable securities; and (7) patents, patent
applications, copyrights, trademarks, trade names, good
will, research and development costs, organizational
expenses, capitalized software costs and other like
intangibles.
"Termination Date" means December 31, 1996, and any
extension or extensions thereof granted by the Lender in its
sole discretion.
"Total Liabilities" means, for any Borrower at any
date, the liabilities of the Borrower (including tax and
other proper accruals), computed in accordance with GAAP.
"UCC" means the Uniform Commercial Code as adopted in
the State, and all amendments thereto.
"Unidyne Borrowing Base" means, at any time, the sum of
(a) 85% of Eligible Billed Government Receivables of
Unidyne, plus (b) 75% of Eligible Billed Commercial
Receivables of Unidyne.
"Unidyne Sublimit" means $4,000,000.
"Unused Fee Percentage" means 3/8 of 1% per annum.
"Working Capital Limit" means $7,000,000.
"Working Capital Loans" means the loans made to Unidyne and
Eldyne by the Lender pursuant to Section 2.1.
"Working Capital Note" means a promissory note, in form and
substance satisfactory to the Lender, made by the Borrowers in the
principal amount of $7,000,000 and payable to the Lender, as such
note may be amended, modified, supplemented or replaced from time to
time.
<PAGE>
Section 2. Loans.
Section 2.1. Working Capital Loans.
(a) Subject to the terms and conditions of this Agreement,
the Lender agrees to make Working Capital Loans to Eldyne and Unidyne
from time to time until the Termination Date in an aggregate principal
amount not to exceed the Working Capital Limit at any one time
outstanding. Up to the Working Capital Limit, Eldyne and Unidyne may
borrow, repay without penalty and re-borrow hereunder from the date of
this Agreement until the Termination Date; provided, however, that no
Working Capital Loan will be disbursed by the Lender if, after such
disbursement, the aggregate principal amount of the Working Capital
Loans would exceed the Borrowing Base.
(b) In addition to the foregoing limits set forth in
Section 2.1(a), unless the Lender otherwise agrees (which it shall have
no obligation to do), the outstanding Working Capital Loans (1) made to
Eldyne shall not exceed at any time the lesser of the Eldyne Sublimit
or the Eldyne Borrowing Base, and (2) made to Unidyne shall not exceed
at any time the lesser of the Unidyne Sublimit or the Unidyne Borrowing
Base.
(c) The Borrowers shall immediately prepay the Working
Capital Loans to the extent that the aggregate unpaid principal
balances of the Working Capital Loans at any time exceed the Borrowing
Base, the Working Capital Limit or any of the applicable limits
specified in Section 2.1(b). The Borrowers acknowledge that as of the
date hereof, the outstanding amount of Working Capital Loans of Eldyne
is $2,001,500 and the outstanding amount of Working Capital Loans to
Unidyne is $1,986,000.
(d) The proceeds of the Working Capital Loans shall be used
for short-term working capital purposes and no other purpose. At
Closing, the initial Working Capital Loans shall be used to repay the
loans made to the Borrowers pursuant to Sections 2.1 and 2.2 of the
Original Agreement.
(e) Eldyne or Unidyne may request that a Working Capital
Loan be made, which request may be in writing or by telephone and made
or signed by those individuals designated by such Borrowers from time
to time, in written instruments delivered to the Lender, as authorized
to make such requests (a "Request"); provided, however, that the
Borrowers shall remain liable with respect to any Working Capital Loan
disbursed by the Lender in good faith hereunder, even if such Working
Capital Loan is requested by an individual who has not been so
designated. Any Request must be received by the Lender no later than
2:00 p.m. (Washington, D.C. time) on the date on which the Working
Capital Loan is to be made. Requests made by telephone shall be
confirmed in writing and delivered to the Lender within five Business
Days after the date of the request. The proceeds of the Working
Capital Loans shall be credited to a deposit account maintained with
the Lender by the applicable Borrower. Each Borrower agrees to confirm
in writing from time to time, when and as requested by the Lender, the
purpose for which the proceeds of each Working Capital Loan were used.
(f) The unpaid principal balance of the Working Capital
Loans shall bear interest at a rate per annum equal to LIBOR plus
2.75%. The interest rate on the Working Capital Loans shall be
adjusted on the first Business Day of each calendar month based on
LIBOR in effect as of such first Business Day. Payments of interest on
each Working Capital Loan shall be made on each Interest Payment Date,
beginning on the Interest Payment Date next succeeding the date of
disbursement of such Working Capital Loan.
(g) The obligation of the Borrowers to repay the Working
Capital Loans, together with interest thereon, shall be evidenced by
the
Working Capital Note. The unpaid principal balance of the Working
Capital Note shall be payable on the Termination Date.
(h) The Borrowers and the Lender from time to time may agree
to extend the Termination Date or increase the amount of credit to be
provided under this Section 2.1, or both. During any such periods of
extension, the remaining terms and conditions of this Agreement shall
remain in full force
and effect, and the Borrowers shall execute and deliver any amendments
or modifications to the Loan Documents as the Lender may require in
connection with any such extension or increase. Nothing in this
Section 2.1(h) shall obligate the Lender to grant such extensions or to
increase the amount of credit provided under this Section 2.1.
Section 2.2. Mortgage Loan.
(a) Subject to the terms and conditions of this Agreement,
the Lender agrees to make the Mortgage Loan to Unidyne in the principal
amount of $1,272,745.66. The proceeds of the Mortgage Loan shall be
disbursed at Closing and applied to the payment in full of the
commercial mortgage loan made to Unidyne by the Lender pursuant to
Section 2.3 of the Original Agreement.
(b) The unpaid principal balance of the Mortgage Loan shall
bear interest at a rate per annum equal to LIBOR plus 2.50%. The
interest rate on the Mortgage Loan shall be adjusted on the first
Business Day of each calendar month based on LIBOR in effect as of such
first Business Day. Payments of interest on the Mortgage Loan shall be
made on each Interest Payment Date, beginning on the Interest Payment
Date next succeeding the Closing.
(c) The obligation of the Borrowers to repay the Mortgage
Loan shall be evidenced by the Mortgage Note. The principal amount of
the Mortgage Loan shall be payable in equal consecutive monthly
installments of principal of $4,162.50 each, due on the 15th day of
each calendar month commencing on June 15, 1996. If not sooner paid,
the Mortgage Loan shall be due and payable in full on February 15,
2000. Partial prepayments of the Mortgage Note shall be applied to
installments due thereunder in the inverse order of their maturities.
Amounts prepaid with respect to the Mortgage Loan may not be
reborrowed.
Section 2.3. Equipment Loan.
(a) Subject to the terms and conditions of this Agreement,
the Lender agrees to make the Equipment Loan to Unidyne in the
principal amount of $158,123.75.
(b) The proceeds of the Equipment Loan shall be disbursed at
Closing and applied to the payment in full of the equipment loan made
to Unidyne by the Lender pursuant to Section 2.4 of the Original
Agreement.
(c) The unpaid principal balance of the Equipment Loan shall
bear interest at a rate per annum equal to LIBOR plus 2.50%. The
interest rate on the Equipment Loan shall be adjusted on the first
Business Day of each calendar month based on LIBOR in effect as of such
first Business Day. Payments of interest on the Equipment Loan shall be
made on each Interest Payment Date, beginning on the Interest Payment
Date next succeeding the Closing.
(d) The obligations of the Borrowers to repay the Equipment
Loan shall be evidenced by the Equipment Note. The principal amount of
the Equipment Note shall be repaid in equal consecutive monthly
installments of principal of $5,208.33 each, due on the 15th day of
each month, beginning on June 15, 1996. If not sooner paid, the
Equipment Loan shall be due and payable in full on February 15, 1999.
Partial prepayments of the Equipment Note shall be applied to
installments due thereunder in the inverse order of their maturities.
Amounts prepaid with respect to the Equipment Loan may not be
reborrowed.
Section 2.4. Fees. The Borrowers agree to pay to the Lender (a)
in consideration of the Working Capital Loans, on the first Business
Day of each January, April, July and October, commencing with the first
such date after the date of this Agreement, and on the Termination
Date, a commitment
fee equal to the applicable Unused Fee Percentage per annum of the
average daily amount of the difference between the Working Capital
Limit and the aggregate unpaid principal amount of the Working Capital
Loans outstanding on each day during the preceding quarter or portion
thereof, which fee shall commence to accrue as of the date of this
Agreement; (b) on the date of the Closing, all accrued and unpaid fees
due under the Original Agreement; and (c) a $15,000 non-refundable
renewal and assumption fee, payable at Closing.
Section 2.5. Payments and Computations. All payments due under
this Agreement (including any payment or prepayment of principal,
interest, fees and other charges) or with respect to the Notes or the
Loans shall be made in lawful money of the United States of America, in
immediately available funds, without defense, setoff or counterclaim,
to the Lender at its office at 8245 Boone Boulevard, Vienna, Virginia
22182, or at such other place as the Lender may designate, and shall be
applied first to accrued fees, next to accrued late charges, next to
accrued interest and then to principal. If any payment of principal,
interest or fees is due on a day other than a Business Day, then the
due date will be extended to the next succeeding full Business Day and
interest and fees will be payable with respect to the extension. If
any payment of principal, interest or fees is not made within ten days
of its due date, the Borrowers agree to pay to the Lender a late charge
equal to 5% of the amount of the payment. Upon the occurrence of an
Event of Default and during the continuation of such Event of Default,
interest shall accrue on the Loans at a per annum rate of 2% above the
rate of interest that otherwise would be applicable. Interest and fees
shall be computed on the basis of a year of 360 days and actual days
elapsed. The Lender may, but shall not be obligated to, debit the
amount of any payment due under this Agreement to any deposit account
of any Borrower maintained with the Lender. No setoff, claim,
counterclaim, reduction or diminution of any obligation or any defense
of any kind or nature that any Borrower has or may have against the
Lender (other than the defense of payment) shall be available against
the Lender in any suit or action brought by the Lender to enforce this
Agreement or any other Loan Document. The foregoing shall not be
construed as a waiver by any Borrower of any rights or claims that such
Borrower may have against the Lender, but any recovery upon such rights
and claims shall be had from the Lender separately, it being the intent
of this Agreement and the other Loan Documents that the Borrowers shall
be obligated to pay, absolutely and unconditionally, all amounts due
hereunder and under the other Loan Documents.
Section 2.6. LIBOR Option. If the Lender determines in good
faith that it is unable to obtain funds in the London interbank market
or that LIBOR does not accurately reflect the cost to the Lender of
obtaining funds to make the Loans, the Lender shall give written notice
of such determination to the Borrowers and the interest rate on such
Loans, effective as of the date of such notice, shall be calculated at
the Prime Rate plus 1/4% per annum, adjusted daily when and as the
Prime Rate is changed.
Section 3. Collateral.
Section 3.1. Security Interest.
(a) To secure the Obligations, Eldyne and Unidyne reaffirm
the security interest granted by the Original Agreement, and each
Borrower grants to the Lender, its successors and assigns, a security
interest in the Accounts Receivable, the Equipment, the General
Intangibles, and the Inventory, all additions and accessions thereto
and replacements thereof, all proceeds and products thereof, all books
of account and records,
including all computer software relating thereto, all policies of
insurance on any property of each Borrower and all proceeds of such
policies, all deposits of each Borrower (general or special, time or
demand, provisional or final) at any time maintained with or held by
the Lender or its Affiliates, including any certificates of deposit,
and all instruments,
investments or securities held for each Borrower, and all indebtedness
owed to each Borrower by the Lender or any of its Affiliates.
(b) As additional security for the Obligations, Unidyne
shall execute, deliver and record modifications to the Mortgages to
confirm the first priority against the Real Estate obtained by the
Lenders in connection with the Original Agreement. The Mortgage
against the Real Estate in Virginia shall secure $1,100,000 of
outstanding Obligations, and the Mortgage against the Real Estate in
Connecticut shall secure $650,000 of the outstanding Obligations.
Section 3.2. Receivables.
(a) Each Borrower represents and warrants as to each and
every Eligible Receivable now existing that: (1) it is a bona fide
existing obligation, valid and enforceable against the Customer, for
goods sold or leased or services rendered in the ordinary course of
business; (2) it is subject to no dispute, defense or offset except as
disclosed in writing to the Lender; (3) all instruments, chattel paper
and other evidences of indebtedness, issued to any Borrower with
respect to any Receivable have been delivered to the Lender, and,
together with all supporting documents delivered to the Lender, are
genuine, complete, valid and enforceable in accordance with their
terms; (4) it is not subject to any discount, allowance or special
terms of payment except as disclosed in writing to the Lender or as
permitted by Section 3.2(b) below; (5) the security interest in any
collateral securing the Receivables is a perfected, first priority
security interest; and (6) it is not and shall not be subject to any
prohibition or limitation upon assignment. Each Borrower covenants and
agrees that each Eligible Receivable arising after the date of this
Agreement will be in conformance with the foregoing representations.
(b) The Borrowers shall immediately notify the Lender of (1)
any dispute in excess of $50,000 with a Customer, and (2) the
bankruptcy, insolvency, receivership, assignment for the benefit of
creditors or suspension of business of any such Customer of which any
Borrower has knowledge. No Borrower shall compromise or discount any
Receivable without the prior written consent of the Lender except for
(i) ordinary trade discounts or allowances for prompt payment, and (ii)
prior to the occurrence of a Default, such compromises or discounts
that, after giving effect thereto, will not cause the Borrowing Base to
be less than the aggregate unpaid principal balance of the Working
Capital Loans and Reducing Revolver Loans then outstanding.
(c) Upon the occurrence and during the continuation of an
Event of Default, if required by the Lender, each Borrower shall
establish a lockbox with the Lender and shall direct all Customers to
make payments on Receivables to such lockbox by printing such direction
on all invoices given to Customers. The Borrowers also shall remit to
such lockbox or deliver to the Lender all payments on Receivables
received by any Borrower. Such payments shall be remitted or delivered
in their original form on the day of receipt. All notes, checks and
other instruments so received by any Borrower shall be duly endorsed to
the order of the Lender. The payments remitted to the lockbox and all
payments delivered to the Lender shall be credited to a cash collateral
account maintained by the Lender in the name of the Borrowers over
which the Lender shall have the exclusive power of withdrawal. After
final collection, funds credited to the cash collateral account shall
be applied to the payment of the Obligations. If a Default shall occur
and be continuing, then, at the option of the Lender, all funds in the
cash collateral account shall be retained in the cash collateral
account and
be held as security for the Obligations, and funds in the cash
collateral account may be applied to the Obligations by the Lender from
time to time, whether or not such Obligations are then due.
(d) Upon the occurrence of a Default, the Lender shall have
the right to notify Customers of its security interest in the
Receivables and require payments to be made directly to the Lender,
and, to facilitate
direct collection, the Lender shall have the right to take over the
Borrowers' post office boxes or make other arrangements, with which the
Borrowers shall cooperate, to receive the Borrowers' mail.
(e) The Borrowers shall execute all other agreements,
instruments and documents and shall perform all further acts that the
Lender may require with respect to Receivables owing by the Government
to ensure compliance with the Assignment of Claims Act.
Section 3.3. Inventory and Equipment.
(a) All of the Inventory and Equipment is now, and will
continue to be, kept only at the locations designated on Schedule 1
attached to this Agreement. The Borrowers shall give the Lender prior
written notice before any Inventory or Equipment with an aggregate book
value of more than $100,000 is moved or delivered to a location other
than those designated on Schedule 1, and the Lender's lien and security
interest will be maintained despite the location of the Inventory or
Equipment. The Borrowers shall execute and record financing statements
in all jurisdictions in which Inventory or Equipment with an aggregate
book value of $100,000 or more is to be located for more than four
months. The Borrowers shall not, without the prior written consent of
the Lender, permit any Inventory or Equipment with an aggregate book
value in excess of $100,000 to be moved to a location outside of the
United States of America.
(b) The Borrowers shall keep and maintain the Equipment in
good operating condition and repair. The Borrowers shall not permit
any of the Equipment to become a fixture to any real estate unless
subordination agreements satisfactory to the Lender are obtained from
any owner or mortgagee of such real estate. Immediately on demand
therefor by the Lender, the Borrowers shall deliver to the Lender any
and all evidence of ownership of any of the Equipment. If any
Equipment is subject to a certificate of title at any time, the
Borrowers shall deliver such certificate of title to the Lender,
together with such documents as are necessary to cause the Lender's
security interest to be noted thereon. None of the Equipment shall be
sold, transferred, leased or otherwise disposed of without the prior
written consent of the Lender, except for (1) sales or dispositions of
obsolete Equipment, and (2) sales or dispositions of Equipment that is
contemporaneously replaced with Equipment of comparable value and
utility; provided, however, that the Borrowers shall not sell or
dispose of any Equipment specifically related to the Equipment Loan,
unless the Borrowers repay the outstanding balance of the Equipment
Loan in an amount determined by the Lender to be the value of the
Equipment being sold or disposed of.
(c) The Lender's security interest shall extend and attach
to Inventory that is presently in existence and is owned by any
Borrower or in which any Borrower purchases or acquires an interest at
any time and from time to time in the future, whether such Inventory is
in transit or in such Borrower's constructive, actual or exclusive
occupancy or possession or not and wherever such Inventory may be
located, including, without limitation, all Inventory that may be
located at the premises of any Borrower or upon the premises of any
carriers, forwarding agents, truckers, warehousemen, vendors, selling
agents, finishers, convertors or other third parties who may have
possession of the Inventory.
(d) Upon the sale, exchange, lease or disposition of the
Inventory, the security interest of the Lender, without break in
continuity and without further formality or act, shall continue in and
attach to all cash and non-cash proceeds of such sale, exchange, lease
or disposition, including Inventory returned or rejected by customers
or repossessed by any Borrower or the Lender. As to any such sale,
exchange, lease or disposition, the Lender shall have all of the rights
of an unpaid seller, including stoppage in transit, replevin, detinue
and reclamation.
(e) Except for sales or leases made in the ordinary course
of business, the Borrowers shall not sell, lease, encumber or dispose
of or permit the sale, lease, encumbrance or disposal of any Inventory
without the prior written consent of the Lender.
Section 3.4. Defense of Collateral. The Borrowers, at their
expense, will defend the Collateral against any claims or demands
adverse to the Lender's security interest and will promptly pay, when
due, all taxes or assessments levied against any Borrower on the
Collateral.
Section 3.5. Information Regarding Collateral. The Borrowers
shall provide the Lender such information as the Lender from time to
time reasonably may request with respect to the Collateral, including,
without limitation, statements describing, designating, identifying and
evaluating all Collateral and listing all sales and purchases of
Inventory occurring within a designated time period.
Section 3.6. Insurance of Collateral. The Borrowers shall have
the Inventory and Equipment insured against loss or damage by fire,
theft, burglary, pilferage, loss in transportation and such other
hazards as the Lender shall specify, by insurers satisfactory to the
Lender, in amounts satisfactory to the Lender and under policies
containing loss payable clauses satisfactory to the Lender. Any such
insurance policies, or evidence thereof satisfactory to the Lender,
shall be deposited with the Lender. The Borrowers agree that the
Lender shall have a security interest in such policies and the proceeds
thereof, and, if any loss should occur, the proceeds may be applied to
the payment of the Obligations or to the replacement or restoration of
the Inventory or Equipment damaged or destroyed, as the Lender may
elect or direct. After the occurrence of a Default, the Lender shall
have the right to file claims under any insurance policies, to receive
any payments that may be made thereunder, and to execute any and all
endorsements, receipts, releases, assignments, reassignments or other
documents that may be necessary to effect the collection, compromise or
settlement of any claims under any of the insurance policies.
Section 3.7. Perfection of Security Interest. The Borrowers
shall perform any and all steps in all relevant or appropriate
jurisdictions as may be necessary or reasonably requested by the Lender
to perfect, maintain and protect the Lender's security interest in the
Collateral. All instruments, chattel paper and documents of title that
are part of the Collateral shall be delivered to the Lender, duly
endorsed in blank. The Borrowers shall pay the taxes and costs of, or
incidental to, any recording or filing of any financing statements
concerning the Collateral. The Borrowers agree that a carbon,
photographic, photostatic or other reproduction of this Agreement or of
a financing statement is sufficient as a financing statement.
Section 3.8. Power of Attorney. Each Borrower appoints the
Lender and any officer, employee or agent of the Lender, as the Lender
from time to time may designate, as attorneys-in-fact for each Borrower
to perform all actions necessary or desirable in the reasonable
discretion of the Lender to effect the provisions of this Agreement and
to carry out the intent of this Agreement, to do any act that any
Borrower is required to do pursuant to the terms of this Agreement and
to exercise such rights and powers as any Borrower might exercise with
respect to the Collateral, all at the cost and expense of the
Borrowers. Each Borrower agrees that
neither the Lender nor any other such attorney-in-fact will be liable
for any acts of omission or commission, unless such acts were willful
and malicious, nor for any error of judgment or mistake of law or fact.
This power is coupled with an interest and is irrevocable so long as
any Obligations are outstanding. The Lender agrees that it shall not
be entitled to exercise its rights under this Section 3.8 prior to the
occurrence of a Default.
Section 3.9. Limitations on Obligations. It is expressly agreed
by the Borrowers that, notwithstanding any other provision of this
Agreement,
the Borrowers shall remain liable under each Receivable and contract
giving rise to each Receivable to observe and perform all the
conditions and obligations to be observed and performed by any Borrower
in accordance with and pursuant to the terms and provisions of each
such Receivable and contract. The Lender shall not have any obligation
or liability under any Receivable or contract by reason of or arising
out of this Agreement or the assignment of such Receivable or contract
to the Lender or the receipt by the Lender of any payment relating to
the Receivable pursuant to this Agreement, nor shall the Lender be
required or obligated in any manner to perform or fulfill any of the
obligations of any Borrower under or pursuant to any Receivable or
contract, or to make any payment, or to make any inquiry as to the
nature or the sufficiency of any payment received by it or the
sufficiency of any performance by any party under any Receivable, or to
present or file any claim, or to take any action to collect or enforce
any performance or the payment of any amounts that may have been
assigned to it or to which it may be entitled at any time or times.
Section 3.10. Indemnification. In any suit, proceeding or action
brought by or against the Lender relating to the Collateral, the
Borrowers will save, indemnify and keep the Lender harmless from and
against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction of liability whatsoever
of any obligor thereunder, arising out of a breach by any Borrower of
any obligation thereunder or arising out of any other agreement,
indebtedness or liability at any time owing to or in favor of such
obligor or its successors from any Borrower, and all such obligations
of any Borrower shall be and remain enforceable against and only
against such Borrower and shall not be enforceable against the Lender.
The foregoing obligation of the Borrowers to indemnify the Lender shall
not extend to any suit, proceeding or action arising out of the
Lender's gross negligence or willful misconduct.
Section 4. Representations and Warranties. Each Borrower
represents and warrants that:
Section 4.1. Organization, Good Standing and Due Qualification.
No Borrower has a Subsidiary. Each Borrower is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation or organization. Each Borrower has
the power and authority to own its assets and to transact the business
in which it is now engaged or in which it is proposed to be engaged,
and is duly qualified as a foreign corporation or a foreign limited
liability company, as applicable, and in good standing under the laws
of each other jurisdiction in which such qualification is required.
Section 4.2. Power and Authority. The execution, delivery and
performance by the Borrowers of the Loan Documents to which each is a
party have been duly authorized by all necessary corporate action and
do not and will not (a) require any consent or approval of, or filing
or registration with, any governmental agency or authority or the
stockholders of such Borrower; (b) contravene such Borrower's charter
or bylaws; (c) result in a breach of or constitute a default under any
agreement or instrument to which such Borrower is a party or by which
it or its properties may be bound or affected; (d) result in or require
the
creation or imposition of any Lien upon or with respect to any of the
properties now owned or hereafter acquired by such Borrower; or (e)
cause such Borrower to be in default under any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award
applicable to such Borrower.
Section 4.3. Legally Enforceable Agreement. This Agreement is,
and each of the other Loan Documents when delivered under this
Agreement will be, legal, valid and binding obligations of each
Borrower and enforceable against each Borrower in accordance with their
respective terms.
Section 4.4. Financial Statements. The financial statements of
the Borrowers that have been furnished to the Lender in connection with
this
Agreement are complete and correct and fairly present the financial
condition of the Borrowers as of the dates of such statements. Since
the dates of such statements, there has been no material adverse change
in the condition (financial or otherwise), business or operations of
any Borrower.
Section 4.5. Litigation. Except for the litigation described on
Schedule 4.5, there is no pending or threatened action or proceeding
against or affecting any Borrower before any court, governmental agency
or arbitrator, that, in any one case or in the aggregate, may affect
the financial condition, operations, properties or business of any
Borrower in a materially adverse manner.
Section 4.6. Ownership and Liens. Each Borrower has title to
all
of
its assets, including the Collateral, and none of the Collateral or
such assets is subject to any Lien, except Liens permitted by this
Agreement.
Section 4.7. ERISA. The Borrowers are in compliance in all
material
respects with all applicable provisions of ERISA. None of the
Borrowers has incurred any material "accumulated funding deficiency"
within the meaning of Section 302 of ERISA or Section 412 of the Code,
nor has any Borrower incurred any material liability to the PBGC in
connection with any "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) established or maintained by any Borrower. None
of the employee pension benefit plans (as defined above) of any
Borrower, nor any trusts created thereunder, nor any trustee or
administrator thereof, has engaged in a "prohibited transaction," as
such term is defined in Section 406 of ERISA or Section 4975 of the
Code, that could subject such plans or any of them, any such trust, or
any trustee or administrator thereof, or any party dealing with such
plans or any such trust to any material liability or tax or penalty on
prohibited transactions imposed by such SectionSection 406 or 4975.
None of the Borrowers nor any Affiliate of any Borrower is now, or at
any time in the past has been, obligated to make contributions to a
"multiemployer plan," as such term is defined in Section 4001(a)(3) of
ERISA.
Section 4.8. Taxes. Each Borrower has filed all tax returns
(federal, state and local) required to be filed and have paid all
taxes, assessments and governmental charges and levies thereon to be
due, including interest and penalties.
Section 4.9. Debt. No Borrower is in any manner directly or
contingently obligated with respect to any Debt that is not permitted
by this Agreement. No Borrower is in default with respect to any Debt.
Section 4.10. Corporate Name; Chief Executive Office. No
Borrower
nor any predecessor of any Borrower has used any corporate or
fictitious name other than its current corporate name and the other
names listed on Schedule 2 attached to this Agreement. The chief
executive office of each Borrower, within the meaning of Section
9.103(3)(d) of the UCC, is
3033 Science Park Road, San Diego, California 92121, in the case of
Eldyne; 8040 Villa Park Drive, Suite 800, Richmond, Virginia 23228, in
the case of DCS, and 3835 E. Princess Anne Road, Norfolk, Virginia
23502, in the case of Unidyne.
Section 4.11. Debarment and Suspension. No event has occurred
and
no
condition exists that is likely to result in the debarment or
suspension of any Borrower from any contracting with the Government,
and no Borrower has, nor has any Affiliate of any Borrower, been
subject to any such debarment or suspension prior to the date of this
Agreement.
Section 5. Affirmative Covenants. Each Borrower covenants and
agrees that:
Section 5.1. Maintenance of Existence. Each Borrower will
preserve
and maintain its corporate or limited liability company existence and
good standing in the jurisdiction of its incorporation or organization,
and
qualify and remain qualified as a foreign corporation or limited
liability company in each jurisdiction in which such qualification is
required.
Section 5.2. Maintenance of Records. Each Borrower will keep
adequate records and books of account, in which complete entries will
be made in accordance with GAAP, reflecting all financial transactions
of such Borrower. The principal records and books of account,
including those concerning the Collateral, shall be kept at the chief
executive office of the Borrowers described in Section 4.10 above. No
Borrower will move such records and books of account or change its
chief executive office or the name under which it does business without
(a) giving the Lender at least 30 days' prior written notice, and (b)
executing and delivering financing statements satisfactory to the
Lender prior to such move or change.
Section 5.3. Maintenance of Properties. Each Borrower will
maintain, keep and preserve all of its properties (tangible and
intangible) necessary or useful in the proper conduct of its business
in good working order and condition, ordinary wear and tear excepted.
Section 5.4. Conduct of Business. Each Borrower will continue
to
engage in an efficient and economical manner in a business of the same
general type as conducted by it on the date of this Agreement.
Section 5.5. Maintenance of Insurance. Each Borrower will
maintain
insurance with financially sound and reputable insurance companies or
associations in such amounts and covering such risks as are usually
carried by companies engaged in the same or a similar business and
similarly situated, including, without limitation, insurance covering
the Inventory and Equipment as required by this Agreement and insurance
covering the Real Estate as required by the Mortgages.
Section 5.6. Compliance with Laws. Each Borrower will comply in
all
respects with all applicable laws, rules, regulations and orders
(including, without limitation, ERISA), such compliance to include,
without limitation, paying, before the same become delinquent, all
taxes, assessments and governmental charges imposed upon it or upon its
property.
Section 5.7. Right of Inspection. At any reasonable time and
from
time to time, each Borrower will permit the Lender or any agent or
representative of the Lender to audit and verify the Collateral,
examine and make copies of and abstracts from the records and books of
account of, and visit the properties of, such Borrower, and to discuss
the
affairs, finances and accounts of such Borrower with any of their
respective officers and directors, such Borrower's independent
accountants and the contracting officers and DCAA auditors responsible
for such Borrower's Government contracts. The Borrowers agree to pay
the Lender its customary audit fees and related expenses for each audit
conducted by the Lender.
Section 5.8. Reporting Requirements. The Borrowers will furnish
to
the Lender:
(a) Monthly Financial Statements. As soon as available and,
in any event, within 30 days after the end of each of the first two
months of each fiscal quarter and 55 days after the end of the last
calendar month of each fiscal quarter, (except at fiscal year end)
unaudited financial statements of each Borrower consisting of a balance
sheet as of the end of such month and statements of income,
stockholders' equity and cash flows for the period commencing at the
end of the previous fiscal year and ending with the last day of such
month, all in reasonable detail and all prepared in accordance with
GAAP. Such financial statements shall be certified to be accurate by
the Chief Financial Officer;
(b) Annual Financial Statements. As soon as available and,
in any event, within 100 days after the end of each fiscal year,
audited financial statements of each Borrower consisting of a balance
sheet as of the end of such fiscal year, and statements of income,
stockholders' equity
and cash flows for such fiscal year, all in reasonable detail and
stating in comparative form the respective figures for the
corresponding date and period in the prior fiscal year and all prepared
in accordance with GAAP. The statements shall be accompanied by an
opinion thereon acceptable to the Lender of an independent certified
public accounting firm selected by each Borrower and acceptable to the
Lender;
(c) Tax Returns. If requested by the Lender, as soon as
available and, in any event, within five Business Days after filing,
the federal income tax returns of the Borrowers and the Guarantor;
(d) Management Letters. If requested by the Lender,
promptly upon receipt thereof, copies of any reports submitted to any
Borrower by independent certified public accountants in connection with
examination of the financial statements of any Borrower;
(e) Notice of Litigation. Promptly after the commencement
thereof, notice of all actions, suits and proceedings before any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting any Borrower, in which
more than $100,000 in damages is sought, or that, if determined
adversely to such Borrower, could have a material adverse effect on the
financial condition, properties or operations of such Borrower;
(f) Notice of Defaults and Events of Default. As soon as
possible and, in any event, within five days after the occurrence of
each Default and Event of Default, a written notice setting forth the
details of such Default or Event of Default and the action that is
proposed to be taken by the Borrowers with respect thereto;
(g) Proxy Statements, etc. Promptly after the sending or
filing thereof, copies of all proxy statements, financial statements
and reports that any Borrower or any Subsidiary sends to its
stockholders, and copies of all regular, periodic and special reports,
and all registration statements that any Borrower files with the
Securities and Exchange Commission or any governmental authority that
may be substituted therefor, or with any national securities exchange;
(h) Borrowing Base Certificate. On or before the 25th day
of each calendar month, a Borrowing Base Certificate from each Borrower
appropriately completed and executed by the Chief Financial Officer and
including a computation of the Eldyne Borrowing Base and the Unidyne
Borrowing Base, respectively, as of the last day of the most recently
ended monthly accounting period;
(i) Receivables Detail. On or before the 25th day of each
calendar month, an Aging for each Borrower as of the last day of the
most recently ended monthly accounting period, accompanied by (1)
reports relating to the Receivables setting forth a description of
contracts giving rise to Receivables, the percentage of completion of
the work to be performed with respect to such contracts, the amounts
billed under such contracts and the amounts remaining to be billed, in
form and detail satisfactory to the Lender, and (2) such other invoices
and supporting documents to the schedules as the Lender from time to
time reasonably may request (including any backlog reports with respect
to outstanding contracts of each Borrower);
(j) Bids. Within 30 days after the end of each fiscal
quarter of Eldyne, a summary of bids and proposals for each Borrower,
in form and detail satisfactory to the Lender;
(k) Compliance Certificate. Within 55 days after the end of
each fiscal quarter (except at fiscal year end) of Eldyne, a Covenant
Compliance Certificate of the Chief Financial Officer;
(l) Audits. Promptly after receipt thereof by a Borrower,
(1) the results of the audits of any Government contracts, and (2)
notice of any final decision of a contracting officer disallowing costs
aggregating more than $50,000, which disallowed costs arise out of any
audit of the contracts of any Borrower with the Government by DCAA or
any other agent of the Government;
(m) Contracts. Promptly after receipt by any Borrower of
notice thereof, any material modifications to or the termination of any
contract or agreement relating to Eligible Receivables;
(n) Post-Closing Financials. As soon as they are available,
copies of the post-closing audited financial statements to be delivered
to Titan pursuant to the Acquisition Agreements; and
(o) General Information. Such other information respecting
the condition or operations, financial or otherwise, of any Borrower or
the Guarantor as the Lender from time to time reasonably may request,
including without limitation, current Borrowing Base Certificates and
Agings if the Lender has reason to believe that a Default has occurred
or is likely to occur.
Section 5.9. Life Insurance. Unidyne shall maintain a life
insurance policy insuring the life of David Conner, naming Unidyne as
the beneficiary, in the amount of $750,000, in full force and effect as
long as any Obligations are outstanding.
Section 6. Negative Covenants. Each Borrower agrees that,
without first obtaining the prior written consent of the Lender:
Section 6.1. Liens. No Borrower will create, incur, assume or
permit to exist any Lien upon or with respect to any of its properties,
now owned or hereafter acquired, except: (a) Liens in favor of the
Lender; (b) Liens that are incidental to the conduct of the business of
such Borrower, are not incurred in connection with the obtaining of
credit and do not materially impair the value or use of assets of such
Borrower;
(c) Liens on the Equipment in existence on the date of this Agreement
and described on Schedule 3 attached to this Agreement; and (d)
purchasemoney Liens, whether now existing or hereafter arising
(including those arising out of a Capital Lease) on any fixed assets
provided that (1) any property subject to a purchase-money Lien is
acquired by such Borrower in the ordinary course of its respective
business and the Lien on any such property is created contemporaneously
with such acquisition, (2) each such Lien shall attach only to the
property so acquired, and (3) the Debt of any Borrower secured by all
such Liens shall not exceed $150,000 in the aggregate at any time
outstanding.
Section 6.2. Debt. No Borrower will create, incur, assume or
permit to exist any Debt, except: (a) the Obligations; (b) ordinary
trade accounts payable; (c) Debt of any Borrower (including Debt
arising out of a Capital Lease) secured by purchase-money Liens
permitted by this Agreement; (d) Debt in existence on the date of this
Agreement and described on Schedule 4 attached to this Agreement; (e)
Debt of DCS to Eldyne, provided that the aggregate amount thereof shall
not exceed
$1,000,000 at any time outstanding; (f) Debt of DCS to Unidyne provided
that the aggregate amount thereof shall not exceed $650,000 at any time
outstanding; and (g) the Subordinated Unidyne Debt in an amount not to
exceed $3,600,000 at any time outstanding.
Section 6.3. Mergers, Acquisitions, etc. Except for Permitted
Acquisitions, no Borrower will (a) merge or consolidate with any
Person, or (b) purchase or acquire (1) all or substantially all of the
assets of any Person, or (2) any capital stock of or ownership in any
other Person. Except for joint ventures among the Borrowers, no
Borrower shall become a joint venturer with, or partner of, any other
Person, and no Borrower shall acquire or form a Subsidiary unless such
Subsidiary becomes a Borrower in accordance with Section 8.3 hereof,
provided that the foregoing shall not
prohibit a Borrower from entering into joint contractual arrangements
in the ordinary course of business with other Persons as long as such
Borrower is not liable for the performance of any party to such
contract other than such Borrower's own performance.
Section 6.4. Sale and Leaseback. No Borrower will sell,
transfer or
otherwise dispose of any real or personal property to any Person and
thereafter, directly or indirectly, lease back the same or similar
property.
Section 6.5. Dividends. No Borrower will declare or pay any
dividends; or purchase, redeem, retire or otherwise acquire for value
any of its capital stock now or hereafter outstanding; or make any
distribution of assets to its stockholders as such whether in cash,
assets or obligations of such Borrower; or allocate or otherwise set
apart any sum for the payment of any dividend or distribution on, or
for the purchase, redemption or retirement of, any shares of its
capital stock; or make any other distribution by reduction of capital
or otherwise in respect of any shares of its capital stock; or permit
any of its Subsidiaries to purchase or otherwise acquire for value any
stock of such Borrower or another Subsidiary, except that, subject to
the compliance by such Borrower with the provisions of Section 7 below,
(a) a Borrower may declare and deliver dividends and make distributions
payable solely in common stock of such Borrower, and (b) a Borrower may
purchase or otherwise acquire shares of its capital stock by exchange
for or out of the proceeds received from a substantially concurrent
issue of new shares of its capital stock.
Section 6.6. Sale of Assets. No Borrower will sell, lease,
assign,
transfer or otherwise dispose of any of its now owned or hereafter
acquired assets (including, without limitation, Receivables, the Real
Estate and leasehold interests), except: (a) for Inventory sold or
leased in the ordinary course of business; and (b) the sale or other
disposition of assets (other than the Real Estate) no longer used or
useful in the conduct of its business.
Section 6.7. Loans. No Borrower will make, or permit to exist,
any
loan or advance to Titan, any Affiliate of Titan, or any other Person
except for (a) travel advances to employees in the ordinary course of
business; (b) loans in an aggregate amount not to exceed $125,000
outstanding at any time for all Borrowers; and (c) the Debt permitted
by Sections 6.2(e), (f) and (g).
Section 6.8. Guaranties, etc. No Borrower will assume,
guarantee, endorse or otherwise be or become directly or contingently
responsible or liable (including, but not limited to, any liability
arising out of any agreement to purchase any obligation, stock, assets,
goods or services, or to supply or advance any funds, assets, goods or
services, or to maintain or cause such Person to maintain a minimum
working capital or net worth or otherwise to assure the creditors of
any Person against
loss) for obligations of any Person, or permit any such guaranties or
liabilities to exist, except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business.
Section 6.9. Transactions with Affiliates. No Borrower will
enter
into any transaction, including, without limitation, the purchase, sale
or exchange of property or the rendering of any service, with Titan or
any Affiliate of the Borrower or Titan, except in the ordinary course
of and pursuant to the reasonable requirements of such Borrower's
business and upon fair and reasonable terms no less favorable to such
Borrower than would be applicable in a comparable arm's-length
transaction with a Person not an Affiliate.
Section 6.10. Compliance with ERISA. With respect to any
employee
benefit plan or plans covered by Title IV of ERISA, no Borrower will
permit (a) any prohibited transaction or transactions under ERISA or
the Code that
results, or may result, in liability to a Borrower exceeding in the
aggregate $10,000 or (b) any reportable event under ERISA if, upon
termination of the plan or plans with respect to which one or more such
reportable events shall have occurred, there is or would be any
liability of a Borrower to the PBGC exceeding in the aggregate $10,000.
No Borrower shall adopt, establish or become a party to any
multiemployer plan.
Section 6.11. Tax Accounting. No Borrower will change its tax
accounting method after June 1, 1996.
Section 7. Financial Covenants. Each Borrower agrees that:
Section 7.1. Eldyne Tangible Net Worth. Eldyne shall maintain
as
of
the end of each of its fiscal quarters a Tangible Net Worth of at least
(a) $500,000 as of March 31, 1996, (b) $575,000 as of June 30, 1996,
and (c) $650,000 as of September 30, 1996, and (d) $725,000 as of
December 31, 1996, and at all times thereafter.
Section 7.2. Eldyne Leverage. Eldyne shall maintain as of the
end
of each of its fiscal quarters a Leverage Ratio of not more than (a) 12
to 1 as of March 31, 1996, (b) 11 to 1 as of June 30, 1996, (c) 10 to 1
as of October 31, 1996, and (d) 9 to 1 as of December 31, 1996, and at
all times thereafter.
Section 7.3. Eldyne Interest Coverage. Eldyne shall maintain
for
each period of three, six, nine or 12 months, as applicable, ending on
the last day of each of its fiscal quarters for each of its fiscal
years a ratio of EBIT of Eldyne for such period to interest expense of
Eldyne for such period of at least 2 to 1.
Section 7.4. Unidyne Tangible Net Worth. Unidyne will maintain
as
of the end of each of its fiscal quarters a Tangible Net Worth of at
least (a) $1,000,000 as of March 31, 1996, (b) $1,100,000 as of June
30, 1996, (c) $1,200,000 as of October 31, 1996, and (d) $1,300,000 as
of December 31, 1996, and at all times thereafter.
Section 7.5. Unidyne Working Capital. Unidyne shall maintain as
of
the end of each of its fiscal quarters an excess of current assets over
current liabilities of not less than $1,250,000.
Section 7.6. Unidyne Leverage Ratio. Unidyne shall maintain as
of
the end of each of its fiscal quarters a Leverage Ratio of not more
than (a) 4.60 to 1 as of March 31, 1996, (b) 4.35 to 1 as of June
30, 1996,
(c) 4.10 to 1 as of October 31, 1996, and (d) 3.85 to 1 as of December
31,
1996, and at all times thereafter.
Section 7.7. Unidyne Debt Service Coverage. Unidyne shall
maintain
for each period of three, six, nine or 12 months, as applicable, ending
on the last day of each of its fiscal quarters for each of its fiscal
years, a ratio of EBIDA for such period to interest expense for such
period plus ProRated Current Maturities as of the end of such period of
not less than 1.25 to 1.
Section 7.8. Capital Expenditures. The Borrowers shall not
permit capital expenditures to exceed in any fiscal year (a) $250,000 in
the case of Eldyne, and (b) $600,000 in the case of Unidyne.
Section 8. Conditions of Lending. The making of the Loans
shall be subject to the following conditions:
Section 8.1. Conditions Precedent to Closing. The initial
disbursement of the Loans shall be subject to the following conditions
precedent:
(a) The Loan Documents shall have been appropriately
completed, duly executed by the parties thereto, recorded where
necessary and delivered to the Lender.
(b) No Default shall have occurred and be continuing.
(c) All representations and warranties contained herein shall
be true and correct at the date of the Closing.
(d) All legal matters incident to the Loans shall be
satisfactory to counsel for the Lender, and the Borrowers agree to
execute and deliver to the Lender such additional documents and
certificates relating to the Loans as the Lender reasonably may request.
(e) The Lender shall have received an opinion of counsel to
the Borrowers and the Guarantors as to such matters as the Lender may
request, in form and substance satisfactory to the Lender.
(f) Financing statements in form and substance satisfactory
to the Lender shall have been properly filed in each office where
necessary to perfect the Lender's security interest in the Collateral,
termination statements shall have been filed with respect to any other
financing statements covering all or any portion of the Collateral
(except with respect to Liens permitted by this Agreement), and all
taxes and fees with respect to such recording and filing shall have been
paid by the Borrowers.
(g) The Borrowers shall have delivered to the Lender
(1) certified copies of evidence of all actions taken by each Borrower
and the Guarantor to authorize the execution and delivery of this
Agreement and the other Loan Documents, (2) certified copies of the
articles of incorporation, and merger and the bylaws, as applicable, of
each Borrower and the Guarantor, (3) a certificate of incumbency for
the officers of each Borrower and the Guarantor executing the Loan
Documents, (4) a good standing certificate, dated not more than 30 days
prior to the date of the Closing, from the appropriate state official
of any state in which each Borrower or the Guarantor is incorporated or
formed, or, if requested by the Lender with respect to the Borrowers,
qualified to do business, and (5) such additional supporting documents
as the Lender or counsel for the Lender reasonably may request.
(h) The Lender shall have received from each Borrower a
Borrowing Base Certificate, an Aging, a listing of accounts payable and
a report setting forth the status of all contracts relating to Eligible
Billed Receivables, all of which shall be of a current date and shall
be in form and substance satisfactory to the Lender.
(i) The Lender shall have received evidence satisfactory to
it that the Borrowers have obtained the insurance required by this
Agreement and the Mortgages.
(j) The Lender shall have received such landlord and
mortgagee waivers as it shall request with respect to any landlord or
mortgagee that may claim an interest in any of the Collateral.
(k) Each Borrower shall have executed and delivered to the
Lender all documents required by the Lender to record and perfect an
assignment of any Receivables arising out of a contract with the
Government, and such assignment shall have been appropriately
acknowledged by the Government, all in conformance with the
requirements of the Assignment of Claims Act.
(l) The Lender shall have received and approved the
Acquisition Agreements and all documents relating thereto, and the
transactions subject to the Acquisition Agreements shall have been
consummated.
(m) The Lender shall have received and approved (1) the
credit agreement between Titan and Sumitomo Bank, (2) a copy of the
waiver by Sumitomo Bank of any financial covenant violations with
respect to such credit agreement, and (3) a copy of Sumitomo's consent
to the terms of the Acquisition Agreements.
Section 8.2. Conditions Precedent to Subsequent Disbursements.
Subsequent Loans and disbursements of Loans shall be subject to the
following conditions precedent:
(a) No Default shall have occurred and be continuing.
(b) No material adverse change shall have occurred in the
financial condition of any Borrower.
(c) All representations and warranties shall be true and
correct at the date of such disbursement, both before and after giving
effect to such disbursement. The representations and warranties set
forth in Section 4.4 shall be deemed to apply to the most recent
financial statements delivered to the Lender by the Borrowers.
(d) No change shall have occurred in any law or regulations
thereunder or interpretations thereof that, in the opinion of counsel
for the Lender, would make it illegal for the Lender to make Loans
hereunder.
(e) If required by the Lender, each Borrower shall have
delivered to the Lender a current Borrowing Base Certificate and a
current Aging, duly executed by the chief financial officer of such
Borrower and appropriately completed.
Each borrowing under this Agreement shall be deemed to be a
representation and warranty by the Borrowers on the date of such
borrowing as to the matters specified in this Section 8.2.
Section 8.3. Conditions Precedent to Subsidiaries Becoming
Borrowers. Each Subsidiary that is formed or acquired after the date
of this Agreement shall become a Borrower under this Agreement, subject
to the satisfaction of the following conditions precedent:
(a) The Subsidiary shall execute and deliver to the Lender
an Assumption Agreement.
(b) No Default shall have occurred and be continuing.
(c) All legal matters incident to such Subsidiary becoming a
Borrower shall be satisfactory to counsel for the Lender, and the
Subsidiary shall execute and deliver to the Lender such additional
documents and certificates relating to the Loans as the Lender
reasonably may request.
(d) The Lender shall have received an opinion of counsel to
the Subsidiary, addressed to the Lender, covering such matters as the
Lender may request, in form and substance satisfactory to the Lender.
(e) Financing statements in form and substance satisfactory
to
the Lender shall have been properly filed in each office where
necessary to perfect the security interest of the Lender in the
Collateral of the Subsidiary, termination statements shall have been
filed with respect to any other financing statements covering all or
any portion of such Collateral (except with respect to Liens permitted
by this Agreement), all taxes and fees with respect to such recording
and filing shall have been paid by the Subsidiary and the Lender shall
have received such lien searches or reports as it shall require
confirming that the foregoing filings and recordings have been
completed.
(f) The Subsidiary shall have delivered the following
documents to the Lender, each of which shall be certified as of the
date on which the Subsidiary is to become a Borrower, by the secretary
of the
Subsidiary: (1) copies of evidence of all actions taken by the
Subsidiary to authorize
the execution and delivery of the Assumption Agreement and the other
Loan Documents; (2) copies of the organizational documents of the
Subsidiary; and (3) a certificate as to the incumbency and signatures
of the officers of the Subsidiary executing the Assumption Agreement.
(g) The Lender shall have received a certificate of good
standing (or similar instrument) issued by the appropriate state
official of the state of formation of the Subsidiary, dated within 30
days of the date of the applicable Assumption Agreement.
(h) The Lender shall have received (1) an Aging of
Receivables of the Subsidiary, (2) a schedule of unbilled Receivables
of the Subsidiary, (3) a report relating to the Receivables, setting
forth a description of contracts giving rise to Receivables of the
Subsidiary, the percentage of completion of the work to be performed
with respect to such contracts, the amounts billed under such contracts
and the amounts remaining to be billed, all of which shall be of a
current date and shall be in form and substance satisfactory to the
Lender, and (4) a current Borrowing Base Certificate from the
Subsidiary.
(i) If required by the Lender, the Lender shall have
received a satisfactory audit with respect to the Receivables of such
Subsidiary.
No Receivable of a Subsidiary shall be an Eligible Receivable
prior to the date on which all of the foregoing conditions are
satisfied.
Section 8.4. Post-Closing Satisfaction. The Borrowers agree
that any conditions set forth in Section 8.1 that are not satisfied on
the date of the Closing shall be satisfied not later than (a) June 30,
1996, with respect to Section 8.1(g)(4), and (b) June 11, 1996, with
respect to all other conditions precedent set forth in Section 8.1.
Section 9. Default.
Section 9.1. Events of Default. Each of the following shall
constitute an Event of Default under this Agreement:
(a) Failure of the Borrowers to pay any Obligation to the
Lender, including, without limitation, the principal of or interest on
the Notes or any of the Loans, when the same shall become due and
payable, whether at maturity, as a result of the Lender's demand for
payment or otherwise, and such failure shall continue for a period of
ten days; or
(b) If any Borrower refuses to permit the Lender to inspect,
examine, verify or audit the Collateral in accordance with the
provisions of this Agreement; or
(c) Failure of the Borrowers to perform or observe any
financial covenant contained in Section 7 of this Agreement; or
(d) Failure of the Borrowers to perform or observe any other
term, condition, covenant, warranty, agreement or other provision
contained in this Agreement (except any such failure resulting in the
occurrence of another Event of Default described in this Section),
within 30 days after receipt of notice from the Lender specifying such
failure; or
(e) Discovery that any representation or warranty made or
deemed made by any Borrower in this Agreement or any statement or
representation made in any certificate, report or opinion delivered
pursuant to this Agreement (including any Borrowing Base Certificate)
or in connection with any borrowing under this Agreement was materially
untrue or is breached in any material respect; or
(f) If, as a result of default, any other obligation of any
Borrower or the Guarantor for the payment of any Debt in excess of
$50,000 becomes or is declared to be due and payable prior to the
expressed
maturity thereof, unless and to the extent that the declaration is
being contested in good faith in a court of appropriate jurisdiction;
or
(g) Any Borrower makes an assignment for the benefit of
creditors, files a petition in bankruptcy, petitions or applies to any
tribunal for any receiver or any trustee of such Borrower or any
substantial part of its property, or commences any proceeding relating
to such Borrower under any reorganization, arrangement, readjustments
of debt, dissolution or liquidation law or statute of any jurisdiction,
whether now or hereafter in effect; or
(h) If, within 30 days after the filing of a bankruptcy
petition or the commencement of any proceeding against any Borrower
seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future
statute, law or regulation, the proceeding shall not have been
dismissed, or, if, within 30 days after the appointment, without the
consent or acquiescence of such Borrower, of any trustee, receiver or
liquidator of such Borrower or of all or any substantial part of the
properties of such Borrower, the appointment shall not have been
vacated; or
(i) Any judgment against any Borrower in excess of $50,000
or any attachment in excess of $50,000 against any property of any
Borrower remains unpaid, undischarged, unbonded or undismissed for a
period of 30 days, unless and to the extent that the judgment or
attachment is appealed in good faith in a court of higher jurisdiction
and the appeal remains pending; or
(j) The occurrence of any of the events described in the
three immediately preceding clauses with respect to the Guarantor; or
(k) If any of the following events shall occur or exists
with respect to any Borrower or any employee benefit or other plan
established, maintained or to which contributions have been made by
such Borrower or any other Person that, together with such Borrower,
would be treated as a single employer under Section 4001 of ERISA, and
the Lender reasonably determines that the financial condition of such
Borrower would be materially and adversely affected thereby: (1) any
prohibited transaction (as defined in Section 406 of ERISA or Section
4975 of the Code), (2) any reportable event (as defined in Section 4043
of ERISA and the regulations issued thereunder), (3) the filing under
Section 4041 of ERISA of a notice of intent to terminate any such plan
or the termination of such plan, or (4) the institution of proceedings
by the PBGC under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any such plan; or
(l) A material adverse change occurs in the financial or
business condition of any Borrower; or
(m) The dissolution, liquidation or termination of existence
of any Borrower or the Guarantor; or
(n) If Titan at any time owns, directly or indirectly, less
than 100% of the outstanding voting stock of the Borrowers; or
(o) If the Borrowers fail to give the Lender any notice
required by this Agreement within ten days after the occurrence of the
event giving rise to the obligation to give such notice; or
(p) The occurrence of an event of default under any other
Loan Document; or
(q) If any Borrower shall be debarred or suspended from any
contracting with the Government, unless and to the extent that the
debarment or suspension is being appealed in good faith in appropriate
proceedings and the appeal remains pending; or
(r) If the Guarantor gives notice to the Lender purporting
to terminate the Guarantor's liability under the Guaranty.
Section 9.2. Remedies upon Default. Upon the occurrence of an
Event of Default, the following provisions shall be applicable:
(a) The Lender, at its option, may terminate its obligation
to make Loans under this Agreement and declare all Obligations, whether
incurred prior to, contemporaneous with or subsequent to the date of
this Agreement, and whether represented in writing or otherwise,
immediately due and payable and may exercise all of its rights and
remedies against the Borrowers and any Collateral.
(b) The Lender may foreclose its lien and security interest
in the Collateral in any way permitted by law and shall have, without
limitation, the remedies of a secured party under the UCC. The Lender
may enter the Borrowers' premises without legal process and without
incurring liability to the Borrowers and remove the Collateral to such
place or places as the Lender may deem advisable, or the Lender may
require the Borrowers to assemble the Collateral and make the
Collateral available to the Lender at a convenient place and, with or
without having the Collateral at the time or place of sale, the Lender
may sell or otherwise dispose of all or any part of the Collateral
whether in its then condition or after further preparation or
processing, either at public or private sale or at any broker's board,
in lots or in bulk, for cash or for credit, at any time or place, in
one or more sales and upon such terms and conditions as the Lender may
reasonably elect. The Lender shall give not less than five Business
Days' prior written notice to the Borrowers of the time and place of
any public sale of the Collateral or the time after which the
Collateral may be sold in a private sale, which the Borrowers agree
constitutes commercially reasonable notice. At any such sale the
Lender may be the purchaser, subject to the applicable provisions of
the UCC.
(c) The proceeds from any sale of the Collateral by the
Lender shall first be applied to any costs and expenses in securing
possession of the Collateral and to any expenses in connection with the
sale. The net proceeds will be applied toward the payment of the
Obligations. Application of the net proceeds as to particular
Obligations or as to principal or interest shall be in the Lender's
absolute discretion. Any deficiency will be paid to the Lender
forthwith upon demand, and any surplus will be paid to the Borrowers if
the Borrowers are not otherwise indebted to the Lender.
(d) To the extent that the Obligations are now or hereafter
secured by property other than the Collateral described herein or by
the guarantee, endorsement or property of any other Person, the Lender
shall have the right to proceed against such other guarantee,
endorsement or property upon the occurrence of an Event of Default, and
the Lender shall have the right, in its sole discretion, to determine
which rights, security, liens, security interests or remedies the
Lender shall at any time pursue, relinquish, subordinate, modify or
take any other action with respect thereto, without in any way
modifying or affecting any of them or any of the Lender's rights
hereunder.
(e) The Lender is hereby authorized at any time or from time
to time, without notice to the Borrowers (any such notice being
expressly waived by the Borrowers), to setoff and apply any deposit
(general or special, time or demand, provisional or final) at any time
held, including any certificate of deposit, and other indebtedness at
any time owed by the Lender, whether or not any such deposit or
indebtedness is then due, to or for the credit or account of any
Borrower against any and all of the Obligations.
(f) EACH BORROWER, HAVING KNOWLEDGE THAT IT MAY BE ENTITLED
TO NOTICE AND A HEARING PRIOR TO REPOSSESSION OF THE COLLATERAL, WAIVES
ANY RIGHT THAT IT MAY HAVE UNDER EXISTING OR FUTURE LAW TO NOTICE OF
FORECLOSURE AND ANY OTHER ACT DESCRIBED HEREIN, TO ANY HEARING THAT MAY
BE HELD RELATING TO FORECLOSURE OR ANY OTHER SUCH ACTS, AND TO ANY
NOTICE THAT MAY BE REQUIRED TO BE GIVEN BY THE LENDER PRIOR TO SUCH
HEARING, EXCEPT FOR NOTICES REQUIRED BY THE LOAN DOCUMENTS AND THE UCC.
EACH BORROWER EXPRESSLY WAIVES ITS RIGHT TO A TRIAL BY JURY WITH
RESPECT TO
ANY LITIGATION RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
(g) The Lender itself may perform or comply, or otherwise
cause performance or compliance, with the obligations of the Borrowers
contained in this Agreement, including, without limitation, the
obligations of the Borrowers to defend and insure the Collateral. The
expenses of the Lender incurred in connection with such performance or
compliance, together with interest thereon at the Prime Rate plus 3%,
shall be payable by the Borrowers to the Lender on demand and shall
constitute Obligations.
Section 10. Miscellaneous.
Section 10.1. Collection Costs. The Borrowers shall pay all of
the
reasonable costs and expenses incurred by the Lender in connection
with the enforcement of this Agreement and the other Loan Documents,
including, without limitation, reasonable attorneys' fees and
expenses.
Section 10.2. Modification and Waiver. Except for the other
documents expressly referred to in this Agreement, this Agreement
contains the entire agreement between the parties and supersedes all
prior agreements between the Lender and any Borrower (including,
without limitation, the Original Agreement). No modification or
waiver of any provision of the Notes or this Agreement and no consent
by the Lender to any departure therefrom by any Borrower shall be
effective unless such modification or waiver shall be in writing and
signed by an officer of the Lender with a title of vice president or
any higher office, and the same shall then be effective only for the
period and on the conditions and for the specific instances and
purposes specified in such writing. No notice to or demand on the
Borrowers in any case shall entitle the Borrowers to any other or
further notice or demand in similar or other circumstances. No
failure or delay by the Lender in exercising any right, power or
privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies of the Lender contained in this
Agreement are cumulative and not exclusive of any rights or remedies
otherwise provided by law.
Section 10.3. Notices. All notices, requests, demands or other
communications provided for in this Agreement shall be in writing
(except for requests for Loans made by telephone as described in
Section 2.1 above) and shall be delivered by hand, sent prepaid by
Federal Express (or a comparable overnight delivery service), sent by
telecopy or facsimile or sent by the United States mail, certified,
postage prepaid, return receipt requested, to the Lender, at 8245 Boone
Boulevard, Suite 300, Vienna, Virginia 22182, Attention: Timothy J.
Duggan, Vice President, or to the Borrowers at 3033 Science Park Road,
San Diego, California 92121, Attention: Ray H. Guillaume. Any notice,
request, demand or other communication delivered or sent in the
foregoing manner shall be deemed given or made (as the case may be)
upon the earliest of (a) the date it is actually received, (b) the
business day after the day on which it is delivered by hand or
transmitted by telecopy or facsimile, (c) the business day after the
day on which it is properly delivered to Federal Express (or a
comparable overnight delivery service), or (d) the third business day
after the day on which it is deposited in the United States mail. Any
Borrower or the Lender may change its address by notifying the other
party of the new address in any manner permitted by this Section 10.3.
Rejection or other refusal to accept or the inability
to deliver because of a changed address of which no notice was given
shall not affect the date of such notice, election or demand sent in
accordance with the foregoing provisions.
Section 10.4. Counterparts. This Agreement may be executed by the
parties hereto individually or in any combination, in one or more
counterparts, each of which shall be an original and all of which
together constitute one and the same agreement.
Section 10.5. Captions. The captions of the various sections and
paragraphs of this Agreement have been inserted only for the purposes
of convenience; such captions are not a part of this Agreement and
shall not be deemed in any manner to modify, explain, enlarge or
restrict any of the provisions of this Agreement.
Section 10.6. Survival of Agreements. All agreements,
representations
and warranties made herein shall survive the delivery of this Agreement
and the making and renewal of the Loans hereunder.
Section 10.7. Fees and Expenses. Whether or not any Loans are
made
hereunder, the Borrowers shall pay on demand all reasonable out-of-
pocket costs and expenses incurred by the Lender in connection with the
preparation, negotiation, execution, delivery, filing, recording and
administration of this Agreement and any of the documents executed or
delivered in connection herewith, including, without limitation, the
reasonable fees and expenses of counsel to the Lender, and local
counsel who may be retained by the Lender, with respect to this
Agreement and such documents and any amendments thereof and with
respect to advising the Lender as to its rights and responsibilities
thereunder.
Section 10.8. Use of Defined Terms. All terms defined in this
Agreement shall have the defined meanings when used in certificates,
reports or other documents made or delivered pursuant to this
Agreement, unless the context shall otherwise require.
Section 10.9. Successors and Assigns. This Agreement shall inure
to
the benefit of and bind the respective parties hereto and their
successors and assigns; provided, however, that no Borrower may assign
its rights hereunder without the prior written consent of the Lender.
Section 10.10. Accounting Terms. All accounting terms used herein
that are not otherwise expressly defined in this Agreement shall have
the meanings respectively given to them in accordance with GAAP in
effect on the date of this Agreement. Except as otherwise provided
herein, all financial computations made pursuant to this Agreement
shall be made in accordance with GAAP and all balance sheets and other
financial statements shall be prepared in accordance with GAAP. Except
as otherwise provided herein, whenever reference is made in any
provision of this Agreement to a balance sheet or other financial
statement or financial computation with respect to any Borrower, such
terms shall mean a consolidated balance sheet or other financial
statement or financial computation, as the case may be, with respect to
any Borrower.
Section 10.11. Interpretation. This Agreement and the rights and
obligations of the parties hereunder shall be construed and interpreted
in accordance with the laws of the Commonwealth of Virginia, without
reference to conflict of laws principles.
Section 10.12. Joint and Several Liability. The representations,
warranties, covenants and agreements contained in this Agreement and
the other Loan Documents shall be deemed to have been made, given and
undertaken by the Borrowers jointly and severally.
IN WITNESS WHEREOF, the Borrowers and the Lender have caused this
Agreement to be signed by their duly authorized representatives all as
of the day and year first above written.
LENDER:
CRESTAR BANK,
a Virginia banking corporation
By: _/s/ Brian Monday
__ Brian R. Monday
Vice President
BORROWERS:
ELDYNE, INC., a California
corporation
By:
_/s/Roger Hay
Name: Roger Hay
Title: Sr. VP/CFO
UNIDYNE CORPORATION, a
Virginia corporation
By:
_/s/ Roger Hay
Name:Roger Hay
Title: Sr. VP/CFO
DCS ACQUISITION SUB, INC., a
Delaware
corporation
By:
_/s/ Roger Hay
Name:Roger Hay
Title: Sr. VP/CFO
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
Schedule 1 -- Locations of Inventory and Equipment
Schedule 2 -- Listing of Other Corporate Names
Schedule 3 -- Outstanding Liens
Schedule 4 -- Outstanding Debt
Schedule 4.5 -- Litigation
Exhibit A -- Form of Assumption Agreement
Exhibit B -- Form of Covenant Compliance Certificate
<PAGE>
Schedule 1
Locations of Inventory and
Equipment
<PAGE>
Schedule 2
Listing of Other Corporate Names
Unidyne formerly used the name "Unidyne
International." <PAGE>
Schedule 3
Outstanding Liens
NONE
<PAGE>
Schedule 4
Outstanding Debt
NONE
<PAGE>
Schedule 4.5
Litigation
1. Unidyne has three outstanding litigation actions: Shultz v.
Unidyne Corporation, Anna R. Artis v. Unidyne, and Arthur George
v. Unidyne Corporation et al.
2. DCS has no outstanding litigation actions.
3. Eldyne has no outstanding litigation actions. Eldyne has a
commitment
to pay the Business Software Alliance $25,000.00 on April 29, 1996
for software licenses. A copy of that settlement agreement is
attached to this Schedule 4.5.
<PAGE>
EXHIBIT A
Form of Assumption Agreement
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT (as the same may be amended, modified or
supplemented from time to time, the Assumption), dated as of
________________, made by _______________________, a
____________________ (the Subsidiary), in favor of CRESTAR BANK (the
Bank), recites and provides:
R E C I T A L S
Pursuant to the terms of an Amended and Restated Loan and Security
Agreement, dated as of May 24, 1996 (as amended, modified or
supplemented from time to time, the Loan Agreement), between Eldyne,
Inc., a California corporation (Eldyne), Unidyne Corporation, a
Virginia corporation (Unidyne), and DCS Acquisition Sub, Inc., a
Delaware corporation (DCS, and together with Eldyne and Unidyne, the
Original Borrowers), the Bank agreed to extend credit to the Original
Borrowers. Terms defined in the Loan Agreement shall have the same
defined meanings when such terms are used in this Assumption.
[_________________] owns ____% of the capital stock of the
Subsidiary. [The Original Borrowers][______________________] and the
Subsidiary have combined certain business functions, which include
applying for and making
use of credit on a joint basis. The Borrowers and the Subsidiary
derive substantial direct and indirect benefits from their
relationships with each other. Accordingly, the Original Borrowers
have requested that the Subsidiary become a Borrower under the Loan
Agreement and the other Loan Documents. The Bank has agreed to accept
the Subsidiary as a Borrower thereunder, and the Subsidiary has agreed
to assume the Obligations. Accordingly, the Subsidiary agrees as
follows:
1. The Subsidiary (a) assumes and agrees to be jointly and
severally liable with [the Original Borrowers][each other Borrower] for
all of the Obligations now existing or hereafter arising, including,
without limitation, the Obligations arising out of the Loan Agreement,
the Loans, the Notes and the other Loan Documents, and (b) agrees to be
jointly and severally bound by all of the terms, covenants and
conditions of the Loan Agreement, the Notes and the other Loan
Documents, and hereby assumes all of the Obligations of the [Original]
Borrower[s] thereunder and agrees to be jointly and severally liable
therefor.
2. The Subsidiary represents that (a) its chief executive office,
within the meaning of Section 9.103(3)(d) of the Uniform Commercial
Code, is located at ___________
____________________________________________, and (b) during the five
years prior to the date of this Assumption, the Subsidiary has not used
any fictitious or corporate name other than its current corporate name.
All of the representations and warranties set forth in the Loan
Documents are incorporated by reference in this Assumption, and shall
be deemed to have been made and given by the Subsidiary as of the date
hereof as though such representations and warranties were applicable to
it, except that the representations and warranties set forth in Section
4.4 of the Loan Agreement shall be deemed to have been given with
respect to the most recent financial statements provided to the Bank in
accordance with the provisions of Section 5.8 of the Loan Agreement.
3. The Subsidiary grants to the Bank, in accordance with the
provisions of Section 3.1 of the Loan Agreement, a security interest in
all of the Collateral of the Subsidiary as security for the
Obligations.
4. The Subsidiary agrees to execute, deliver and, if applicable,
record, such additional instruments, documents and agreements as the
Bank may reasonably require for the purpose of effecting the assumption
described herein.
IN WITNESS WHEREOF, the Subsidiary has caused this Assumption to
be executed by its duly authorized representative as of the day and
year first written above.
_________________________, a
___________________________
By: _______________________________
Name: ____________________________
Title: _____________________________
<PAGE>
EXHIBIT B
Form of Covenant Compliance Certificate
CRESTAR BANK
Credit Facilities for
ELDYNE, INC., AND UNIDYNE
CORPORATION
COVENANT COMPLIANCE CERTIFICATE
In connection with the terms of an Amended and Restated Loan and
Security Agreement, dated as of May 24, 1996 (as amended, modified or
supplemented from time to time, the Loan Agreement), between Crestar
Bank, a Virginia banking corporation (the Bank), Eldyne, Inc., a
California corporation (Eldyne), Unidyne Corporation, a Virginia
corporation (Unidyne), and DCS Acquisition Sub, Inc. (DCS, and together
with Eldyne and Unidyne, the Borrowers), the undersigned, on behalf of
the Borrowers, certifies to the Bank that the following information is
true and correct as of the date hereof:
1. No Default or Event of Default has occurred and is
continuing.
2. For the period beginning with the last report, dated as of
_______________, 19__, and ending on the date of this Covenant
Compliance Certificate:
(a) the sum of the aggregate unpaid principal amount of
Working Capital Loans outstanding has not exceeded the Borrowing
Base;
(b) the aggregate unpaid principal amount of Working
Capital Loans outstanding has not exceeded the Working Capital
Limit; and
(c) the outstanding Working Capital Loans made to:
(1) Eldyne have not exceeded the lesser of the
Eldyne Sublimit or the Eldyne Borrowing Base; and
(2) Unidyne have not exceeded the lesser of the
Unidyne Sublimit or the Unidyne Borrowing Base.
3. Eldyne's Tangible Net Worth as of ____________ is
$________________, calculated as follows:
4. The ratio of Eldyne's Total Liabilities to Eldyne's
Tangible
Net
Worth for the fiscal quarters ending on __________________, is ____
to 1, calculated as follows:
5. For the period of ___ months ending on ______________, the
ratio
of Eldyne's EBIT for such period to Eldyne's interest expense for
such period is ____ to 1, calculated as follows:
6. Unidyne's Tangible Net Worth as of ____________ is
$________________, calculated as follows:
7. The excess of Unidyne's current assets over Unidyne's
current
liabilities as of ____________ is $______________, calculated as
follows:
8. The ratio of Unidyne's Total Liabilities to Unidyne's
Tangible
Net Worth, for the fiscal quarter of Unidyne ended ____________, 19__,
is ____ to 1, calculated as follows:
9. For the period of ___ months ending on ______________, the
ratio
of Unidyne's EBIDA for such period to Unidyne's interest expense for
such period plus Pro-Rated Current Maturities as of the end of such
period is ____ to 1, calculated as follows:
10. As of the date hereof, the aggregate Capital Expenditures
for
Eldyne for Eldyne's fiscal year to date is $__________________,
calculated as follows:
11. As of the date hereof, the aggregate Capital Expenditures
for
Unidyne for Unidyne's fiscal year to date is $__________________,
calculated as follows:
Capitalized terms used in this Covenant Compliance Certificate
shall have the same meanings as those assigned to them in the Loan
Agreement. The foregoing is true and correct as of _______________,
19___.
Dated ______________, 19___.
___________________________________
Name: _________________________
Title: __________________________
ELDYNE, INC., a California
corporation
AMENDMENT TO WARRANT
This AMENDMENT TO WARRANT (this "Amendment"), made as of the 3rd day of
December, 1996, by and between THE TITAN CORPORATION, a Delaware corporation
("Titan"), and CORPORATE PROPERTY ASSOCIATES 9, L.P., A DELAWARE LIMITED
PARTNERSHIP, a Delaware limited partnership ("CPA: 9").
W I T N E S S E T H
WHEREAS, Titan issued to CPA:9 that certain Warrant, dated as of July 9, 1991
(the "Warrant"), pursuant to which CPA:9 was granted the right to purchase
18,540 shares of Common Stock of Titan; and
WHEREAS, Titan and CPA:9 have agreed to amend the Warrant as hereinafter set
forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Titan and CPA:9 covenant and
agree as follows:
1. The Warrant is hereby amended by deleting the definition of Exercise Price
appearing in Article I and inserting the following definition in lieu thereof:
"Exercise Price" means $3.50 per share, as such price may be adjusted pursuant
to ARTICLE IV.
2. This Amendment shall be governed by and construed in accordance with the
laws of the State of New York.
3. Except as specifically amended by this Amendment, the terms and conditions
of the Warrant shall remain in full force and effect and shall be binding upon
Titan and its successors and assigns and inure to the benefit of CPA:9 and its
successors and assigns.
4. This Amendment may be executed in any number of counterparts and by the
different parties hereto on separate counterparts each of which, when so
executed, shall be deemed an original, but all such counterparts shall
constitute but one and the same instrument.
WITNESS the due execution hereof the day and year first above written.
THE TITAN CORPORATION
By: __/s/ Philip J. Englund
Title: _Sr. V.P., Gen. Counsel
CORPORATE PROPERTY
ASSOCIATES 9, L.P., A DELAWARE
LIMITED PARTNERSHIP
By: ___Ninth Carey Corporate Property, Inc., its Managing General Partner
By: /s/ Barclay G. Jones
Title: _Executive Vice President
AMENDMENT TO WARRANT
This AMENDMENT TO WARRANT (this "Agreement"), made as of the 3rd day o
December, 1996, by and between THE TITAN CORPORATION, a Delaware corporation
("Titan"), and CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED, a Maryland
corporation (CPA: 10)
W I T N E S S E T H
WHEREAS, Titan issued to CPA:10 that certain Warrant, dated as of July 9, 1991
(the "Warrant"), pursuant to which CPA:10 was granted the right to purchase
81,460 shares of Common Stock of Titan; and
WHEREAS, Titan and CPA:10 have agreed to amend the Warrant as hereinafter set
forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Titan and CPA:10 covenant and
agree as follows:
1. The Warrant is hereby amended by deleting the definition of Exercise Price
appearing in Article I and inserting the following definition in lieu thereof:
"Exercise Price" means $3.50 per share, as such price may be adjusted pursuant
to ARTICLE IV.
2. This Amendment shall be governed by and construed in accordance with the
laws of the State of New York.
3. Except as specifically amended by this Amendment, the terms and conditions
of the Warrant shall remain in full force and effect and shall be binding upon
Titan and its successors and assigns and inure to the benefit of CPA:10 and
its successors and assigns.
4. This Amendment may be executed in any number of counterparts and by the
different parties hereto on separate counterparts each of which, when so
executed, shall be deemed an original, but all such counterparts shall
constitute but one and the same instrument.
WITNESS the due execution hereof the day and year first above written.
THE TITAN CORPORATION
By: ___/s/___________________
Philip J. Englund
Title: _Sr. VP, Gen. Counsel
CORPORATE PROPERTY
ASSOCIATES 10 INCORPORATED
By: ______________________
Title: ______________________
THIRD AMENDMENT TO
COMMERCIAL LOAN AGREEMENT
This Third Amendment to the Commercial Loan Agreement ("Amendment") is
entered into as of this 9th day of May, 1996 by and between SUMITOMO BANK OF
CALIFORNIA ("Bank") and THE TITAN CORPORATION, a Delaware Corporation
("Borrower"), with reference to the following:
RECITALS
A. Borrower and Bank entered into that certain Commercial Loan Agreement
("Agreement") dated August 8, 1994 and subsequently amended on May 25, 1995
and December 29, 1995.
B. Borrower anticipates acquiring the common stock of Eldyne, Inc.,
Unidyne, Inc., and Diversified Controls Systems, Inc. (collectively, the
"Eldyne Acquisition").
C. Borrower and Bank desire to amend the Agreement on the terms and
conditions set forth herein.
AMENDMENT
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrower and Bank agree as follows:
1. Defined Terms. Capitalized terms used in this Amendment and not
otherwise defined herein shall have the meanings given such terms in the
Agreement.
2. Amendments. This Agreement is hereby amended as follows:
A. 1.3 Interest Rate. Section 1.3 of the Agreement is hereby
eliminated and replaced with the following:
(a) Unless Borrower elects an Optional Interest Rate as
described below, the interest rate is Bank's Prime Rate in effect from time to
time plus one half of one percent (.50%).
(b) The "Prime Rate" equals the rate of interest set from time
to time by Bank at its head office in San Francisco, California as its Prime
Rate. The Prime Rate is determined by Bank as a meands of pricing credit
extensions to some customers and is neither tied to any external rate of
interest or index nor is it necessarily the lowest rate of interest charge by
Bank at any given time for any particular class of customers or credit
extensions. Any changes in the interest rate resulting from a change in the
Prime Rate shall take effect without notice on the date specified at the time
the Prime Rate is set.
THIRD AMENDMENT TO COMMERCIAL LOAN AGREEMENT
PAGE 2
(c) Optional Interest Rate. Instead of the interest rate based
on Bank's Prime Rate, Borrower may elect to have all or portions of the
Revolving Line of Credit (during the Availability Period) bear interest at the
Offshore Rate plus two and one half percent (2.50%), as more fully described
in paragraph 1.3 (d) below (the "Optional Interest Rate"), during an interest
period agreed to by Bank and Borrower. Each interest rate is a rate per
annum. Interest will be paid on the last day of each interest period and, if
the interest period is longer than 30 days, then on the first day of each
month during the interest period. At the end of any interest period, the
interest rate will revert to the rate based on the Prime Rate, unless Borrower
has designated another Optional Interest Rate for that Portion.
(d) Offshore Rate/Rate Plus Disclosed Spread. Borrower may
elect to have all or portions of the principal balance of the Revolving Line
of Credit bear interest at the Offshore Rate plus two and one half percent
(2.5%).
Designation of an Offshore Rate portion is subject to the
following requirements:
(i) The interest period during which the Offshore Rate will be
in effect will be no shorter than 30 days and no longer than 180
days as selected by Borrower (except that Borrower may select an
interest period of 14 days so long as the Offshore Rate portion is
at least $1,000,000). The last day of the interest period will be
determined by Bank using the practices of the offshore dollar
inter-bank market.
(ii) Each Offshore Rate portion will be for an amount not less
than two hundred fifty thousand dollars ($250,000) (other than for
an interest period of 14 days, in which event the amount may not
be less than $1,000,000) and increments of fifty thousand dollars
above the minimum.
(iii) The "Offshore Rate" means the interest rate determined by
the following formula, rounded upward to the nearest 1/100 of one
percent. (All amounts in the calculation will be determined by
Bank as of the first day of the interest period.)
Offshore Rate = Eurodollar Rate
(1.00 - Reserve Percentage)
Where,
(A) "Eurodollar Rate" means the interest rate quoted by the
Bank's International Department as the "LIBOR rate" applicable for
the interest period chosen by Borrower.
(B) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
member banks for the Federal Reserve System for Eurocurrency
Liabilities, as defined in the Federal Reserve Board Regulation D.
The percentage will be expressed as a decimal, and will include,
but not be limited to, marginal, emergency, supplemental, special,
and other reserve percentages.
(iv) Borrower may not elect not an Offshore Rate with respect to
any portion of the principal balance of the Revolving Line of
Credit which is scheduled to be repaid before the last day of the
applicable interest period.
(v) No portion of the principal balance of the line of credit
already bearing interest at the Offshore Rate may be converted to
a different rate during its interest period.
(vi) Each prepayment of an Offshore Rate option, whether
voluntary, by reason of acceleration or otherwise, will be
accompanied by the amount of accrued interest on the amount
prepaid, and a prepayment fee equal to the amount (if any) by
which:
(A) the additional interest which would have been payable
on the amount prepaid had it not been paid until the last
day of the interest period, exceeds
(B) the interest which would have been recoverable by Bank
by placing the amount prepaid on the deposit in the offshore
dollar market for a period starting on the date on which it
was prepaid and ending on the last day of the interest
period for such portion.
(C) Bank will have no obligation to accept an election of
an Offshore Rate portion if any of the following described
events has occurred and is continuing:
(x) Dollar deposits in the principal amount, and for
periods equal to the interest period, of an Offshore
Rate portion are not available in the offshore Dollar
interbank market; or
(y) the Offshore Rate does not accurately reflect
the cost of an Offshore Rate portion.
(e) Interest Rate Reduction. At such time that the Borrower
experiences two consecutive quarters of positive net income, the
applicable Interest Rate will become the Offshore Rate plus two
percent (2.00%).
B. 6.2 Financial Information. Section 6.2 is hereby amended
witht he addition of the following:
(e) Borrower to submit a closing balance sheet reflecting the
Eldyne Acquisition by August 25, 1996.
(f) Within 55 days of each fiscal quarter end, consolidated
financial statements for the three entities constituting the
Eldyne Acquisition.
C. 6.5 Tangible Net Worth. Section 6.5 of the Agreement is
hereby eliminated and replaced with the following:
6.5 Minimum Tangible Net Worth. Borrower will maintain on a
consolidated basis as of of the last day of the quarter ending
June 30, 1996 a Minimum Tangible Net Worth of $28,000,000 plus 50%
of net income realized after December 31, 1995 shall apply.
"Minimum Stockholders Equity" to be defined as the difference
between Total Liabilities and Total Assets.
"Tangible Net Worth" to be defined as book net worth minus
intangible assets (such as goodwill, patents, trademarks, trade
names, organization expense, treasury stock, unamortized debt
discount and expense, deferred research and development costs,
capitalized software costs, license fees, deferred marketing
expenses, and other like intangibles, and monies due from
affiliates, officers, directors or shareholders of Borrower) plus
liabilities subordinated to Bank in a manner acceptable to Bank
(using Bank's standard form). Deferred income taxes shall not be
deemed intangible assets.
6.22 Additional Covenants. Section 6.22 sub section (e) is
eliminated and replaced with the following:
(e) acquire or purchase a business or its assets for a
consideration, including assumption of debt, in excess of One
Million and 00/100 dollars ($1,000,000.00).
The following sub-section is an addition to section 6.22:
(k) advance funds to Eldyne, Inc., Unidyne, Inc. or Diversified
Control Systems, Inc. as long as these subsidiaries have working
capital credit facilities committed to them by any financial
institution or commercial lender.
"BORROWER" "BANK"
THE TITAN CORPORATION SUMITOMO BANK OF CALIFORNIA
BY__/s/ Roger Hay__________ BY__/s/ David W. Shaw, VP_________
Roger Hay, Sr. VP/CFO (Printed Name and Title)
(Printed Name and Title)
FIFTH AMENDMENT TO
COMMERCIAL LOAN AGREEMENT
This Fifth Amendment to the Commercial Loan Agreement ("Amendment") is
entered into as of this 18th day of October, 1996 by and between SUMITOMO BANK
OF CALIFORNIA ("Bank") and THE TITAN CORPORATION, a Delaware Corporation
("Borrower"), with reference to the following:
RECITALS
A. Borrower and Bank entered into that certain Commercial Loan Agreement
("Agreement") dated August 8, 1994 and subsequently amended on May 25, 1995
and December 29, 1995, May 9, 1996, and September 6, 1996 (collectively, the
"Agreement").
B. Borrower and Bank desire to amend the Agreement on the terms and
conditions set forth herein.
AMENDMENT
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrower and Bank agree as follows:
1. Defined Terms. Capitalized terms used in this Amendment and not
otherwise defined herein shall have the meanings given such terms in the
Agreement.
2. Amendments. This Agreement is hereby amended as follows:
A. 6.11 Dividends/Distributions. Section 6.11 of the Agreement is
hereby amended and replaced with the following:
"6.11 Dividends/Distributions. Not to declare or pay any cash
dividends or cash distributions on any of its shares of capital
stock, except up to $875,000 in a specific fiscal year on its
preferred stock.
"BORROWER" "BANK"
THE TITAN CORPORATION SUMITOMO BANK OF CALIFORNIA
BY___/s/ Bernard M. Hirl_ BY__/s/ David W. Shaw__________
Bernard M. Hirl, Sr. VP/CFO David W. Shaw, V.P.
(Printed Name and Title) (Printed Name and Title)
To: Ray Guillaume, Titan Corporation (Titan)
From: Jay Sliva, Charter Financial, Inc. (Charter)
Date: August 13, 1996
RE: Rider to Loan and Security Agreement No 2566 Dated December 29, 1995
(the Agreement) between The Titan Corporation d/b/a Titan Scan Systems
("Debtor") and Capital Associates International, Inc. ("Capital") and
assigned to Charter Financial, Inc. (Secured Party).
In consideration of your request to partially delay the funds due under the
above referenced Rider as a result of the sale of the electronics division, it
is agreed that Titan will wire transfer to Charter on August 14, 1996 the sum
of $460,000, which payment shall be applied as a prepayment of the 77th, 78th,
79th, 80th, 81st, and 82nd installments due under the Agreement, and a partial
prepayment of the 76th monthly installment due under the Agreement.
On September 2, 1996, Titan will issue in the name of Charter a letter of
credit in the amount of $300,000.
In the event that on or before November 15, 1996 Titan has raised $10 million
of Additional Capital, then the letter of credit of $300,000 issued to Charter
on September 2, 1996 will be reduced to $129,000.
In the event that Titan does not raise $10 million of Additional Capital by
November 15, 1996, then the letter of credit of $300,000 issued to Charter on
September 2, 1996 will be increased to $620,000 on or before November 15,
1996.
A formal Rider to the Loan and Security Agreement will be sent to you for
signature, reflecting the above changes to the original Rider which you agree
to sign.
Upon receipt by Charter of the wire transfer of $460,000 on August 14, 1996
and a signed copy of this memo by an authorized officer of Titan, Titan will
be in compliance through June 30, 1996 of the previously referenced Loan and
Security Agreement.
Very truly yours,
AGREED AND ACCEPTED
Titan Corporation d/b/a Titan Scan Systems
/s/
John J. Sliva, Jr. BY: /s/ Bernard M. Hirl
Executive Vice President TITLE: Sr. VP and CFO
DATE:
December 23, 1996
Mr. Bernard M. Hirl
Chief Financial Officer
Titan Corporation
3033 Science Park Road
San Diego, California 92121
Re: Amended Restated Loan and Security Agreement dated as of the 24th of May,
1996, by and between Crestar Bank (the Lender). Eldyne, Inc., Unidyne
Corporation, and DCS Acquisition Sub, Inc. (the Borrowers).
Dear Mr. Hirl:
Please accept this letter as formal modification of the referenced Loan and
Security Agreement as follows:
1. The Termination Date, as defined on Page 10 in section 1.1 of the
Agreement, is amended to reflect a new date of May 31, 1997.
2. Regarding the Tangible Net Worth as defined on Page 10 in section 1.1 of
the Agreement, the Lender and the Borrowers have agreed that for purposes of
calculating this figure, payables due to Titan Corporation may be offset
against the original cost of goodwill and intercompany receivables (both
considered intangible assets) when calculating this figure for covenant
compliance purposes (a "net" calculation). The net difference between the
original cost of the goodwill/intercompany receivables and the amounts payable
to Titan Corporation will affect the Tangible Net Worth calculation only to
the extent of a "net" reduction to the Tangible Net Worth figure. At no time
will a "net" Titan Corporation payables balance serve to increase the Tangible
Net Worth figure.
3. Section 6.2, part (e) and part (f) of Debt, shall be amended to read
as follows:
(e) Debt of DCS to Eldyne, provided that the aggregate
amount thereof
shall not exceed $1,500,000 at any time outstanding:
(f) Debt of DCS to Unidyne provided that the aggregate
amount thereof
shall not exceed $1,000,000 at any time outstanding;
and
4. Section 7.1, part (d) of Eldyne Tangible Net Worth, shall be amended to
read as follows:
$2,500,000 as of December 31, 1996, and at all times
thereafter.
5. Section 7.2, part (d) of Eldyne Leverage, shall be amended to read as
follows:
3.1 to 1 as of December 31, 1996, and at all times
thereafter.
6. Section 7.3, Eldyne Interest Coverage, shall be deleted.
7. Section 7.8, part (a), shall be amended to read as follows:
$500,000 in the case of Eldyne, and
Mr. Hirl, these modifications are effective immediately. Please contact me
directly should you have any questions in this regard. Thank you for this
opportunity to be of assistance to your organizations. Please indicate your
acceptance of this amendment by having all parties sign and date where
indicated below, returning the original document to my office as quickly as
possible, but no later than January 6, 1997.
Sincerely,
/s/
Timothy J. Duggan
Vice President
Technology & Government Division
Accepted and Agreed: Eldyne, Inc.
By:/s/ Date: 12/23/96
Name: Gene W. Ray
Title: Chief Executive Officer
Accepted and Agreed: Undiyne Corporation
By: /s/ Date: 12/23/96
Name: Gene W. Ray
Title: Chief Executive Officer
Accepted and Agreed: DCS Acquisition Sub, Inc.
By: /s/ Date: 12/23/96
Name: Gene W. Ray
Title: Chief Executive Officer
Accepted and Agreed: Titan Corporation, Guarantor
By: /s/ Date: 12/23/96
Name: Gene W. Ray
Title: Chief Executive Officer
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report, dated February 20, 1997, into the Company's previously filed
Registration Statements (as amended, as applicable) File Numbers 33-4041,
33-9570, 33-12119, 33-15680, 33-37827, 33-56762, 33-65123, 33-83402, 333-07413,
333-10919, and 333-10965.
/S/ ARTHUR ANDERSEN LLP
San Diego, California
March 26 , 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of The Titan Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,052
<SECURITIES> 0
<RECEIVABLES> 47,509
<ALLOWANCES> 237
<INVENTORY> 13,157
<CURRENT-ASSETS> 70,814
<PP&E> 43,917
<DEPRECIATION> 22,912
<TOTAL-ASSETS> 127,848
<CURRENT-LIABILITIES> 29,699
<BONDS> 40,071
0
3,695
<COMMON> 171
<OTHER-SE> 45,779
<TOTAL-LIABILITY-AND-EQUITY> 127,848
<SALES> 137,498
<TOTAL-REVENUES> 137,722
<CGS> 110,589
<TOTAL-COSTS> 110,589
<OTHER-EXPENSES> 29,290
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3026
<INCOME-PRETAX> (5,118)
<INCOME-TAX> (1,740)
<INCOME-CONTINUING> (3,378)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,378)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
