<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE TITAN CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8711 95-2588754
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
THE TITAN CORPORATION
3033 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121-1199
TELEPHONE: (619) 552-9500
(Address, including ZIP code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
GENE W. RAY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE TITAN CORPORATION
3033 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121-1199
TELEPHONE: (619) 552-9500
(Name, address, including ZIP code, and telephone number, including
area code, of agent for service)
--------------------------
COPIES TO:
M. WAINWRIGHT FISHBURN, ESQ. JEFFREY E. JORDAN, ESQ.
JEREMY D. GLASER, ESQ. ARENT FOX KINTNER PLOTKIN & KAHN, PLLC
COOLEY GODWARD LLP 1050 Connecticut Avenue, N.W.
4365 Executive Drive, Suite 1100 Washington, D.C.20036-5339
San Diego, California 92121 Telephone: (202) 857-6000
Telephone: (619) 550-6000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS PROMPTLY AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE
AND AFTER THE EFFECTIVE TIME OF THE PROPOSED MERGER DESCRIBED IN THIS
REGISTRATION STATEMENT.
--------------------------
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $.01 par value................ 6,551,784 shares $6.19 $40,555,542.96 $8,111.17
</TABLE>
(1) Represents the number of shares of Registrant's Common Stock, including
shares issuable upon exercise of options, which may be issued to former
securityholders of DBA Systems, Inc. ("DBA") pursuant to the Merger
described herein.
(2) Pursuant to Rule O-11(c)(1)(i) the value to be attributed to a share of
Titan Common Stock to be received by the holders of DBA Common Stock
pursuant to the Merger is $6.19, which is the average of the high and low
sale prices of the Titan Common Stock as reported on the NYSE on February 2,
1998.
(3) A registration fee in the amount of $7,755.63 was already paid in connection
with the filing of preliminary proxy materials on January 21, 1998. In
accordance with Rule O-11(a)(2) promulgated under the Securities Exchange
Act of 1934, as amended, only the balance of $355.54, reflecting an increase
in the number of shares to be registered, is being submitted herewith.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE TITAN CORPORATION
3033 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121
February 6, 1998
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of The Titan Corporation, a Delaware corporation ("Titan"),
which will be held on February 27, 1998 at 9 o'clock a.m., local time, at
Titan's offices at 3033 Science Park Road, San Diego, California.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to (i) approve and adopt an Agreement and Plan of Merger and
Reorganization, dated January 5, 1998 (the "Merger Agreement"), among Titan,
Eagle Acquisition Sub, Inc., ("Titan Sub") a newly formed, wholly-owned Florida
subsidiary of Titan, and DBA Systems, Inc., a Florida corporation ("DBA"), and
(ii) approve the merger (the "Merger") of Titan Sub with and into DBA and the
issuance by Titan of shares of Titan Common Stock in connection therewith;
pursuant to which, among other things, Titan Sub will cease to exist and DBA
will survive as a wholly-owned subsidiary of Titan (collectively, the "Merger
Proposal"). As a result of the Merger, each outstanding share of DBA Common
Stock (other than any shares of DBA Common Stock owned by Titan, DBA, Titan Sub
or any direct or indirect wholly-owned subsidiary of Titan or DBA) will be
converted into the right to receive 1.366667 (the "Exchange Ratio") shares of
Titan Common Stock. In addition, options to acquire DBA Common Stock will be
converted as a result of the Merger into equivalent options for Titan Common
Stock, based upon the Exchange Ratio. For accounting purposes, the Merger is
intended to be treated us a "pooling of interests." If the requisite approval of
the stockholders of Titan and the shareholders of DBA is received and other
conditions to the Merger are satisfied or waived, the Merger is expected to be
consummated on or promptly after February 27, 1998.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders and a Prospectus/Joint Proxy Statement relating to the
actions to be taken by Titan stockholders at the Special Meeting. The
Prospectus/Joint Proxy Statement more fully describes the proposed Merger and
the other proposals submitted hereby and includes information about Titan and
DBA. I urge you to read the Prospectus/Joint Proxy Statement carefully.
After careful consideration, your Board of Directors has unanimously
approved the Merger Agreement and the transactions provided for therein and has
concluded that these proposals are in the best interests of Titan and its
stockholders. In addition, in connection with its approval of the proposed
Merger, the Board of Directors has received a written opinion from its financial
advisor, A.G. Edwards & Sons, Inc. ("A.G. Edwards") to the effect that the
consideration to be paid in the Merger by Titan is fair, from a financial point
of view, to Titan. A copy of A.G. Edwards' written opinion, which sets forth a
description of the assumptions made, matters considered and limits of A.G.
Edwards' review, is attached to the accompanying Prospectus/Joint Proxy
Statement as Appendix B, and Titan stockholders are urged to read carefully the
opinion in its entirety. Your Board of Directors has unanimously recommended
that the stockholders of Titan approve the Merger Proposal.
Approval of the Merger Agreement and the Merger and the issuance by Titan of
shares of Titan Common Stock in connection therewith requires the affirmative
vote of the holders of a majority of the voting power of the outstanding shares
of Titan. Certain executive officers and directors of Titan, owning in the
aggregate approximately 2.8% of the voting power of Titan's outstanding shares,
have each agreed to vote and granted an irrevocable proxy to DBA to vote all
shares of Titan over which they have voting power or control in favor of the
Merger Agreement and the Merger.
I URGE YOU TO VOTE FOR APPROVAL OF THE MERGER PROPOSAL. ON BEHALF OF YOUR
BOARD OF DIRECTORS, THANK YOU FOR YOUR SUPPORT.
Sincerely,
Gene W. Ray
CHIEF EXECUTIVE OFFICER AND PRESIDENT
<PAGE>
THE TITAN CORPORATION
3033 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 27, 1998
---------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of The Titan Corporation, a Delaware corporation ("Titan"), will be
held on February 27, 1998 at 9 o'clock a.m., local time, at Titan offices at
3033 Science Park Road, San Diego, California.
The special meeting is for the following purposes:
1. To consider and vote upon a proposal to (i) approve and adopt an
Agreement and Plan of Merger and Reorganization, dated January 5, 1998,
among Titan, Eagle Acquisition Sub, Inc., ("Titan Sub") a newly formed,
wholly-owned Florida subsidiary of Titan and DBA Systems, Inc., a Florida
corporation ("DBA") and (ii) approve the merger (the "Merger") of Titan
Sub with and into DBA, pursuant to which, among other things, Titan Sub
will cease to exist and DBA will survive as a wholly-owned subsidiary of
Titan. As a result of the Merger, each outstanding share of DBA Common
Stock (other than any shares of DBA Common Stock owned by Titan, DBA,
Titan Sub or any direct or indirect wholly-owned subsidiary of Titan or
DBA) will be converted into the right to receive 1.366667 (the "Exchange
Ratio") shares of Titan Common Stock. In addition, options to acquire DBA
Common Stock will be converted as a result of the Merger into equivalent
options to acquire Titan Common Stock, based upon the Exchange Ratio.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the
Prospectus/Joint Proxy Statement accompanying this Notice.
The Board of Directors of Titan unanimously recommends that you vote FOR all
of the proposals described above.
Only stockholders of record at the close of business on January 30, 1998 are
entitled to notice of, and will be entitled to vote at, the Special Meeting or
any adjournment or postponement thereof.
BY ORDER OF THE BOARD OF DIRECTORS
Gene W. Ray
CHIEF EXECUTIVE OFFICER AND PRESIDENT
San Diego, California
February 6, 1998
<PAGE>
DBA SYSTEMS, INC.
1200 S. WOODY BURKE ROAD
MELBOURNE, FLORIDA 32901-0550
February 6, 1998
Dear Fellow Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of DBA Systems, Inc., a Florida corporation ("DBA"), which
will be held on February 27, 1998 at 10 o'clock a.m., local time, at DBA's
Conference Facility at Granada Center, 1101 W. Hibiscus Blvd., Melbourne,
Florida.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to (i) approve and adopt an Agreement and Plan of Merger and
Reorganization, dated January 5, 1998 (the "Merger Agreement"), among DBA, The
Titan Corporation, a Delaware corporation ("Titan"), and Eagle Acquisition Sub,
Inc., ("Titan Sub") a newly formed, wholly-owned Florida subsidiary of Titan,
and (ii) approve the merger (the "Merger") of Titan Sub with and into DBA,
pursuant to which, among other things, Titan Sub will cease to exist and DBA
will survive as a wholly-owned subsidiary of Titan (collectively, the "Merger
Proposal"). As a result of the Merger, each outstanding share of DBA Common
Stock (other than any shares of DBA Common Stock owned by Titan, Titan, DBA,
Titan Sub or any direct or indirect wholly-owned subsidiary of Titan or DBA)
will be converted into the right to receive 1.366667 (the "Exchange Ratio")
shares of Titan Common Stock. In addition, options to acquire DBA Common Stock
will be converted as a result of the Merger into equivalent options to acquire
Titan Common Stock, based upon the Exchange Ratio. For accounting purposes, the
Merger is intended to be traded as a "pooling of interests." If the requisite
approval of the stockholders of Titan and the shareholders of DBA is received
and other conditions to the Merger are satisfied or waived, the Merger is
expected to be consummated on or promptly after February 27, 1998.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders and a Prospectus/Joint Proxy Statement relating to the
actions to be taken by DBA shareholders at the Special Meeting. The
Prospectus/Joint Proxy Statement more fully describes the proposed Merger and
the other proposals submitted hereby and includes information about Titan and
DBA. I urge you to read the Prospectus/Joint Proxy Statement carefully.
After careful consideration, your Board of Directors has approved the Merger
Agreement and the transactions provided for therein and has concluded that these
proposals are in the best interests of DBA and its shareholders. In addition, in
connection with its approval of the proposed Merger, the Board of Directors has
received a written opinion from its financial advisor, The Robinson-Humphrey
Company, LLC ("Robinson-Humphrey"), to the effect that the consideration to be
received in the Merger by the DBA shareholders is fair, from a financial point
of view, to the DBA shareholders. A copy of Robinson-Humphrey's written opinion,
which sets forth a description of the assumptions made, matters considered and
limits of Robinson-Humphrey's review, is attached to the accompanying
Prospectus/Joint Proxy Statement as Appendix C, and DBA shareholders are urged
to read carefully the opinion in its entirety. Your Board of Directors has
recommended that the shareholders of DBA approve the Merger Proposal.
Approval of the Merger Agreement and the Merger requires the affirmative
vote of the holders of a majority of the outstanding shares of DBA Common Stock.
Certain executive officers and directors of DBA owning in the aggregate
approximately 4.76% of the outstanding DBA Common Stock have each agreed to vote
and have granted an irrevocable proxy to Titan to vote all DBA Common Stock over
which they have voting power or control in favor of the Merger Agreement and the
Merger.
I URGE YOU TO VOTE FOR APPROVAL OF THE MERGER PROPOSAL. ON BEHALF OF YOUR
BOARD OF DIRECTORS, THANK YOU FOR YOUR SUPPORT.
Sincerely,
John L. Slack
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
DBA SYSTEMS, INC.
1200 S. WOODY BURKE ROAD
MELBOURNE, FLORIDA 32901-0550
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 27, 1998
---------------------
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders (the
"Special Meeting") of DBA Systems, Inc., a Florida corporation ("DBA"), will be
held on February 27, 1998, at 10 o'clock a.m., local time, at DBA's Conference
Facility at Granada Center, 1101 W. Hibiscus Blvd., Melbourne, Florida.
The Special Meeting is for the following purposes:
1. To consider and vote upon a proposal to (i) approve and adopt an
Agreement and Plan of Merger and Reorganization dated January 5, 1998
(the "Merger Agreement"), among DBA, The Titan Corporation, a Delaware
corporation ("Titan"), and Eagle Acquisition Sub, Inc., ("Titan Sub") a
newly formed, wholly-owned Florida subsidiary of Titan, and (ii) approve
the merger of Titan Sub with and into DBA (the "Merger"), pursuant to
which, among other things, Titan Sub will cease to exist and DBA will
survive as a wholly-owned subsidiary of Titan. As a result of the Merger,
each outstanding share of DBA Common Stock (other than shares of DBA
Common Stock owned by Titan, DBA, Titan Sub or any direct or indirect
wholly-owned subsidiary of Titan or DBA) will be converted into the right
to receive 1.366667 (the "Exchange Ratio") shares of Titan Common Stock.
In addition, options to acquire DBA Common Stock will be converted as a
result of the Merger into equivalent options to acquire Titan Common
Stock, based upon the Exchange Ratio.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the
Prospectus/Joint Proxy Statement accompanying this Notice.
The Board of Directors of DBA recommends that you vote FOR all of the
proposals described above.
Only the holders of record of DBA Common Stock at the close of business on
January 30, 1998 are entitled to notice of, and will be entitled to vote at, the
Special Meeting or at any adjournment or postponement thereof.
BY ORDER OF THE BOARD OF DIRECTORS
John L. Slack
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Melbourne, Florida
February 6, 1998
<PAGE>
Prospectus
THE TITAN CORPORATION
PROSPECTUS
------------------
THE TITAN CORPORATION
AND
DBA SYSTEMS, INC.
JOINT PROXY STATEMENT
This Prospectus/Joint Proxy Statement (the "Prospectus/Joint Proxy
Statement), is being furnished to the stockholders of The Titan Corporation, a
Delaware Corporation ("Titan"), on behalf of the Titan Board of Directors (the
"Titan Board") for use at the Special Meeting of Stockholders of Titan to be
held on February 27, 1998 at 9 o'clock a.m., local time, at Titan offices at
3033 Science Park Road, San Diego, California, and at any adjournments or
postponements thereof (the "Titan Meeting").
This Prospectus/Joint Proxy Statement is also being furnished to the
shareholders of DBA Systems, Inc., a Florida corporation ("DBA"), on behalf of
the DBA Board of Directors (the "DBA Board") for use at the Special Meeting of
Shareholders of DBA to be held on February 27, 1998 at 10 o'clock a.m., local
time, at DBA's Conference Facility at Granada Center, 1101 W. Hibiscus Blvd.,
Melbourne, Florida, and at any adjournments or postponements thereof (the "DBA
Meeting").
The Titan Meeting and the DBA Meeting are being called in connection with
the proposed merger of Eagle Acquisition Sub, Inc., ("Titan Sub") a newly
formed, wholly-owned Florida subsidiary of Titan, with and into DBA (the
"Merger"), pursuant to an Agreement and Plan of Merger and Reorganization (the
"Merger Agreement"), dated January 5, 1998, among Titan, Titan Sub and DBA. The
Merger will be consummated on the terms and subject to the conditions set forth
in the Merger Agreement, as a result of which (i) Titan Sub will cease to exist
and DBA will survive as a wholly-owned subsidiary of Titan, and (ii) each
outstanding share of DBA common stock, $.10 par value ("DBA Common Stock")
(other than any shares of DBA Common Stock owned by Titan, DBA, Titan Sub or any
direct or indirect wholly-owned subsidiary of Titan or DBA), will be converted
into the right to receive 1.366667 (the "Exchange Ratio") shares of Titan common
stock, $.01 par value ("Titan Common Stock"). In addition, options to acquire
DBA Common Stock will be converted as a result of the Merger into equivalent
options for Titan Common Stock, based upon the Exchange Ratio.
------------------------
NO PERSON HAS BEEN AUTHORIZED BY TITAN OR DBA TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS/ JOINT
PROXY STATEMENT IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING
OF SECURITIES MADE HEREBY, AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY TITAN, DBA
OR ANY OTHER PERSON. THIS PROSPECTUS/JOINT PROXY STATEMENT DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OR THE
SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS/JOINT PROXY STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS/JOINT PROXY STATEMENT
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.
Titan Common Stock and Titan's $1.00 Cumulative Convertible Preferred Stock,
$1.00 par value ("Titan Public Preferred"), are listed on the New York Stock
Exchange ("NYSE") under the symbols "TTN" and "TTNP," respectively. DBA Common
Stock is listed on the Nasdaq National Market ("Nasdaq") under the symbol
"DBAS." It is a condition of the obligations of Titan and DBA to
(CONTINUED ON FOLLOWING PAGE)
------------------------
THE DATE OF THIS PROSPECTUS/JOINT PROXY STATEMENT IS FEBRUARY 6, 1998.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
consummation of the Merger that the shares of Titan Common Stock to be issued in
the Merger be approved for listing on the NYSE. Following consummation of the
Merger, DBA Common Stock will be removed from registration under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and will no longer be
listed on Nasdaq (as Titan will be the sole holder thereof).
Because the Exchange Ratio is fixed, changes in the market price of Titan
Common Stock will affect the dollar value of Titan Common Stock to be received
by shareholders of DBA in the Merger. As a result, the exact value of the shares
of Titan Common Stock to be received by DBA shareholders in the Merger will not
be known at the time of the Titan Meeting and the DBA Meeting. Stockholders of
Titan and shareholders of DBA are encouraged to obtain current market quotations
for Titan Common Stock and DBA Common Stock prior to the Titan Meeting and the
DBA Meeting. Recorded information with respect to the day-to-day trading prices
of Titan Common Stock may be obtained until the Titan Meeting and the DBA
Meeting by calling 1 (800) 917-9475.
This Prospectus/Joint Proxy Statement also constitutes the Prospectus of
Titan with respect to the shares of Titan Common Stock to be issued in the
Merger in exchange for outstanding shares of DBA Common Stock. Based upon the
capitalization of DBA as of the close of business on the Record Date, and using
the Exchange Ratio set forth in the Merger Agreement, an aggregate of
approximately 6,551,784 shares of Titan Common Stock (the "Merger
Consideration") will be issued in the Merger, and Titan will assume all
outstanding DBA options which will be converted into options to acquire
approximately 441,020 additional shares of Titan Common Stock. Based upon the
number of shares of Titan Common Stock issued and outstanding as of January 30,
1998, and after giving effect to the issuance of Titan Common Stock and the
exercise of all options to purchase DBA Common Stock assumed by Titan, the
former holders of DBA Common Stock and options to purchase DBA Common Stock
would hold, and have voting power with respect to, approximately 28% of the
total issued and outstanding Titan Common Stock, which would constitute
approximately 27% of the total voting power of Titan capital stock.
For accounting purposes, the Merger is intended to be treated as a "pooling
of interests."
If the requisite approvals of the stockholders of Titan and the shareholders
of DBA are received and other conditions to the Merger are satisfied or waived,
the Merger is expected to be consummated on or promptly after February 27, 1998
(the "Closing").
All information contained in this Prospectus/Joint Proxy Statement relating
to Titan or Titan Sub has been supplied by Titan, and all information contained
in this Prospectus/Joint Proxy Statement relating to DBA has been supplied by
DBA.
This Prospectus/Joint Proxy Statement is first being mailed to stockholders
of Titan and shareholders of DBA on or about February 6, 1998.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROSPECTUS/JOINT PROXY
STATEMENT. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS OF TITAN
AND SHAREHOLDERS OF DBA ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS
PROSPECTUS/JOINT PROXY STATEMENT IN ITS ENTIRETY, PARTICULARLY THE MATTERS
REFERRED TO UNDER "RISK FACTORS," BEGINNING ON PAGE 16.
------------------------
THE SHARES OF TITAN COMMON STOCK TO BE ISSUED IN THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS/JOINT PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
<PAGE>
AVAILABLE INFORMATION
Titan and DBA are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such materials may also be obtained from the Commission at
prescribed rates by writing to the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
also maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission at the address http://www.sec.gov.
Under the rules and regulations of the Commission, the solicitation of
proxies from shareholders of DBA to approve the Merger Proposal (defined below)
constitutes an offering of the Titan Common Stock to be issued in connection
with the Merger. Accordingly, Titan has filed with the Commission a Registration
Statement on Form S-4 under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to such offering (as amended from time to time,
the "Registration Statement"). This Prospectus/Joint Proxy Statement constitutes
the prospectus of Titan that is filed as part of the Registration Statement.
Other parts of the Registration Statement are omitted from this Prospectus/Joint
Proxy Statement in accordance with the rules and regulations of the Commission.
Copies of the Registration Statement, including the exhibits to the Registration
Statement and other material that is not included herein, may be inspected,
without charge, at the regional offices of the Commission referred to above, or
obtained at prescribed rates from the Public Reference Section of the Commission
at the address set forth above.
Statements made in this Prospectus/Joint Proxy Statement concerning the
contents of any contract, agreement or other document accurately describe the
material provisions of such contract, agreement or other document but are not
necessarily complete. With respect to each contract or other document filed as
an exhibit to the Registration Statement or attached as an appendix to the
Prospectus/Joint Proxy Statement or otherwise filed with the Commission,
reference is hereby made to that exhibit or appendix for a more complete
description of the matter involved, and each such statement is hereby qualified
in its entirety by such reference.
------------------------
This Prospectus/Joint Proxy Statement contains trademarks and registered
trademarks of Titan, DBA and other companies.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... iii
SUMMARY................................................................... 1
General................................................................. 1
The Parties............................................................. 1
Meetings of Titan Stockholders and DBA Shareholders..................... 2
Recommendations of Boards of Directors.................................. 3
Risk Factors............................................................ 3
Opinion of Titan's Financial Advisor.................................... 3
Opinion of DBA's Financial Advisor...................................... 4
Interests of Certain Persons in the Merger.............................. 4
Regulatory Matters...................................................... 4
Certain Federal Income Tax Matters...................................... 4
Accounting Treatment.................................................... 5
No Appraisal Rights of Titan Stockholders or DBA Shareholders........... 5
Stockholder Rights Under Delaware Law................................... 5
The Merger.............................................................. 5
Market Price Data....................................................... 8
Selected Historical Financial Data...................................... 11
Selected Pro Forma Combined Condensed Financial Data.................... 14
Comparative Per Share Data.............................................. 15
RISK FACTORS.............................................................. 16
Integration of Operations............................................... 16
Additional Shares to be Issued by Titan; Shares Eligible for Future
Sale.................................................................. 16
Fixed Exchange Ratios................................................... 17
Ability to Implement Spin-Out Strategy.................................. 17
Risks Associated With Acquisition Strategy.............................. 18
Dependence on Government Contracts...................................... 18
Fluctuations in Results of Operations................................... 19
Rapid Industry Changes; Technological Obsolesence....................... 19
Ability to Commercialize New Technologies............................... 20
Market Acceptance of New Technologies................................... 20
Risk of International Operations........................................ 20
Competition............................................................. 21
Reliance on Strategic Relationships..................................... 21
Customer Concentration With Business Segments........................... 21
Government Regulations.................................................. 22
Dependence Upon Suppliers; Sole Limited Sources of Supply............... 22
Limited Intellectual Property Protection; Dependence on Proprietary
Technology............................................................ 23
Risk of Budget Overruns in Fixed Price Contracts........................ 23
Reliance on Key Personnel............................................... 24
Volatility of Stock Price............................................... 24
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Impact of Year 2000 Issue............................................... 24
Anti-Takeover Effects of Disclosure and Certain Charter Provisions;
Rights Plan........................................................... 25
THE TITAN MEETING......................................................... 26
THE DBA MEETING........................................................... 27
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS........................... 29
Background of the Merger................................................ 29
Titan Reasons for the Merger............................................ 35
Titan Board Recommendation.............................................. 36
DBA Reasons for the Merger.............................................. 37
DBA Board Recommendation................................................ 38
Opinion of A.G. Edwards................................................. 38
Opinion of Robinson-Humphrey............................................ 44
Interests of Certain Persons in the Merger.............................. 48
Regulatory Matters...................................................... 49
Certain Federal Income Tax Matters...................................... 49
Accounting Treatment.................................................... 52
No Appraisal Rights of DBA Shareholders................................. 52
No Appraisal Rights of Titan Stockholders............................... 52
TERMS OF THE MERGER....................................................... 54
Effective Time.......................................................... 54
Manner and Basis for Converting Shares.................................. 54
Effect of the Merger.................................................... 55
Treatment of Employee Equity Benefit Plans.............................. 55
Stock Ownership Following the Merger.................................... 56
Representations and Warranties.......................................... 56
Covenants............................................................... 56
No Solicitation......................................................... 57
Conditions to the Merger................................................ 59
Termination of the Merger Agreement..................................... 60
Effect of Termination................................................... 62
Break-Up Fees........................................................... 62
Merger Expenses and Fees and Other Costs................................ 62
Related Agreements...................................................... 62
Affiliates' Restrictions on Sale of Titan Common Stock.................. 64
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.............. 65
TITAN BUSINESS............................................................ 72
TITAN MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION..................................................... 85
Operating Results..................................................... 85
Liquidity and Capital Resources....................................... 85
OWNERSHIP OF TITAN'S SECURITIES........................................... 91
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
TITAN MANAGEMENT AND EXECUTIVE COMPENSATION............................... 92
Compensation Committee Interlocks and Insider Participation............. 94
Summary of Cash and Certain Other Information........................... 94
Stock Options........................................................... 95
Option Exercises and Holdings........................................... 95
Agreements with Executive Officers...................................... 96
DBA BUSINESS.............................................................. 97
DBA'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 103
Business Environment.................................................... 103
Results of Operations................................................... 103
Liquidity and Capital Resources......................................... 107
DBA MANAGEMENT AND EXECUTIVE COMPENSATION................................. 108
Executive Compensation.................................................. 110
Compensation of Directors............................................... 112
Employment Contracts and Change in Control Arrangement.................. 112
SECURITY OWNERSHIP........................................................ 112
COMPARISON OF RIGHTS OF TITAN STOCKHOLDERS AND DBA SHAREHOLDERS........... 114
EXPERTS................................................................... 123
LEGAL MATTERS............................................................. 123
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
------------------------
The following appendices also constitute part of this Prospectus/Joint Proxy
Statement:
A--Agreement and Plan of Merger and Reorganization
B--Opinion of A.G. Edwards & Sons, Inc.
C--Opinion of The Robinson-Humphrey Company, LLC
D-- Copies of Sections 607.1301, 607.1302 and 607.1320 of the Florida
Business Corporation Act.
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS/JOINT PROXY STATEMENT. THE SUMMARY DOES NOT CONTAIN A COMPLETE
DESCRIPTION OF THE TERMS OF THE MERGER AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THIS PROSPECTUS/JOINT PROXY STATEMENT AND THE
APPENDICES HERETO. STOCKHOLDERS OF TITAN AND SHAREHOLDERS OF DBA ARE URGED TO
READ THIS PROSPECTUS/JOINT PROXY STATEMENT AND THE APPENDICES IN THEIR ENTIRETY.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN
THIS PROSPECTUS/JOINT PROXY STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. TITAN'S, DBA'S AND THE COMBINED ENTITY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN THE SECTION ENTITLED "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS/JOINT PROXY STATEMENT.
GENERAL
This Prospectus/Joint Proxy Statement is being provided to stockholders of
Titan and shareholders of DBA in connection with the proposed Merger of Titan
Sub with and into DBA, pursuant to which Titan Sub will cease to exist and DBA
will survive the Merger as a wholly-owned subsidiary of Titan. The Merger will
be effected pursuant to the Merger Agreement, a copy of which is attached hereto
as Appendix A.
THE PARTIES
TITAN
Titan provides state-of-the-art information technology and electronic
systems and services to commercial and government customers. Titan groups its
businesses into four core business segments--Communications Systems; Software
Systems; Information Technologies; Medical Sterilization and Food
Pasteurization--and a fifth business segment, Emerging Technologies and
Businesses. The Communications Systems segment, through Titan's wholly owned
subsidiary Linkabit Wireless Inc. ("Linkabit Wireless"), develops and produces
advanced satellite ground terminals, satellite voice/data modems, networking
systems and other products used to provide bandwidth-efficient communications.
Linkabit Wireless currently has a registration statement on file with the
Commission for a proposed public offering of approximately 26% of its common
stock. The Software Systems segment is a systems integrator that provides a
broad range of information technology services and solutions. The Information
Technologies segment provides information systems solutions to defense-related
government customers with large data management, information manipulation,
information fusion, knowledge-based systems, and communications requirements.
The Medical Sterilization and Food Pasteurization segment utilizes its linear
accelerator technology to provide sterilization systems and services for medical
device manufacturers. The Emerging Technologies and Businesses segment consists
of new technologies and early-stage businesses, including minority-owned
businesses, utilizing technologies originally developed by Titan. Titan was
incorporated in Delaware in 1969. Unless otherwise indicated, "Titan" refers to
The Titan Corporation, a Delaware corporation, and its subsidiaries. Titan's
executive offices are located at 3033 Science Park Road, San Diego, California
92121. Its telephone number is (619) 552-9500.
See "Risk Factors" for a discussion of the risks associated with the
ownership of Titan Common Stock, including risks related to the Merger.
TITAN SUB
Titan Sub was incorporated in Florida in October 1997 for the sole purpose
of effecting the Merger. It is a wholly-owned subsidiary of Titan and has no
material assets or liabilities and has not engaged in any activities except in
connection with the proposed Merger. Titan Sub's executive offices are located
at 3033 Science Park Road, San Diego, California 92121. Its telephone number is
(619) 552-9500.
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DBA
DBA was founded in 1963 to provide near earth tracking analysis of
spacecraft for NASA. Over the ensuing years, DBA has been predominantly involved
in providing hardware and software systems for applications in the defense
industry. In April 1984, DBA temporarily broadened its base of business into the
commercial graphic arts, remote sensing and medical imaging markets. With the
sale of these commercial businesses during fiscal year 1988, DBA re-focused on
its traditional capabilities and markets. DBA is now principally engaged in the
defense mapping, charting & geodesy and electronics business and has re-entered
the medical imaging and commercial imaging markets. DBA provides specialized
products and services in two major areas of concentration: imaging systems and
electro-optical systems. Unless otherwise indicated, "DBA" refers to DBA
Systems, Inc., a Florida corporation, and its subsidiaries. DBA's executive
offices are located at 1200 S. Woody Burke Road, Melbourne, Florida 32901-0550.
Its telephone number is (407) 727-0660.
MEETINGS OF TITAN STOCKHOLDERS AND DBA SHAREHOLDERS
DATE, TIME AND PLACE
The Titan Meeting will be held on February 27, 1998 at 9 o'clock a.m., local
time, at Titan's offices at 3033 Science Park Road, San Diego, California.
The DBA Meeting will be held on February 27, 1998 at 10 o'clock a.m., local
time, at DBA's Conference Facility at Granada Center, 1101 W. Hibiscus Blvd.,
Melbourne, Florida.
PURPOSE OF THE MEETINGS
TITAN MEETING. At the Titan Meeting, stockholders of Titan will be asked to
consider and vote upon proposals to (i) approve and adopt the Merger Agreement,
a copy of which is attached hereto as Appendix A and (ii) approve the Merger and
the issuance by Titan of shares of Titan Common Stock in connection therewith
(collectively referred to herein as the "Merger Proposal").
DBA MEETING. At the DBA Meeting, shareholders of DBA will be asked to
consider and vote upon the Merger Proposal.
RECORD DATE; SHARES ENTITLED TO VOTE
TITAN. Only stockholders of record of Titan at the close of business on
January 30, 1998 (the "Record Date") are entitled to notice of and to vote at
the Titan Meeting. At the close of business on the Record Date, there were
outstanding and entitled to vote 16,725,179 shares of Titan Common Stock, each
of which will be entitled to one vote on each matter to be acted upon at the
Titan Meeting; 694,872 shares of Titan Public Preferred, each of which will be
entitled to one-third vote on each matter to be acted upon at the Titan Meeting;
and 500,000 shares of Series B Cumulative Convertible Redeemable Preferred Stock
("Series B Preferred Stock"), each of which will be entitled to one vote on each
matter to be acted upon at the Titan Meeting. Holders of Titan Common Stock,
Titan Public Preferred and Series B Preferred Stock will vote together as a
single class, and will not vote separately as classes.
DBA. Only holders of record of DBA Common Stock at the close of business on
the Record Date are entitled to notice of and to vote at the DBA Meeting. At the
close of business on the Record Date, there were outstanding and entitled to
vote 4,471,290 shares of DBA Common Stock, each of which will be entitled to one
vote on each matter to be acted upon at the DBA Meeting.
VOTE REQUIRED
TITAN. Approval of the Merger Proposal requires the affirmative vote of the
holders of a majority of the voting power of the outstanding shares of Titan on
the Record Date entitled to vote on the Merger
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Proposal. As a group, all executive officers and directors of Titan and their
respective affiliates beneficially owned approximately 2.8% of such voting power
as of the Record Date. Certain executive officers and directors of Titan owning
in the aggregate approximately 2.8% of such voting power have each agreed to
vote and granted an irrevocable proxy to DBA to vote all shares of Titan over
which they have voting power or control in favor of the Merger Proposal. See
"Terms of the Merger--Related Agreements-- Voting Agreements."
DBA. Approval of the Merger Proposal requires the affirmative vote of the
holders of a majority of the shares of DBA Common Stock outstanding on the
Record Date and entitled to vote on the Merger Proposal. As a group, all
executive officers and directors of DBA and their respective affiliates
beneficially owned 242,684 shares, or approximately 5.4%, of the DBA Common
Stock outstanding as of the Record Date. Certain executive officers and
directors of DBA owning in the aggregate approximately 4.76% of the outstanding
DBA Common Stock have each agreed to vote and granted an irrevocable proxy to
Titan to vote all DBA Common Stock over which they have voting power or control
in favor of the Merger Agreement and the Merger.
RECOMMENDATIONS OF BOARDS OF DIRECTORS
THE TITAN BOARD. The Titan Board has approved the Merger Agreement and the
Merger and the issuance by Titan of shares of Titan Common Stock in connection
therewith, and has determined that the Merger is in the best interests of Titan
and its stockholders. The Titan Board has unanimously recommended approval of
the Merger Proposal by the Titan stockholders. The primary factors considered
and relied upon by the Titan Board in reaching its recommendation with respect
to the Merger Agreement and the Merger (and the issuance by Titan of shares of
Titan Common Stock in connection therewith) are described below under "Approval
of the Merger and Related Transactions--Titan Reasons for the Merger."
THE DBA BOARD. The DBA Board has approved the Merger Agreement and the
Merger and has determined that the Merger is in the best interests of DBA and
its shareholders. The approval of the DBA Board was not unanimous, but by a five
to two majority vote. See "Approval of the Merger and Related
Transactions--Background of the Merger." The DBA Board has recommended approval
of the Merger Proposal by the DBA shareholders. The primary factors considered
and relied upon by the DBA Board in reaching its recommendation are described
below under "Approval of the Merger and Related Transactions--DBA's Reasons for
the Merger."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors pertaining to the
Merger and the businesses of Titan and DBA.
OPINION OF TITAN'S FINANCIAL ADVISOR
A.G. Edwards & Sons, Inc. ("A.G. Edwards") has acted as financial advisor to
Titan in connection with the Merger. As part of its role as financial advisor to
Titan, A.G. Edwards was engaged to render its opinion as to the fairness, from a
financial point of view, to Titan of the consideration to be paid by Titan. The
full text of the opinion of A.G. Edwards, dated January 5, 1998, which sets
forth the assumptions made, matters considered and limitations on the review
undertaken by A.G. Edwards, is attached as Appendix B to this Prospectus/Joint
Proxy Statement. Titan stockholders are urged to read the opinion in its
entirety. See "Approval of the Merger and Related Transactions--Opinion of A.G.
Edwards."
OPINION OF DBA'S FINANCIAL ADVISOR
The Robinson-Humphrey Company, LLC ("Robinson-Humphrey"). DBA's financial
advisor, has delivered to DBA its written opinion, dated February 5, 1998, to
the effect that, as of such date, the
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consideration to be received in the Merger was fair, from a financial point of
view, to DBA shareholders. The full text of the opinion of Robinson-Humphrey,
which sets forth the assumptions made, matters considered and limitations on the
review undertaken by Robinson-Humphrey, is attached as Appendix C to this
Prospectus/Joint Proxy Statement. DBA shareholders are urged to read this
opinion in its entirety. See "Approval of the Merger and Related
Transactions--Opinion of Robinson-Humphrey."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the DBA Board with respect to the
Merger Proposal, holders of DBA Common Stock should be aware that certain
members of the DBA Board and certain DBA executive officers may have certain
interests in the Merger that are in addition to the interests of the holders of
DBA Common Stock generally. The members of the DBA Board, including the outside
directors, were aware of these interests and took such interests into account in
approving the Merger Agreement and the transactions contemplated thereby. See
"Approval of the Merger and Related Transactions--Interests of Certain Persons
in the Merger," and "--Background of the Merger."
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division"), and
specified waiting period requirements have been observed. The review of the
Merger pursuant to the HSR Act may substantially delay or proscribe consummation
of the Merger. There can be no assurance that a challenge to the Merger on
antitrust grounds will not be made, or if such a challenge is made, that Titan
would prevail or would not be required to terminate the Merger Agreement, to
divest certain assets, to license certain proprietary technology to third
parties or to accept certain conditions in order to consummate the Merger. Titan
and DBA filed notification and report forms under the HSR Act with the FTC and
the Antitrust Division on January 29, 1998. These filings commenced a 30-day
waiting period under the HSR Act, with respect to which both Titan and DBA have
requested early termination. If, prior to the expiration of such period, the FTC
or the Antitrust Division should request additional information or documentary
material under the HSR Act, consummation of the Merger could be delayed until
after the companies have substantially complied with the request. There can be
no assurance as to whether or when the HSR Act waiting period applicable to the
Merger will expire or be terminated. See "Approval of the Merger and Related
Transactions--Regulatory Matters."
CERTAIN FEDERAL INCOME TAX MATTERS
The Merger is expected to be, a tax-free reorganization for federal income
tax purposes under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), so that no gain or loss will be recognized by the DBA
shareholders on the exchange of DBA Common Stock for Titan Common Stock, except
to the extent that DBA shareholders receive cash in lieu of fractional shares.
Neither DBA nor Titan will obtain a ruling from the Internal Revenue Service as
to the tax consequences of the Merger. As a condition to each of Titan's and
DBA's obligations to consummate the Merger, Titan and DBA must receive an
opinion at the Effective Time from their respective legal counsel to the effect
that the Merger will be treated as a tax-free reorganization for federal income
tax purposes; provided, however, that if counsel to DBA does not render such
opinion, this condition shall nonetheless be deemed to be satisfied with respect
to DBA if counsel to Titan renders such opinion to DBA. DBA has indicated that
it will not waive the condition that such opinion be given, and will not agree
to consummate the Merger without receiving such opinion, without resoliciting a
vote of the DBA shareholders and disclosing the proposed waiver. See "Approval
of the Merger and Related Transactions--Certain Federal Income Tax Matters."
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ACCOUNTING TREATMENT
The Merger is intended to be treated as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting principles.
Titan management and DBA management have concluded that no conditions exist
relating to DBA that would preclude Titan from accounting for the Merger as a
pooling of interests. See "Approval of the Merger and Related
Transactions--Accounting Treatment."
NO APPRAISAL RIGHTS OF TITAN STOCKHOLDERS OR DBA SHAREHOLDERS
The stockholders of Titan are not entitled to appraisal rights in connection
with the Merger under the Delaware General Corporation Law (the "DGCL"). See
"Approval of the Merger and Related Transactions--No Appraisal Rights of Titan
Stockholders." The shareholders of DBA are not entitled to appraisal rights in
connection with the Merger under the Florida Business Corporation Act (the
"FBCA"). See "Approval of the Merger and Related Transactions--No Appraisal
Rights of DBA Shareholders."
STOCKHOLDER RIGHTS UNDER DELAWARE LAW
If the Merger is consummated, holders of shares of DBA Common Stock will
become holders of Titan Common Stock, which will result in their rights as
stockholders being governed by Delaware law. A discussion of the material
differences between the rights of holders of DBA Common Stock under Florida law
and Titan Common Stock under Delaware law is set forth in "Comparison of Rights
of Titan Stockholders and DBA Shareholders."
THE MERGER
TERMS OF THE MERGER; EXCHANGE RATIO. As a result of the Merger, DBA will
become a wholly-owned subsidiary of Titan and each outstanding share of DBA
Common Stock (other than any shares of DBA Common Stock owned by Titan, DBA,
Titan Sub or any direct or indirect wholly-owned subsidiary of Titan or DBA)
will be converted into the right to receive 1.366667 shares of Titan Common
Stock (the "Exchange Ratio"). Cash will be paid in lieu of issuing fractional
shares. Based upon the capitalization of DBA as of the close of business on the
Record Date, and using the Exchange Ratio set forth in the Merger Agreement, an
aggregate of approximately 6,110,764 shares of Titan Common Stock (the "Merger
Consideration") will be issued in the Merger, and Titan will assume all
outstanding DBA options which will be converted into options to acquire
approximately 441,020 additional shares of Titan Common Stock. See "Terms of the
Merger--Manner and Basis for Converting Shares."
OTHER EFFECTS OF THE MERGER. The Merger will be consummated on a date to be
designated by the parties to the Merger Agreement which date shall be no later
than the second business day after the date of the approval by the Titan
stockholders and the DBA shareholders of the Merger Proposal and the
satisfaction or waiver of the other conditions to consummation of the Merger
(the "Closing Date"). The Merger will become effective at the time that properly
executed Articles of Merger compliant with applicable law are duly filed with
the Florida Department of State (the "Effective Time"). At the Effective Time,
Titan Sub will merge with and into DBA, with the result that DBA will be the
surviving corporation in the Merger and a wholly-owned subsidiary of Titan (the
"Surviving Subsidiary"). The shareholders of DBA will become stockholders of
Titan (as described below), and their rights will be governed by Titan's
Certificate of Incorporation (the "Titan Certificate"), the Bylaws (the "Titan
Bylaws"), and the DGCL. See "Terms of the Merger--Effect of the Merger" and
"Comparison of Rights of Stockholders of Titan and Shareholders of DBA."
EXCHANGE OF DBA STOCK CERTIFICATES. Promptly after the Effective Time,
Titan, acting through American Stock Transfer & Trust Company as its exchange
agent (the "Exchange Agent"), will deliver to each holder of record, as of the
Effective Time, of a certificate or certificates that immediately prior to the
Effective Time represented outstanding shares of DBA Common Stock, a letter of
transmittal with
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instructions to be used by such holder in surrendering such certificate(s) in
exchange for certificate(s) representing shares of Titan Common Stock.
CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS OF DBA COMMON STOCK UNTIL
SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT, AND THEN
ONLY IN ACCORDANCE WITH THE TERMS OF SUCH LETTER OF TRANSMITTAL. See "Terms of
the Merger--Manner and Basis for Converting Shares."
DBA OPTIONS. At the Effective Time, each unexpired and unexercised option
under stock option plans of DBA in effect on the date of the Merger Agreement
(and each unexpired and unexercised option to purchase shares issued outside
DBA's established stock option plans) that has been granted by DBA to current or
former directors, officers or employees of DBA (each, a "DBA Option") will be
assumed by Titan and will be automatically converted into an option (a "Titan
Exchange Option") to purchase that number of shares of Titan Common Stock equal
to the number of shares of DBA Common Stock issuable immediately prior to the
Effective Time upon exercise of the DBA Option (without regard to actual
restrictions on exercisability) multiplied by the Exchange Ratio, with an
exercise price per share equal to the exercise price per share which existed
under the corresponding DBA Option divided by the Exchange Ratio, and with other
terms and conditions (such as vesting) that are the same as the terms and
conditions of such DBA Option immediately before the Effective Time. As of the
Record Date, 322,698 shares of DBA Common Stock were issuable upon the exercise
of outstanding DBA Options, which options will be assumed by Titan and will be
converted into Titan Exchange Options to acquire approximately 441,020 shares of
Titan Common Stock at the Effective Time. The weighted average exercise price
per share of all DBA Options outstanding as of the Record Date is approximately
$5.18 per share. Following the Merger the weighted average exercise price per
share of all Titan Exchange Options will be approximately $3.79 per share. The
unvested portion of each DBA Option will continue to vest as a Titan Exchange
Option upon the same schedule as the corresponding DBA Option. To the extent any
DBA Options are exercised from the date of the Merger Agreement to the Effective
Time, the issued DBA Common Stock will be converted at the Exchange Ratio.
Following the Effective Time, Titan may file with the Commission a
registration statement on Form S-8 to register shares of Titan Common Stock
issuable as a result of the exercise of Titan Exchange Options. See "Terms of
the Merger--Treatment of Employee Equity Plans."
STOCK OWNERSHIP FOLLOWING THE MERGER. Based upon the capitalization of DBA
as of the close of business on the Record Date, an aggregate of approximately
6,110,764 shares of Titan Common Stock will be issued to DBA shareholders in the
Merger and Titan will assume all outstanding DBA Options which will be converted
into options to acquire up to approximately 441,020 additional shares of Titan
Common Stock. Based upon the number of shares of Titan Common Stock, Titan
Public Preferred and Series B Preferred Stock issued and outstanding as of the
Record Date, and after giving effect to the issuance of Titan Common Stock as
described in the previous sentence and the exercise of all options to purchase
DBA Common Stock assumed by Titan, the former holders of DBA Common Stock and
options to purchase DBA Common Stock would have approximately 27% of the voting
power of Titan's total issued and outstanding shares on a fully diluted basis.
The foregoing percentage is subject to change to reflect any changes in the
capitalization of either Titan or DBA subsequent to the dates indicated and
prior to the Effective Time and there can be no assurance as to the actual
capitalization of Titan or DBA as of the Effective Time or of Titan at any time
following the Effective Time. See "Terms of the Merger--Stock Ownership
Following the Merger."
BOARD OF DIRECTORS; MANAGEMENT FOLLOWING THE MERGER. There will be no
change in the current Titan Board or officers of Titan as a result of the
Merger. At the Effective Time, the officers of DBA (as the Surviving Subsidiary)
will be the same persons, holding the same offices, as immediately prior to the
Effective Time, and the directors of DBA will be Gene W. Ray, Eric M. DeMarco
and Cheryl L. Barr. See "Terms of the Merger--Effect of the Merger."
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COVENANTS. Pursuant to the Merger Agreement, DBA has agreed (on behalf of
itself and each of its direct and indirect majority-owned subsidiaries) that,
until the earlier of the termination of the Merger Agreement pursuant to its
terms and the Effective Time, subject to certain exceptions, and except to the
extent that Titan consents in writing, DBA will conduct its business and
operations in the ordinary course and in accordance with past practices; use
reasonable efforts to preserve intact its current business organization; keep
available the services of its current officers and employees and maintain its
relations and goodwill with all suppliers, customers, landlords, creditors,
employees and others with which it has business relationships; and use all
reasonable efforts to keep in full force all of its existing insurance policies.
In addition, subject to certain exceptions, DBA has agreed that, without the
prior written consent of Titan, it will not perform or engage in certain
activities in the conduct of its business and the businesses of its
subsidiaries. Each of DBA and Titan has agreed in the Merger Agreement, until
the earlier of the Merger or termination of the Merger Agreement, to notify the
other of certain material events prior to closing; to take actions necessary to
give notice of, convene and hold a meeting of shareholders or stockholders, as
appropriate, and solicit proxies with respect to the meeting; and to provide
certain documents to the other and keep the other's information confidential.
See "Terms of the Merger-- Covenants."
NO SOLICITATION. Pursuant to the Merger Agreement, except under certain
limited circumstances, DBA has agreed (on behalf of itself and each of its
direct and indirect majority-owned subsidiaries) that it will not directly or
indirectly (i) solicit any alternate acquisition proposal, (ii) furnish any
non-public information concerning DBA in connection with or in response to an
alternative acquisition proposal, (iii) participate in any discussions or
negotiations with any other parties with respect to an alternate acquisition
proposal, (iv) approve, endorse or recommend any alternate acquisition proposal
or (v) enter into any letter of intent relating to any alternative acquisition
proposal. See "Terms of the Merger--No Solicitation."
CONDITIONS TO THE MERGER. Consummation of the Merger is subject to certain
conditions, including (i) declaration by the Commission of the effectiveness of
the Registration Statement, (ii) approval of the Merger Proposal by the Titan
stockholders and the DBA shareholders, (iii) absence of any material legal
proceeding relating to the Merger, (iv) receipt by Titan and DBA of legal
opinions which will include certain assumptions with respect to continuity of
interest that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, (v) subject to certain materiality thresholds, the
accuracy of the representations and warranties made by each party in the Merger
Agreement and (vi) subject to certain materiality thresholds, performance of all
covenants required by the Merger Agreement.
TERMINATION; BREAK-UP FEES. The Merger Agreement may be terminated by
either party under certain circumstances. Titan and DBA have agreed that, if the
Merger is not consummated under certain circumstances, Titan or DBA, as the case
may be, will pay to the other a sum of $500,000. See "Terms of the
Merger--Termination of the Merger Agreement," "--Effect of Termination" and
"--Break-Up Fees."
VOTING AGREEMENTS. In connection with the execution of the Merger
Agreement, certain officers and directors of DBA, owning in the aggregate
approximately 4.76% of the outstanding DBA Common Stock, executed voting
agreements and granted irrevocable proxies to Titan, and certain executive
officers and directors of Titan, holding in the aggregate approximately 2.8% of
the voting power of the outstanding shares of Titan, executed voting agreements
and granted irrevocable proxies to DBA. Pursuant to such agreements and
irrevocable proxies, each of such persons agreed to vote and granted the power
to vote or direct the vote of all DBA Common Stock or shares of Titan, as the
case may be, over which such person has voting power or control in favor of the
Merger Agreement and the Merger. See "Terms of the Merger--Related
Agreements--Voting Agreements."
AFFILIATE AGREEMENTS. As a condition to Titan's obligations to consummate
the Merger, each of the members of the DBA Board and certain executive officers
and shareholders of DBA shall have, prior to
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the Effective Time, entered into agreements restricting sales, dispositions or
other transactions reducing their risk of investment in respect of the shares of
Titan Common Stock to be received by them in the Merger so as to help ensure
compliance with the requirements of applicable federal securities laws. See
"Terms of the Merger--Related Agreements--Affiliate Agreements." Titan has
granted certain registration rights to any shareholders of DBA who hold 20% or
more of the DBA Common Stock. See "Terms of the Merger--Affiliates' Restrictions
on Sale of Titan Common Stock."
MERGER EXPENSES AND FEES AND OTHER COSTS. Except for certain limited
exceptions, all fees and expenses incurred in connection with the Merger
Agreement and the transactions contemplated by the Merger Agreement shall be
paid by the party, incurring such expenses, whether or not the Merger is
consummated; provided, however, that Titan and DBA shall share equally all fees
and expenses, other than attorneys' fees, incurred in connection with the
printing and filing of the S-4 Registration Statement and this Prospectus/Joint
Proxy Statement and any amendments or supplements thereto, and in connection
with forms and notifications required to be filed by DBA and Titan under the HSR
Act (except that fees associated with any filing by a DBA shareholder shall be
borne exclusively by DBA). See "Terms of the Merger--Merger Expenses and Fees
and Other Costs."
Titan and DBA estimate that they will incur direct transaction costs of
approximately $2 million associated with the Merger as well as approximately $7
million of indirect costs associated with the reduction of assets and
right-sizing. These nonrecurring transaction costs will be charged to operations
as incurred. See "Unaudited Pro Forma Combined Condensed Financial Information"
and "Risk Factors-- Integration of Operations."
MARKET PRICE DATA
The following table sets forth, for the fiscal quarters indicated, the range
of high and low sale prices per share of Titan Common Stock and Titan Public
Preferred, as reported on the NYSE under the symbol "TTN" and "TTNP,"
respectively.
<TABLE>
<CAPTION>
QUARTERLY PERIOD HIGH LOW
- ---------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
TITAN COMMON STOCK:
Fiscal year ended December 31, 1995:
1st Quarter............................................................... $ 7.13 $ 5.63
2nd Quarter............................................................... 9.38 6.25
3rd Quarter............................................................... 10.38 8.50
4th Quarter............................................................... 9.63 6.63
Fiscal year ended December 31, 1996:
1st Quarter............................................................... $ 7.38 $ 6.00
2nd Quarter............................................................... 7.13 5.50
3rd Quarter............................................................... 5.63 3.63
4th Quarter............................................................... 4.38 2.50
Fiscal year ending December 31, 1997:
1st Quarter............................................................... $ 3.75 $ 2.88
2nd Quarter............................................................... 4.38 2.88
3rd Quarter............................................................... 7.31 4.44
4th Quarter............................................................... 8.19 5.38
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY PERIOD HIGH LOW
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
TITAN PUBLIC PREFERRED:
Fiscal year ended December 31, 1995:
1st Quarter.............................................................. $ 11.88 $ 10.88
2nd Quarter.............................................................. 12.25 11.63
3rd Quarter.............................................................. 13.25 11.75
4th Quarter.............................................................. 12.88 11.88
Fiscal year ended December 31, 1996:
1st Quarter.............................................................. $ 12.63 $ 12.00
2nd Quarter.............................................................. 12.13 11.38
3rd Quarter.............................................................. 11.50 10.88
4th Quarter.............................................................. 10.88 10.00
Fiscal year ending December 31, 1997:
1st Quarter.............................................................. $ 11.88 $ 10.25
2nd Quarter.............................................................. 12.75 10.13
3rd Quarter.............................................................. 13.44 12.25
4th Quarter.............................................................. 13.94 12.25
</TABLE>
As of the Record Date, there were approximately 3,238 stockholders of record
of Titan Common Stock and approximately 687 stockholders of record of Titan
Public Preferred, as shown on the stock records of Titan.
The following table sets forth, for the fiscal quarters indicated, the range
of high and low sale prices per share of DBA Common Stock as reported on the
Nasdaq National Market under the symbol "DBAS."
<TABLE>
<CAPTION>
QUARTERLY PERIOD HIGH LOW
- ----------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
DBA COMMON STOCK:
Fiscal year ended June 30, 1996:
1st Quarter................................................................ $ 7.25 $ 5.50
2nd Quarter................................................................ 7.13 4.38
3rd Quarter................................................................ 5.38 4.13
4th Quarter................................................................ 5.88 4.88
Fiscal year ended June 30, 1997:
1st Quarter................................................................ 5.75 4.75
2nd Quarter................................................................ 6.75 5.38
3rd Quarter................................................................ 6.00 4.38
4th Quarter................................................................ 6.00 4.88
Fiscal Year ending June 30, 1998:
1st Quarter................................................................ 7.75 5.13
2nd Quarter................................................................ 8.75 5.75
</TABLE>
As of the Record Date, there were approximately 553 stockholders of record
of DBA Common Stock, as shown on the stock records of DBA.
Neither Titan nor DBA has ever paid any cash dividends on its common stock.
Since January 1973, Titan has paid a quarterly dividend of $0.25 to holders of
Titan Public Preferred. Other than earnings distributed as quarterly dividends
to holders of Titan Public Preferred, Titan anticipates that, for the
foreseeable future, it will continue to retain any earnings for use in the
operation of its business.
9
<PAGE>
On January 5, 1998, the last full trading day prior to the public
announcement of the execution and delivery of the Merger Agreement, the NYSE
closing prices for Titan Common Stock and Titan Public Preferred and the Nasdaq
closing price for DBA Common Stock were $6.19 per share, $13.25 per share and
$6.13 per share, respectively. As of the January 30, 1998, the closing prices on
the NYSE for Titan Common Stock and Titan Public Preferred, and on Nasdaq for
DBA Common Stock, respectively, were $5.94 per share, $13.06 per share and $7.81
per share, respectively. There can be no assurance as to the actual prices of
Titan Common Stock, Titan Public Preferred or DBA Common Stock prior to or at
the Effective Time of the Merger or of Titan Common Stock or Titan Public
Preferred at any time following the Effective Time of the Merger. See
"--Comparative Per Share Data" and "Risk Factors."
Because the Exchange Ratio is fixed, changes in the market price of Titan
Common Stock will affect the dollar value of Titan Common Stock to be received
by shareholders of DBA in the Merger. DBA shareholders are urged to obtain
current market quotations for Titan Common Stock prior to the DBA Meeting. See
"Risk Factors--Risks Associated with Fixed Exchange Ratio."
10
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data set forth below with respect to
Titan's consolidated statements of operations for each of the three years in the
period ended December 31, 1996, and with respect to Titan's consolidated balance
sheets at December 31, 1995 and 1996, are derived from the audited consolidated
financial statements of Titan included elsewhere in this Prospectus/Joint Proxy
Statement. The selected historical financial data set forth below with respect
to Titan's consolidated statements of operations for each of the two years in
the period ended December 31, 1993 and with respect to Titan's consolidated
balance sheets at December 31, 1992, 1993 and 1994 are derived from the audited
consolidated financial statements of Titan not included elsewhere in this
Prospectus/Joint Proxy Statement. The selected historical financial data set
forth below with respect to the consolidated statements of operations of DBA for
each of the three years in the period ended June 30, 1997 and with respect to
DBA's consolidated balance sheets at June 30, 1997 and 1996 are derived from the
audited consolidated financial statements of DBA included elsewhere in this
Prospectus/Joint Proxy Statement. The selected historical financial data set
forth below with respect to the consolidated statements of operations of DBA for
each of the two years in the period ended June 30, 1994 and with respect to
DBA's consolidated balance sheets at June 30, 1993, 1994 and 1995 are derived
from the audited consolidated financial statements of DBA not included in this
Prospectus/Joint Proxy Statement.
The selected historical financial data for Titan for the nine months ended
September 30, 1996 and 1997 are derived from the unaudited consolidated
financial statements of Titan, which are included elsewhere in this
Prospectus/Joint Proxy Statement. The selected historical financial data for DBA
for the three months ended September 30, 1996 and 1997 are derived from the
unaudited consolidated financial statements of DBA included elsewhere in in this
Prospectus/Joint Proxy Statement. In each case, the unaudited consolidated
financial statements include all adjustments, consisting of normal recurring
accruals, that each company considers necessary for a fair presentation of the
financial position and results of operations for the periods presented.
Operating results for Titan for the nine months ended September 30, 1997 and for
DBA for the three months ended September 30, 1997 are not necessarily indicative
of the results that may be expected for the entire fiscal year or future
periods.
The data set forth below are qualified by reference to, and should be read
in conjunction with, the related consolidated financial statements and the notes
related thereto.
11
<PAGE>
TITAN SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
YEARS ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------------------- --------------------
1992 1993(1) 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 148,762 $ 149,414 $ 136,206 $ 131,535 $ 135,484 $ 94,645 $ 127,212
Gross Profit.................................... 35,368 14,840 36,498 32,253 27,599 20,161 29,568
Selling, general and administrative expense..... 23,256 27,230 21,858 22,580 21,086 16,405 15,530
Research and development expense................ 4,004 2,257 4,420 4,782 3,152 2,190 4,997
Restructuring and other (income) expense, net... -- -- (1,200) 6,249 -- -- --
Operating profit (loss)......................... 8,108 (14,647) 11,420 (1,358) 3,361 1,566 9,041
Interest expense................................ (1,225) (1,590) (923) (1,154) (3,026) (1,902) (3,887)
Interest income................................. 84 84 291 95 65 64 35
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations before
income taxes and cumulative effect of change
in accounting principle and equity in loss of
investee...................................... 6,967 (16,153) 10,788 (2,417) 400 (272) 5,189
Income tax provision (benefit).................. 823 (6,547) 3,657 (582) 136 (106) 1,816
Cumulative effect of change in accounting
principle..................................... -- 1,700 -- -- -- -- --
Equity in loss of investee...................... (2,513) -- -- -- -- -- --
Loss from discontinued operation, net of
taxes......................................... -- -- (1,178) (1,972) (3,642) (3,414) (343)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............................... 3,631 (7,906) 5,953 (3,807) (3,378) (3,580) 3,030
Dividend requirements on preferred stock........ 695 695 695 695 803 585 656
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) applicable to common stock.... 2,936 (8,601) 5,258 (4,502) (4,181) (4,165) 2,374
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) from continuing operations per
average common share.......................... .26 (.73) .48 (.19) (.03) (.05) .17
Net loss from discontinued operation per average
common share.................................. -- -- (.08) (.14) (.24) (.23) (.02)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per average common share...... 0.26 (0.73) 0.40 (0.33) (.27) (.28) .15
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average number of common shares
outstanding................................... 11,429 11,739 13,288 13,445 15,278 14,981 16,311
Ratio of earnings to fixed charges(2)........... 2.82 -- 3.87 -- 1.08 -- 1.89
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- 1997
1992 1993 1994 1995 1996 (UNAUDITED)
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 4,344 $ 5,374 $ 5,129 $ 5,833 $ 2,052 $ 1,397
Working capital................................. 38,552 19,238 21,439 19,875 41,115 47,430
Property and equipment, net..................... 6,901 9,689 12,772 17,879 19,984 18,838
Total assets.................................... 90,679 93,214 81,828 94,463 126,274 135,281
Total debt...................................... 16,650 18,192 1,321 14,500 41,081 54,944
Redeemable preferred stock...................... -- -- -- -- 3,000 3,000
Stockholders' equity............................ 36,016 29,321 38,768 38,639 46,645 49,536
</TABLE>
- ------------------------------
(1) During 1993, Titan was involved in a contractual dispute with the U.S. Navy
over its Mini-DAMA fixed-price development contract. That dispute had a
material adverse impact on Titan's revenues and gross margins and was a
principal cause of Titan's $7.9 million net loss for the year.
(2) The ratio of earnings to fixed charges had been computed by dividing
earnings available for fixed charges (income before income taxes plus fixed
charges) by fixed charges. Fixed charges consist of interest expense
(including amortization of deferred financing costs) and the portion of
rental expense that is representative of an interest factor. For the years
ended December 31, 1993 and 1995, earnings were insufficient to cover fixed
charges by $16,153 and $5,014, respectively.
12
<PAGE>
DBA SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, THREE MONTHS
----------------------------------------------------- ENDED
1993 1994 1995 1996 1997 SEPTEMBER 30,
--------- --------- --------- --------- --------- 1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................. $ 33,298 $ 24,316 $ 29,696 $ 20,470 $ 25,508 $ 5,665
Total costs and expenses................. 30,251 23,085 28,021 19,330 23,153 4,973
--------- --------- --------- --------- --------- -------------
Operating profit......................... 3,047 1,231 1,675 1,140 2,355 692
Interest expense......................... 449 355 199 175 99 0
Interest income.......................... 113 98 297 574 763 238
Other expenses........................... 452 120 229 293 171 70
--------- --------- --------- --------- --------- -------------
Income before income taxes............... 2,259 854 1,544 1,246 2,848 860
Income tax provision..................... 50 17 42 85 1,063 326
--------- --------- --------- --------- --------- -------------
Net income (loss)........................ 2,209 837 1,502 1,161 1,785 534
--------- --------- --------- --------- --------- -------------
--------- --------- --------- --------- --------- -------------
Net income per average common share...... 0.57 0.20 0.34 0.26 0.40 0.12
Earnings per share assuming full
dilution............................... 0.56 0.20 0.34 0.26 0.40 0.12
Weighted average common shares
outstanding............................ 3,886 4,210 4,460 4,493 4,479 4,493
Fully diluted shares outstanding......... 4,359 4,210 4,480 4,493 4,485 4,544
Ratio of earnings to fixed charges....... 6.79 3.47 8.42 6.51 23.79 --
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 4,091 $ 3,651 $ 3,202 $ 2,699 $ 5,595 $ 1,259
Investments.............................. -- -- 5,000 9,888 9,311 12,321
Working capital.......................... 14,103 14,199 15,998 18,215 18,330 17,432
Property and equipment, net.............. 11,732 12,090 11,532 10,897 10,374 10,250
Total assets............................. 30,687 29,061 32,209 33,851 34,014 34,076
Total debt............................... 5,383 2,731 1,926 1,926 -- --
Stockholders' equity..................... 22,071 24,632 26,424 27,815 29,175 29,724
</TABLE>
13
<PAGE>
SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The selected pro forma combined financial data are derived from the
unaudited pro forma combined condensed financial statements, which give effect
to the Merger as a pooling of interests transaction, and should be read in
conjunction with, and are qualified by reference to, such pro forma statements
and the notes thereto included elsewhere in this Prospectus/Joint Proxy
Statement.
The pro forma data is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have been achieved if the Merger had been consummated as of the beginning of the
periods indicated, nor is it necessarily indicative of future financial position
or results of operations.
SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF INCOME DATA:
Revenues..................................................... $ 160,418 $ 157,493 $ 158,182 $ 146,661
Total costs and expenses..................................... 147,789 157,739 153,499 135,633
--------- --------- --------- -------------
Operating profit (loss)...................................... 12,629 (246) 4,683 11,028
Interest expense............................................. (1,148) (1,333) (3,191) (3,906)
Interest income.............................................. 458 546 734 671
--------- --------- --------- -------------
Income (loss) from continuing operations before income tax... 11,939 (1,033) 2,226 7,793
--------- --------- --------- -------------
Income tax provision (benefit)............................... 3,688 (512) 580 2,796
Loss from discontinued operation, net of taxes............... (1,178) (1,972) (3,642) (343)
--------- --------- --------- -------------
Net income (loss)............................................ 7,073 (2,493) (1,996) 4,654
Dividend requirements on preferred stock..................... 695 695 803 656
--------- --------- --------- -------------
Net income (loss) applicable to common stock................. $ 6,378 $ (3,188) $ (2,799) $ 3,998
--------- --------- --------- -------------
--------- --------- --------- -------------
Net income (loss) from continuing operations per average
common share............................................... $ .40 $ (.06) $ .04 $ .19
Net loss from discontinued operation per average common
share...................................................... (.06) (.10) (.17) (.01)
--------- --------- --------- -------------
Net income (loss) per average common share................... $ .34 $ (.16) $ (.13) $ .18
--------- --------- --------- -------------
--------- --------- --------- -------------
Average number of common shares outstanding.................. 19,038 19,438 21,424 22,454
--------- --------- --------- -------------
--------- --------- --------- -------------
Ratio of earnings to fixed charges(1)........................ 3.52 .29 .81 1.73
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1997
-------------
<S> <C>
PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA:
Cash and cash equivalents..................................................... $ 2,656
Investments................................................................... 12,321
Working capital............................................................... 64,062
Property and equipment, net................................................... 26,088
Total assets.................................................................. 168,357
Total debt.................................................................... 54,944
Redeemable preferred stock.................................................... 3,000
Stockholders' equity.......................................................... 73,860
</TABLE>
- ------------------------
(1) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income before income taxes plus fixed
charges) by fixed charges. Fixed charges consist of interest expense
(including amortization of deferred financing costs) and the portion of
rental expense that is representative of an interest factor.
14
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Titan
Common Stock and DBA Common Stock and combined per share data on an unaudited
pro forma basis after giving effect to the Merger accounted for as a "pooling of
interests." This data should be read in conjunction with the selected historical
financial data, the unaudited pro forma combined condensed financial data and
the separate historical consolidated financial statements of Titan and DBA, and
notes thereto. The pro forma combined financial data is not necessarily
indicative of the operating results that would have been achieved had the Merger
been consummated as of the beginning of the periods indicated nor is such data
necessarily indicative of future financial condition or results of operations.
For purposes of the comparative per share data, Titan financial data at December
31, 1994, 1995 and 1996 and September 30, 1997 have been combined with DBA's
financial data at December 31, 1994, 1995 and 1996 and September 30, 1997, which
have been adjusted to conform to Titan's fiscal year ended December 31 and the
nine months ended September 30, 1997.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,(1) NINE MONTHS
------------------------------- ENDED SEPTEMBER
1994 1995 1996 30, 1997
--------- --------- --------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Historical--Titan:
Net income (loss) per share............................................ $ .40 $ (.33) $ (.27) $ .15
Book value per share(2)................................................ $ 2.92 $ 2.87 $ 2.91 $ 3.05
Historical--DBA:
Net income (loss) per share............................................ $ .27 $ .30 $ .31 $ .36
Book value per share(2)................................................ $ 5.77 $ 6.02 $ 6.22 $ 6.72
Pro Forma Combined Per Titan Share(3):
Net income per share................................................... $ .36 $ (.18) $ (.14) $ .19
Book value per share(2)................................................ $ 3.82 $ 3.70 $ 3.70 $ 3.83
Equivalent Pro Forma Combined Per DBA Share(3):
Net income per share................................................... $ .34 $ (.16) $ (.13) $ .18
Book value per share(2)................................................ $ 3.63 $ 3.66 $ 3.64 $ 3.83
</TABLE>
- ------------------------
(1) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock and equivalents outstanding
at the end of each period. The pro forma book value per share is computed by
dividing pro forma stockholders' equity by the pro forma number of shares of
common stock and equivalents at the end of each period.
(2) Titan and DBA estimate they will incur transaction-related costs of
approximately $9 million associated with the Merger, including estimated
costs associated with integrating the two companies, which will be charged
to operations as the costs are incurred. The Pro Forma Combined Book Value
Per Share data give effect to estimated costs of $4.8 million, net of tax,
as if such costs had been incurred and charged to operations as of September
30, 1997. These costs and charge are not included in the pro forma income
per share data. See "Unaudited Pro Forma Condensed Combined Financial
Information" and accompanying notes thereto.
(3) The equivalent DBA pro forma per share amounts are calculated by dividing
the Titan combined pro forma per share amounts by the Exchange Ratio.
15
<PAGE>
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED BY HOLDERS OF TITAN CAPITAL
STOCK AND DBA COMMON STOCK IN EVALUATING WHETHER TO APPROVE THE MERGER PROPOSAL.
THESE FACTORS SHOULD BE CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION
INCLUDED IN THIS PROSPECTUS/JOINT PROXY STATEMENT.
THE DISCUSSION IN THIS PROSPECTUS/JOINT PROXY STATEMENT CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. TITAN'S, DBA'S
AND THE COMBINED ENTITY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THIS PROSPECTUS/JOINT PROXY STATEMENT.
RISKS RELATED TO THE MERGER
INTEGRATION OF OPERATIONS
If the combined company is to realize the anticipated benefits of the
Merger, the operations of the two companies must be integrated and combined
efficiently. The process of rationalizing product lines, management services,
administrative organizations, facilities, management information systems and
other aspects of operations, while managing a larger entity, will present a
significant challenge to the management of the combined company. There can be no
assurance that the integration process will be successful or that the
anticipated benefits of the business combination will be fully realized. The
dedication of management resources to such integration may detract attention
from the day-to-day business of the combined company. The difficulties of
integration may be increased by the necessity of coordinating geographically
separated organizations, integrating personnel with disparate business
backgrounds and combining different corporate cultures. There can be no
assurance that there will not be substantial costs associated with the
integration process, that such activities will not result in a decrease in
revenues or that there will not be other material adverse effects of these
integration efforts. Further, there can be no assurance that, upon learning of
the proposed Merger, customers will not defer purchasing decisions until the
closing of the Merger or thereafter. Such effects could materially reduce the
short-term or long-term earnings of the combined company. Titan estimates that
it will incur $9 million in transaction and integration costs associated with
the Merger, which will be charged to operations as incurred. This amount is a
preliminary estimate only. There can be no assurance that Titan will not incur
additional charges in subsequent quarters.
ADDITIONAL SHARES TO BE ISSUED BY TITAN; SHARES ELIGIBLE FOR FUTURE SALE
Based upon the capitalization of DBA as of the close of business on the
Record Date, using the Exchange Ratio set forth in the Merger Agreement, an
aggregate of approximately 6,110,764 shares of Titan Common Stock (the "Merger
Consideration") will be issued in the Merger, and Titan will assume all
outstanding DBA options which will be converted into options to acquire
approximately 441,020 additional shares of Titan Common Stock. In general, the
shares will be eligible for sale in the public market following the Merger,
subject to certain volume and other resale limitations for affiliates of DBA and
Titan, pursuant to Rules 144 and/or 145 under the Securities Act. See "Terms of
the Merger--Affiliate Agreements." An aggregate of approximately 5.4% of the
shares issued in the Merger will be beneficially owned by persons who may be
deemed to be affiliates of DBA and, therefore, subject to such limitations. The
sale of a significant number of the foregoing shares may cause substantial
fluctuations in the market price of Titan Common Stock. Upon completion of the
Merger, Titan will have outstanding an aggregate of 22,835,943 shares of Titan
Common Stock, assuming no exercise of outstanding options; 694,872 shares of
Titan Public Preferred; and 500,000 shares of Series B Preferred Stock; based
upon the number of shares outstanding as of the Record Date. Assuming 6,710,764
shares of Titan Common Stock are issued as a result of the Merger, the current
Titan stockholders' ownership of Titan will be reduced to 73%. In addition,
promptly following the Effective Time, Titan may file a Form S-8 registering a
total of
16
<PAGE>
approximately 441,020 shares of Titan Common Stock issuable as a result of the
exercise of Titan Exchange Options. Shares registered on such Form S-8 will,
subject to vesting restrictions and to Rule 144 and/or Rule 145 volume
limitations applicable to affiliates, be available for sale in the open market.
FIXED EXCHANGE RATIO
As a result of the Merger, each outstanding share of DBA Common Stock will
be converted into 1.366667 shares of Titan Common Stock. Because the Exchange
Ratio is fixed, and will not otherwise increase or decrease due to fluctuations
in the market price of either Titan Common Stock or DBA Common Stock, the
specific value of the consideration to be received by DBA shareholders in the
Merger will depend on the market price of Titan Common Stock at the Effective
Time. In the event that the market price of Titan Common Stock decreases or
increases prior to such time, the market value of Titan Common Stock to be
received by DBA shareholders in the Merger would correspondingly decrease or
increase. The market prices of Titan Common Stock and DBA Common Stock as of a
recent date are set forth herein under "Summary--Market Price Data." DBA
shareholders are advised to obtain recent market quotations of Titan Common
Stock and DBA Common Stock. Recorded information with respect to the day-to-day
trading prices of Titan Common Stock may be obtained until the Titan Meeting and
the DBA Meeting by calling 1 (800) 917-9475. Titan Common Stock and DBA Common
Stock historically have been subject to substantial price volatility. For
example, during the fiscal years ended December 31, 1996 and 1997, the market
price of Titan's Common Stock ranged from a low of $2.50 to a high of $7.38 and
from a low of $2.88 to a high of $8.19, respectively. No assurance can be given
as to the market prices of Titan Common Stock or DBA Common Stock at any time
before the Effective Time or as to the market price of Titan Common Stock at any
time thereafter. See "Summary--Market Price Data."
RISKS RELATED TO TITAN'S AND DBA'S BUSINESSES
ABILITY TO IMPLEMENT SPIN-OUT STRATEGY
In an effort to leverage its core technologies to build and expand its
commercial businesses, Titan has adopted a strategy of dividing its businesses
into focused subsidiaries and, when possible, funding the continued operations
and potential expansion of each subsidiary by selling a minority equity interest
to public investors. Titan refers to these transactions as "spin-outs" of its
subsidiaries. There are numerous risks inherent in this strategy. Moreover,
Titan has not demonstrated an ability to spin-out its subsidiaries, nor has
Titan demonstrated an ability to successfully manage a public subsidiary. There
can be no assurance that Titan can complete a spin-out of any subsidiary or that
any future spin-out will result in the public market attributing any incremental
value to Titan Common Stock.
There are many factors that could limit Titan's ability to successfully
complete spin-outs in the future. The inability of Titan to attract and retain
the entrepreneurial management and technical personnel necessary to successfully
develop commercial applications for Titan's technology would have a material
adverse effect on Titan's ability to manage and grow its commercial businesses
from start-up ventures to initial public offerings. Additionally, in recent
years, the stock market in general, and the shares of technology companies in
particular, have experienced extreme price fluctuations. Broad market
fluctuations may adversely affect or make impossible Titan's ability to complete
an initial public offering of a minority interest of any of its present or
future subsidiaries. If Titan fails in a planned spin-out, such failure could
make potential investors less receptive of future spin-outs by Titan.
Furthermore, there can be no assurance that Titan can develop or acquire the
additional technologies, or can successfully overcome the numerous other
challenges inherent in the operations of a start-up venture, necessary to
complete a spin-out of any of its subsidiaries. See "--Ability to Commercialize
New Technologies."
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If Titan is unable to implement its spin-out strategy, Titan will need to
complete additional equity or debt financings to fund the continued operations
and expansion of its subsidiaries and potential acquisitions of new
technologies. There can be no assurance that any such financing will be
available on acceptable terms or at all, or that such financings will be
adequate to meet Titan's capital requirements. Any additional equity or
convertible debt financings could result in substantial dilution to Titan's
stockholders. If adequate funds are not available, Titan's ability to operate
and expand the businesses of its subsidiaries and to acquire additional
technologies will be materially adversely affected. Titan may also have
difficulty attracting and retaining key management and technical personnel
because of an inability to offer competitive equity opportunities for these
individuals. Any failure by Titan to continue to spin-out its subsidiaries would
have a material adverse effect on Titan's business, financial condition, results
of operations and market price.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
As part of Titan's strategy, Titan intends to continue to acquire
complementary businesses or technologies that could expand its existing core
businesses or constitute new business. Titan's acquisition strategy entails the
potential risks inherent in assessing the value, strengths, weaknesses,
corporate culture, contingent or other liabilities and potential profitability
of acquisition candidates. Titan's proposed acquisition of DBA is an example of
Titan's acquisition strategy. There can be no assurance that acquisition
opportunities will continue to be available, that Titan will correctly assess
all of these aspects of potential acquisition candidates, that Titan will have
access to the capital required to finance potential acquisitions or that Titan
will continue to acquire businesses or technologies.
Titan's acquisition strategy also involves the potential risks inherent in
integrating the operations of acquired businesses and technologies, certain of
which as they relate to the Merger are described above. See "--Integration of
Operations." Specifically, the integration of these acquired businesses may
require substantial management resources and divert management attention from
the day-to-day business of the remainder of Titan. Although Titan intends to
seek to reduce the expenses of the combined business operations through
consolidation of facilities and other expense reductions, there can be no
assurance that Titan will be able to reduce expenses. There can be no assurance
that Titan will be successful in integrating the operations of acquired
businesses into Titan or that any business acquired will ultimately prove to be
profitable.
DEPENDENCE ON GOVERNMENT CONTRACTS
A substantial portion of the revenues of both Titan and DBA are dependent
upon continued funding of U.S. and allied government agencies as well as
continued funding of programs targeted by Titan's businesses. For the years
ended December 31, 1995 and 1996, U.S. government business represented
approximately 75% and 61% of Titan's revenues; and for the fiscal years ended
June 30, 1996 and 1997, U.S. government business represented approximately 95%
in aggregate, of DBA's revenues. U.S. defense budgets and the budgets of other
government agencies have been declining in real terms since the mid-1980's, and
may continue to do so in the future. Further significant reductions in the
funding of U.S. government agencies or in the funding areas targeted by Titan's
or DBA's business could materially and adversely affect Titan's and DBA's
business, results of operations and financial condition.
Titan's and DBA's contracts with the U.S. government and its subcontracts
with government prime contractors are subject to termination for the convenience
of the government, and termination, reduction or modification in the event of
change in the government's requirements or budgetary constraints. When Titan or
DBA subcontracts with prime contractors, such subcontracts are also subject to
the ability of the prime contractor to perform its obligations under its prime
contract. Titan and DBA often have little or no control over the resources
allocated by the prime contractor to the prime contract, and any failure by the
prime contractor to perform its obligations under the prime contract could
result in the loss of its subcontract. In addition, government contract-related
costs and fees, including allocated indirect costs, are
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subject to audits and adjustments by negotiation between the contracting party
and the U.S. government. As part of the audit process, the government audit
agency verifies that all charges made by a contractor against a contract are
legitimate and appropriate. Audits may result in recalculation of contract
revenues and non-reimbursement of some contract costs and fees. There can be no
assurance that any audits of contract-related costs and fees will not result in
material adjustments to Titan's revenues. In addition, U.S. 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. Any failure of such
agencies to continue to fund such contracts could have a material adverse effect
on the business, results of operations and financial condition of Titan and DBA.
FLUCTUATIONS IN RESULTS OF OPERATIONS
Titan has experienced and expects to continue to experience significant
fluctuations in quarterly and annual revenues, gross margins and operating
results. Factors that have contributed or may contribute to these fluctuations
include, among others: (i) varying demand for Titan's products due to revisions
in budgets or schedules for customer projects, or changes in demand for
customers' products that incorporate or utilize Titan's products, (ii)
announcements by Titan or its competitors of the development of new products or
technologies, or the pricing or availability thereof, that cause customers to
defer or cancel purchases of Titan's products, (iii) the timing and amount of
revenues resulting from the complex and lengthy procurement process of Titan's
customers or sales cycles for Titan's products, (iv) the delay, rescheduling or
cancellation of purchase orders from a significant customer of any of Titan's
core businesses, (v) the failure by Titan to operate within budgeted contract
costs for purchase orders and/or production contracts received and accepted
substantially in advance of delivery, (vi) fluctuations in average selling
prices for Titan's products due to a number of factors, including product mix,
competition, customer demand for products and unit volumes, (vii) inability to
reduce fixed expenses in a timely manner should revenues not meet Titan's
expectations, (viii) expenses relating to acquisitions, (ix) usage of different
distribution and sales channels, (x) warranty and customer support expenses,
(xi) stage of completion of projects subject to milestone payments and (xii)
general economic and political conditions. All of the above factors are
difficult for Titan to forecast or control, and any of these or other factors
could materially adversely affect Titan's business, financial condition and
results of operations from period to period. As a result, Titan believes that
period-to-period comparisons are not necessarily meaningful and should not be
relied upon as indications of future performance.
RAPID INDUSTRY CHANGE; TECHNOLOGICAL OBSOLESCENCE
The industries in which Titan and DBA compete are characterized by rapid and
continuous technological change. Future technological changes in these
industries or the availability of new products could render Titan's and DBA's
products noncompetitive or obsolete. Titan's and DBA's success will depend in
part upon the success of new product introductions by Titan and DBA, which will
be dependent upon several factors, including timely completion and introduction
of new product designs, achievement of competitive product costs, establishment
of close working relationships with major customers and market acceptance of new
products. There can be no assurance that Titan and DBA will be successful in
developing and introducing new products that meet changing customer needs or
respond to technological changes or evolving industry standards in a timely
manner, or at all, or that products or technologies developed by others will not
render Titan's and DBA's products noncompetitive or obsolete. Titan and DBA may
experience delays from time to time in completing the development and
introduction of new products. There can be no assurance that defects will not be
found in Titan's and DBA's products after commencement of deliveries, which
could result in the loss of or delay in market acceptance. Any failure by Titan
or DBA to respond to changing market conditions, technological developments,
evolving industry
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standards or changing customer requirements, or the development of competing
technology or products that render Titan's or DBA's products noncompetitive or
obsolete could have a material adverse effect on Titan's and DBA's business,
financial condition and results of operations.
ABILITY TO COMMERCIALIZE NEW TECHNOLOGIES
Since 1991, Titan has sought to leverage the technologies developed as part
of its defense business into new business opportunities. Accordingly, many of
Titan's existing businesses, such as medical product sterilization and food
pasteurization, are at an early stage and Titan is continuing to develop new
businesses. As such, Titan is subject to all the risks inherent in the operation
of a start-up venture, including the need to secure funding, to develop and
maintain marketing, sales and support capabilities, to secure appropriate
third-party manufacturing arrangements, to respond to the rapid technological
advances inherent in the markets for these new technologies and, ultimately, to
design and manufacture products or provide services acceptable to buyers in its
target markets. Certain of Titan's new products, including products for which
Titan has contracts for delivery, are still in the testing stage. There can be
no assurance that such tests will be completed satisfactorily or that Titan 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 communications and
sterilization businesses involve projects with lengthy sales cycles. Titan'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 Titan will be successful in addressing these
risks or in commercializing these new technologies.
MARKET ACCEPTANCE OF NEW TECHNOLOGIES
Some of Titan's businesses are attempting to commercialize new products or
are attempting to develop new markets for existing products, such as food
pasteurization with Titan's E-Beam sterilization process. Because these markets
are relatively new, it is difficult to predict whether these markets will
develop or, if they develop, the rate at which these markets will grow, if at
all. If the markets for Titan's new products or new markets for Titan's existing
products fail to develop, or develop more slowly than anticipated, this may cast
doubt on Titan's ability to implement its overall business strategy and
materially adversely affect Titan's business, financial condition and results of
operations.
RISKS OF INTERNATIONAL OPERATIONS
Several of Titan's businesses, including the communications systems segment,
conduct substantial business in foreign countries. Titan generally denominates
its foreign contracts in U.S. dollars, and Titan believes that its global
competitors follow similar business practices. Accordingly, Titan does not
believe that foreign currency fluctuations will have a material adverse impact
on its ability to compete with these competitors in these markets. Foreign
currency fluctuations could, however, make Titan's products less affordable and
thus reduce the demand for such products. Furthermore, a precipitous decline in
such foreign currency values could result in certain of Titan's customers and
local subcontractors and partners refusing to perform their obligations under
contracts with Titan, the cancellation of projects from which Titan expects to
receive significant revenues, defaulting on accounts receivable and the loss of
any investments by Titan to build infrastructure or develop business in these
countries. Accordingly, there can be no assurance that a decline in the value of
any one foreign currency relative to the U.S. dollar will not have a material
adverse effect on Titan's business, financial condition and results of
operations. Additional risks inherent in Titan's international business
activities include various and changing regulatory requirements, costs and risks
of relying upon local subcontractors, increased sales and marketing and research
and development expenses, export restrictions and availability of export
licenses, tariffs and other trade barriers, political and economic instability,
difficulties in staffing and managing foreign operations, longer payment cycles,
seasonal reduction in business activities, potentially adverse tax laws, complex
foreign laws and treaties and the potential for difficulty in accounts
receivable collection. Certain of Titan's customer
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purchase agreements are governed by foreign laws, which may differ significantly
from U.S. laws. Therefore, Titan may be limited in its ability to enforce its
rights under such agreements and to collect amounts owing to Titan should any
customer refuse to pay such amounts. In addition, Titan is subject to the
Foreign Corrupt Practices Act (the "FCPA") which may place Titan at a
competitive disadvantage to foreign companies, which are not subject to the
FCPA. There can be no assurance that any of these factors will not have a
material adverse effect on Titan's business, financial condition and results of
operations.
COMPETITION
The industries and markets in which Titan and DBA operate are highly
competitive, and Titan and DBA expect that competition will increase in these
markets. Titan's and DBA's ability to compete in their markets depends to a
large extent on their ability to provide technologically advanced products and
services with shorter lead times and at lower prices than competitors. All of
Titan's core businesses, and DBA, compete with numerous other companies,
including large domestic and international companies. Many of these companies
have far greater financial, engineering, technological, marketing, sales and
distribution and customer service resources than Titan and DBA. In addition,
many of these competitors have more experience in certain of Titan's targeted
markets. As a result, these competitors may be able to develop and expand their
product lines more quickly, adapt more swiftly to new or emerging technologies
and changes in customer requirements, take advantage of acquisition and other
opportunities more readily, and devote greater resources to the marketing and
sale of their products and services than Titan or DBA. In addition, current and
potential competitors in Titan's targeted markets have established or may
establish cooperative relationships among themselves or with third parties to
improve the performance, quality or functionality or to reduce the price of
their products and services. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. Increased competition is likely to result in price reductions, reduced
profit margins and loss of market share, any of which could have a material
adverse effect on Titan's or DBA's business, results of operations and financial
condition. There can be no assurance that Titan or DBA will be able to compete
successfully against current or future competitors or that competitive pressures
will not have a material adverse effect on Titan's or DBA's business, financial
condition and results of operations.
RELIANCE ON STRATEGIC RELATIONSHIPS
Titan is and will continue to be dependent on certain strategic partners for
the development and expansion of its core businesses. There can be no assurance
that Titan will be able to maintain its existing strategic relationships or
negotiate any future strategic relationships important to Titan's business, that
its strategic partners will continue to assist Titan by developing and expanding
its businesses or that such strategic partners in the future will not actually
compete with or enter into alliances with companies that are competitive with
Titan. Titan's failure to maintain its existing alliances or to form additional
alliances with partners in other markets, or the preemption or disruption of
such alliances by the actions of Titan's competitors or otherwise, could
adversely affect Titan's ability to penetrate and compete successfully in
emerging and other markets.
CUSTOMER CONCENTRATION WITHIN BUSINESS SEGMENTS
Certain of Titan's business segments rely on a small number of customers for
a large portion of their revenues. For example the U.S. Navy, with respect to
Titan's Mini-DAMA product, and the Federal Aviation Administration (the "FAA")
represent significant customers of Titan's communications systems and software
systems subsidiaries, respectively. Any one such customer's product or services
scheduled for delivery can represent a significant portion of the potential
revenues in a quarter for a particular subsidiary. As a result, the operating
results for certain business segments for particular periods have in the past
been and may in the future be materially adversely affected by a delay,
rescheduling or cancellation of even one purchase order. There can be no
assurance that a reduction, delay or cancellation of any order
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from a single customer would not have a material adverse effect on the business,
financial condition and results of operations of a particular subsidiary of
Titan.
GOVERNMENT REGULATIONS
Several of Titan's and DBA's products and the systems with which they
operate are subject to various government regulations. Regulatory changes could
significantly impact Titan's operations by restricting development efforts by
Titan's strategic partners or customers, making current products obsolete or
increasing the opportunity for additional competition. For example, certain
countries in which Titan's communications systems segment intends to operate
have telecommunications laws and regulations that do not currently contemplate
technical advances in communications technology such as multi-function
transmissions via satellite. There can be no assurance that regulatory bodies
will not impose new regulations that could have a material adverse effect on
Titan's and DBA's business, financial condition and results of operations. In
addition, in certain circumstances strategic partners or customers must obtain
various local approvals, licenses and permits prior to the installation or use
of Titan's or DBA's products. The regulatory schemes in each country are
different and there may be instances of noncompliance by strategic partners or
customers. Changes in, or the failure by Titan or DBA, or their strategic
partners or customers, to comply with, applicable domestic and international
regulations could have a material adverse effect on Titan's and DBA's business,
financial condition and results of operations.
Titan's sterilization facilities are subject to regulation at the federal,
state and local levels. In particular, Titan's sterilization facilities are
subject to the requirements of the FDA when sterilizing medical devices or drug
packaging materials. In addition, if Titan were to begin pasteurizing meat or
poultry products, in addition to being subject to the FDA, it would become
subject to the requirements of the Food Safety and Inspection Service of the
United States Department of Agriculture, which would require preapproval of the
pasteurization process for meat and poultry. Any failure by Titan to obtain
required permits or approvals or comply with the regulations imposed by such
agencies could limit Titan's ability to operate in these markets.
The sale of Titan's products outside the United States is subject to
compliance with the United States Export Administration Regulations. The absence
of comparable restrictions on competitors in other countries may adversely
affect Titan's competitive position.
DEPENDENCE UPON SUPPLIERS; SOLE AND LIMITED SOURCES OF SUPPLY
Titan's internal manufacturing capacity is limited. Therefore, Titan
utilizes contract manufacturers to produce several of its products or components
thereof. Certain components and services necessary for the manufacture of
certain of Titan's products are obtained from a sole supplier or a limited group
of suppliers in connection with specific contracts and Titan does not carry
significant inventories or have long-term or exclusive supply contracts with its
vendors for such supply. Titan's reliance on contract manufacturers and on sole
suppliers or a limited group of suppliers involves several risks, including a
potential inability to obtain an adequate supply of required components or
products, and reduced control over the price, delivery, reliability and quality
of finished products. If Titan were to change certain of its vendors or qualify
additional vendors for such components or products, Titan could be required to
negotiate acceptable arrangements with the new vendors, complete any required
technology transfers or perform additional testing procedures upon the
components or products supplied by such new vendors, which could prevent or
delay product shipments. Additionally, prices could increase significantly in
connection with changes of vendors or if Titan is required to manufacture such
components or products internally. Any inability to obtain timely deliveries of
components or products or deliveries of acceptable quality or any other
circumstance that would require Titan to seek alternative sources of supply,
could delay timely delivery of such products or raise issues regarding quality,
which could damage relationships with current or prospective customers and have
a material adverse effect on Titan's business, financial condition and results
of operations.
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LIMITED INTELLECTUAL PROPERTY PROTECTION; DEPENDENCE ON PROPRIETARY TECHNOLOGY
Titan's and DBA's ability to compete may depend, in part, on their ability
to obtain and enforce intellectual property protection for their technologies in
the United States and internationally. Each of Titan and DBA relies heavily on
the technological and creative skills of its personnel, new product
developments, software programs and designs, frequent product enhancements,
reliable product support and proprietary technological expertise in maintaining
its competitive position, but does not have significant patent protection for
all of its products. Titan and DBA rely on a combination of trade secrets,
copyrights, patents, trademarks, service marks and contractual rights to protect
intellectual property. There can be no assurance that the steps taken by Titan
or DBA to protect its intellectual property will be adequate to deter
misappropriation of Titan's or DBA's technology or to prevent others from
independently developing or acquiring substantially equivalent technologies or
otherwise gaining access to Titan's or DBA's proprietary and confidential
technological expertise or disclosing such technologies or that Titan or DBA can
ultimately enforce all of its rights to its proprietary technological expertise.
Further, the laws of certain foreign countries in which Titan's products are or
may be sold may not protect Titan's intellectual property rights to the same
extent as do the laws of the United States. Any failure of Titan or DBA to
protect its proprietary information could have a material adverse effect on
Titan's or DBA's business, financial condition and results of operations.
Litigation may be necessary to enforce Titan's or DBA's intellectual
property rights, to determine the validity and scope of the proprietary rights
of others or to defend against claims of infringement or misappropriation. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on Titan's or DBA's business, financial
condition and results of operations. There can be no assurance that Titan's or
DBA's products do not infringe the intellectual property rights of others or
that one or more parties will not make claims that Titan's or DBA's products
infringe upon their proprietary rights or the proprietary rights of third
parties. Such claims might include infringement, right to use or ownership
claims by third parties or claims for indemnification resulting from
infringement claims. If any claims or actions are asserted against Titan or DBA,
Titan or DBA may seek to obtain a license under a third party's intellectual
property rights. There can be no assurance, however, that a license will be
available under reasonable terms or at all. In addition, should Titan or DBA
decide to litigate such claims, such litigation could be extremely expensive and
time consuming and could materially adversely affect Titan's or DBA's business,
financial condition and results of operations, regardless of the outcome of the
litigation. There can be no assurance that the intellectual property rights of
Titan or DBA would withstand claims brought by others in such litigation. If
Titan's or DBA's products are found to infringe upon the rights of third
parties, Titan or DBA may be prohibited from making and selling the infringing
products, ordered to pay monetary damages for past infringement or forced to
incur substantial costs to develop alternative products. There can be no
assurance that Titan or DBA would be able to develop such alternative products
or that if such alternative products were developed, they would perform as
required or be accepted in the applicable markets.
RISK OF BUDGET OVERRUNS IN FIXED PRICE CONTRACTS
Much of Titan's revenue was derived from fixed-price contracts in 1997.
Titan assumes greater financial risk on fixed-price contracts than on either
time-and-materials or cost-reimbursement contracts. Profitability of such
contracts is subject to inherent uncertainties due to fluctuations in the cost
of performance. Cost overruns may be incurred as a result of unforeseen
obstacles, including unexpected problems encountered in engineering, design
and/or testing. Since Titan's businesses in certain of its subsidiaries may at
times be concentrated in a limited number of large contracts, a significant cost
overrun on any one contract could have a material adverse effect on such
subsidiary's business, financial condition and results of operations. Failure to
anticipate technical problems, estimate costs accurately or control costs during
performance of a fixed-price contract may reduce Titan's overall or consolidated
profit or cause a loss. Although management believes that it adequately
estimates costs for fixed-price contracts, no
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assurance can be given that such estimates are adequate or that losses on
fixed-price contracts will not occur in the future.
RELIANCE ON KEY PERSONNEL
Each of Titan's and DBA's success depends in large part upon its ability to
attract and retain highly qualified technical and management personnel,
including without limitation, engineers and management personnel with security
clearances required for Titan's and DBA's classified work and computer
programmers proficient in the C++ language. The loss of the services of any of
these individuals or group of individuals could have a material adverse effect
on Titan's or DBA's business, financial condition and results of operations.
Titan's and DBA's key personnel are generally not subject to employment or
noncompetition agreements. Competition for such personnel from other companies,
academic institutions, government entities and other organizations is intense.
In addition, if Titan is unable to successfully implement its strategy to
spin-out its subsidiaries into publicly-owned companies, or if Titan is
otherwise unable to preserve the entrepreneurial atmosphere it believes is
essential to continuing growth and development, Titan will likely face
difficulty in recruiting and retaining the personnel necessary to successfully
commercialize its products and to further implement its strategy. See "--Ability
to Implement Spin-Out Strategy." There can be no assurance that Titan or DBA
will be successful in hiring or retaining such key personnel.
VOLATILITY OF STOCK PRICE
Titan believes that factors such as developments related to Titan's
business, technological innovations or new products or enhancements by Titan or
its competitors, developments in Titan's relationships with its customers,
partners, distributors and suppliers, changes in analysts' estimates, regulatory
developments, fluctuations in results of operations, general conditions in
Titan's market or the markets served by Titan's customers or the economy, and
other factors, could cause the price of Titan Common Stock to fluctuate, perhaps
substantially. In addition, in recent years the stock market in general, and the
market prices of technology companies in particular, have been subject to
significant fluctuations, which have often been unrelated to the operating
performance of affected companies. Such fluctuations could adversely affect the
market price of Titan Common Stock. Furthermore, since Titan intends to pursue
its strategy of completing public offerings of certain subsidiaries, the market
price of Titan Common Stock may be significantly affected by trading of the
shares of Titan's subsidiaries in the public markets. There can be no assurance
that the market price of Titan Common Stock will not experience significant
fluctuations in the future, including fluctuations that are unrelated to Titan's
performance.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is a problem created by the fact that most computer
software programs have been written using two digits rather than four to
represent a specific year. Any of Titan' s computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculation
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
Based on a recent assessment, Titan has determined that it will be required
to modify or replace significant portions of its software so that its computer
systems will properly utilize dates beyond December 31, 1999. Titan presently
believes that with modifications to existing software and conversions to its new
software, the Year 2000 issue can be mitigated, primarily by utilizing Titan's
internal resources to reprogram, replace and test the software for Year 2000
modifications. However, if such modifications and conversions are not made, or
are not completed on a timely basis, the Year 2000 issue could have a material
adverse impact on the operations of Titan. Titan plans to implement the Year
2000 project during 1998, and the total cost of the Year 2000 project cannot be
reasonably estimated at this time. Estimates with respect to the costs of the
project and the date on which Titan plans to complete the Year 2000
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modifications will be derived utilizing numerous assumptions of future events,
including the continued availability of certain internal resources. There can be
no assurance that these estimates will be achieved and actual results could
differ materially from those plans. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
Titan plans to maintain communications with all of its significant suppliers
and large customers to determine the extent to which Titan is vulnerable to
those third parties' failure to remediate their own Year 2000 issue. There can
be no assurance that the systems of other companies will be timely converted, or
that a failure to convert by another company, or a conversion that is
incompatible with Titan's systems, would not have a material adverse effect on
Titan.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER PROVISIONS; RIGHTS
PLAN
Certain provisions of Delaware law applicable to Titan could delay or make
more difficult a merger, tender offer or proxy contest involving Titan,
including Section 203 of the Delaware General Corporation Law, which prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder unless certain conditions are met. In addition,
Titan currently has Preferred Stock issued and outstanding which entitles the
holders thereof to rights not available to holders of Titan Common Stock.
Furthermore, the Board of Directors of Titan may issue additional shares of
Preferred Stock without stockholder approval on such terms as such Board of
Directors may determine. The rights of the holders of Titan Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. In addition, Titan's Restated
Certificate of Incorporation and Bylaws contain certain provisions designed to
require significant corporate action prior to taking certain steps toward a
merger, tender offer or proxy contest involving Titan. Further, pursuant to the
terms of its preferred share purchase rights plan, Titan has distributed a
dividend of one right for each outstanding share of Titan Common Stock. These
rights will cause substantial dilution to the ownership of a person or group
that attempts to acquire Titan on terms not approved by the Titan Board and may
have the effect of deterring hostile takeover attempts. All of the foregoing
could have the effect of delaying, deferring or preventing a change in control
of Titan and could limit the price that certain investors might be willing to
pay in the future for shares of Titan Common Stock.
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THE TITAN MEETING
DATE, TIME AND PLACE OF MEETING
The Titan Meeting will be held on February 27, 1998 at nine o'clock a.m.,
local time, at 3033 Science Park Road, San Diego, California. Titan intends to
deliver this Prospectus/Joint Proxy Statement on or about February 6, 1998, to
all Titan stockholders entitled to vote at the Titan Meeting.
RECORD DATE AND OUTSTANDING SHARES
Only stockholders of record at the close of business on January 30, 1998
(the "Record Date"), are entitled to notice of and to vote at the Titan Meeting.
As of the close of business on the Record Date, there were 16,725,179 shares of
Titan Common Stock outstanding and entitled to vote, held of record by 3,238
stockholders. Each Titan stockholder is entitled to one vote for each share of
Titan Common Stock, one third vote for each share of Titan Preferred Stock, and
one vote for each share of Series B Cumulative Convertible Redeemable Preferred
Stock held as of the Record Date.
VOTING OF PROXIES
The Titan proxy accompanying this Prospectus/Joint Proxy Statement is
solicited on behalf of the Titan Board for use at the Titan Meeting and at any
adjournment or postponement thereof. Titan stockholders are requested to
complete, date and sign the accompanying proxy and promptly return it in the
accompanying envelope. All proxies that are properly executed and returned, and
that are not revoked, will be voted at the Titan Meeting in accordance with the
instructions indicated on the proxies or, if no direction is indicated, to
approve the Merger Proposal and the other proposals submitted to the Titan
stockholders, as unanimously recommended by the Titan Board, as indicated
herein. The Titan Board is not currently aware of any business to be brought
before the Titan Meeting other than the specific proposal referred to in this
Prospectus/Joint Proxy Statement and specified in the accompanying notice of the
Titan Meeting. As to any other business that may properly come before the Titan
Meeting, however, it is intended that proxies, in the form enclosed, will be
voted in respect thereof in accordance with the judgment of the persons voting
such proxies.
REVOCABILITY OF PROXIES
A Titan stockholder who has given a proxy may revoke it at any time before
it is exercised at the Titan Meeting by (i) delivering to the Secretary of Titan
(by any means, including facsimile) a written notice, bearing a date later than
the date of the proxy, stating that the proxy is revoked, (ii) signing and so
delivering a proxy relating to the same shares and bearing a later date prior to
the vote at the Titan Meeting or (iii) attending the Titan Meeting and voting in
person (although attendance at the Titan Meeting will not, by itself, revoke a
proxy).
STOCKHOLDER VOTE REQUIRED; QUORUM; VOTING AGREEMENT
Approval of the Merger Proposal requires the affirmative vote of a majority
of the voting power of the outstanding shares of Titan on the Record Date
entitled to vote on the Merger Proposal. As a group, all executive officers and
directors of Titan and their respective affiliates beneficially owned 1,072,847
shares, or approximately 6.41%, of such voting power as of the Record Date.
The presence, in person or by proxy, of a majority of the voting power of
the outstanding shares of Titan on the Record Date is necessary to constitute a
quorum for the transaction of business at the Titan Meeting. Abstentions and
broker non-votes will each be included in determining whether a quorum is
present. Abstentions will have the same effect as a vote against a proposal.
Broker non-votes will not be counted for any purpose in determining whether any
of the proposals have been approved.
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Certain executive officers and directors of Titan owning in the aggregate
approximately 2.8% of the outstanding voting power of Titan have each agreed to
vote or direct the vote of all Titan capital stock over which they have voting
power or control in favor of the Merger Agreement and the Merger.
SOLICITATION OF PROXIES AND EXPENSES
Titan will bear the cost of the solicitation of votes of Titan stockholders,
including printing, assembly and mailing of this Prospectus/Joint Proxy
Statement, the proxy and any additional information furnished to its
stockholders. Titan has engaged the firm of W.F. Doring & Co., Inc. to assist it
in the distribution and solicitation of proxies and has agreed to pay W.F.
Doring & Co., Inc. a fee of approximately $5,000 plus expenses for its services.
Copies of the solicitation materials will be furnished to banks, brokerage
houses, fiduciaries and custodians holding in their names shares of Titan stock
beneficially owned by others to forward to such beneficial owners. Titan may
reimburse persons representing beneficial owners of Titan shares for their costs
of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram,
letter or personal solicitation by directors, officers or other employees of
Titan and by W.F. Doring & Co., Inc. No additional compensation will be paid to
directors, officers and other regular employees for such services.
BOARD RECOMMENDATION
THE TITAN BOARD BELIEVES THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF TITAN AND ITS STOCKHOLDERS AND THEREFORE UNANIMOUSLY RECOMMENDS A
VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
THE DBA MEETING
DATE, TIME AND PLACE OF MEETING
The DBA Meeting will be held on February 27, 1998 at 10 o'clock a.m., local
time, at DBA's Conference Facility at Granada Center, 1101 W. Hibiscus Blvd.,
Melbourne, Florida. DBA intends to deliver this Prospectus/Joint Proxy Statement
on or about February 6, 1998, to all DBA shareholders entitled to vote at the
DBA Meeting.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of DBA Common Stock at the close of business on
January 30, 1998 (the "Record Date") are entitled to notice of and to vote at
the DBA Meeting. As of the Record Date, there were 4,471,290 shares of DBA
Common Stock outstanding and entitled to vote, held of record by 553
shareholders.
VOTING OF PROXIES
The DBA proxy accompanying this Prospectus/Joint Proxy Statement is
solicited on behalf of the DBA Board for use at the DBA Meeting and at any
adjournment or postponement thereof. DBA shareholders are requested to complete,
date and sign the accompanying proxy and promptly return it in the accompanying
envelope. All proxies that are properly executed and returned, and that are not
revoked, will be voted at the DBA Meeting in accordance with the instructions
indicated on the proxies or, if no direction is indicated, to approve the Merger
Proposal and the other proposals submitted to the DBA shareholders, as
recommended by the DBA Board, as indicated herein. The DBA Board is not
currently aware of any business to be brought before the DBA Meeting other than
the specific proposal referred to in this Prospectus/Joint Proxy Statement and
specified in the accompanying notice of the DBA Meeting. As to any other
business that may properly come before the DBA Meeting, however, it is intended
that proxies, in the form enclosed, will be voted in respect thereof in
accordance with the judgment of the persons voting such proxies.
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REVOCABILITY OF PROXIES
A DBA shareholder who has given a proxy may revoke it at any time before it
is exercised at the DBA Meeting by (i) delivering to the Secretary of DBA (by
any means, including facsimile) a written notice, bearing a date later than the
date of the proxy, stating that the proxy is revoked, (ii) signing and so
delivering a proxy relating to the same shares and bearing a later date prior to
the vote at the DBA Meeting or (iii) attending the DBA Meeting and voting in
person (although attendance at the DBA Meeting will not, by itself, revoke a
proxy).
SHAREHOLDER VOTE REQUIRED; QUORUM; VOTING AGREEMENTS
The affirmative vote of the holders of a majority of the shares of DBA
Common Stock outstanding as of the Record Date is required to approve the Merger
Proposal. Each holder of record of DBA Common Stock on the Record Date will be
entitled to cast one vote per share on the Merger Proposal. As a group, the
directors and executive officers of DBA and their respective affiliates
beneficially owned 242,684 shares, or approximately 5.4%, of the DBA Common
Stock outstanding as of the Record Date.
The presence, in person or by proxy, of at least a majority of the shares of
DBA Common Stock outstanding on the Record Date is necessary to constitute a
quorum for the transaction of business. Abstentions will be counted for purposes
of determining a quorum. For purposes of obtaining the required vote of a
majority of the outstanding shares of DBA Common Stock for approval of the
Merger Proposal, the effect of an abstention and the effect of a broker non-vote
will have the same effect as a vote against the proposal.
Certain executive officers and directors of DBA owning in the aggregate
approximately 4.76% of the outstanding DBA Common Stock have each agreed to vote
or direct the vote of all DBA Common Stock over which they have voting power or
control in favor of the Merger Agreement and the Merger. See "Terms of the
Merger--Related Agreements--Voting Agreements."
SOLICITATION OF PROXIES; EXPENSES
DBA will bear the cost of the solicitation of votes of DBA shareholders,
including printing, assembly and mailing of this Prospectus/Joint Proxy
Statement, the proxy and any additional information furnished to its
stockholders. DBA has engaged the firm of W.F Doring & Co., Inc. to assist it in
the solicitation of proxies and has agreed to pay W.F Doring & Co., Inc. a fee
of approximately $5,000 plus expenses for its services. Copies of the
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of DBA Common Stock beneficially
owned by others to forward to such beneficial owners. DBA may reimburse persons
representing beneficial owners of DBA Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram, letter or personal
solicitation by directors, officers or other employees of DBA and by W.F Doring
& Co., Inc. No additional compensation will be paid to directors, officers and
other regular employees for such services.
BOARD RECOMMENDATION
THE DBA BOARD HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF DBA AND ITS STOCKHOLDERS AND THEREFORE RECOMMENDS A VOTE FOR
APPROVAL OF THE MERGER PROPOSAL.
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APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
OTHER THAN STATEMENTS OF HISTORICAL FACT, THE STATEMENTS MADE IN THIS
SECTION, INCLUDING STATEMENTS AS TO THE BENEFITS EXPECTED TO RESULT FROM THE
MERGER AND AS TO FUTURE FINANCIAL PERFORMANCE AND THE ANALYSES PERFORMED BY
TITAN AND DBA'S RESPECTIVE FINANCIAL ADVISORS, ARE FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
EXCHANGE ACT. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS/JOINT PROXY
STATEMENT.
BACKGROUND OF THE MERGER
DBA is principally engaged in the defense mapping, charting & geodesy and
electronic business, providing specialized products and services in imaging
systems and electro-optical systems. Over the past several years, DBA has faced
the challenge of increased competition for declining defense dollars in its
traditional business areas. Although during its fiscal year ended June 30, 1997
DBA's performance improved over previous years in many ways, DBA's backlog has
slipped to the level of two years ago and efforts to exploit commercial markets
have not advanced as fast as planned. The drop in backlog emphasized the need to
search for new businesses. Faced with these challenges, DBA's management has
explored opportunities to expand DBA's business and has also considered
opportunities for a business combination involving DBA and other companies.
Titan has a firmly established strategy of acquiring complementary
businesses that can be integrated into its existing core businesses in order to
strengthen and expand its overall business and leverage its business and
technologies into new markets. In particular, Titan developed an interest in
acquiring one or more businesses with expertise in the areas of intelligence and
digitizing and packaging information. Titan's management also recognized
potential value in acquiring management personnel in connection with an
acquisition with strengths relating to operations.
In July 1997, DBA engaged Robinson-Humphrey to evaluate DBA's alternatives
to enhance shareholder value and to report to the DBA Board on its findings and
recommendations.
In August 1997, Dr. Gene Ray, President and Chief Executive Officer of
Titan, contacted Mr. John Slack, Chairman, President and Chief Executive Officer
of DBA, to inquire if Mr. Slack was interested in meeting to discuss a possible
business combination involving DBA and Titan. During that month, Dr. Ray
commenced discussions with A.G. Edwards about the possibility of A.G. Edwards
acting as financial advisor to Titan in connection with a proposed business
combination with DBA, and rendering an opinion as to the fairness, from a
financial point of view, to Titan's stockholders of the consideration proposed
to be paid by Titan in such transaction.
On August 28, 1997, the Titan Board held a regular meeting. At the meeting,
the Board discussed the general terms of the proposed acquisition of DBA,
including various financial aspects of the proposed acquisition. The Titan Board
then authorized the officers of Titan to proceed with discussions with DBA and
approved the engagement of A.G. Edwards as financial advisor of Titan in
connection with the proposed acquisition.
On September 3, 1997 and September 11, 1997, Dr. Ray and Mr. Slack met and
discussed the operations of DBA and Titan and the possibility of a business
combination between DBA and Titan.
On September 18, 1997, a special meeting of the DBA Board was held to
discuss the proposed business combination of Titan and DBA, with Messrs. John
Slack, Thomas Boyce and William Potter and Dr. Weaver present and Dr. Richard
Baney and Amb. Robert Ellsworth absent. DBA's management made a presentation to
the DBA Board concerning Titan, including Titan's background, products,
financial performance over the past five years and current financial condition,
and the terms of its proposed combination and certain advantages and
disadvantages of the proposed combination. The DBA Board discussed the
presentation, and the directors raised the possibility of DBA offering to
acquire Titan's
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defense business. Mr. Slack responded that he had raised this alternative with
Titan but that they were not willing to proceed on that basis. The DBA Board
then discussed possible valuations of the DBA Common Stock. Although no vote was
taken at the time, it was the consensus of the DBA Board members present that
DBA should continue discussions with Titan.
On September 24, 1997, Mr. Slack, Mr. Boyce, Mr. Edward Bielski, DBA's
Treasurer, and Mr. Dudley Gordon, DBA's Vice President of Operations, met with
Dr. Ray, and Mr. Eric DeMarco, Titan's Chief Financial Officer, to discuss the
proposed transaction. Titan's officers proposed a transaction in which Titan
would acquire DBA for a premium of 30 percent over the market price per share of
DBA Common Stock up to a maximum of $8.50 per share, payable 50 percent in cash
and 50 percent in Titan Common Stock. Titan's officers also described how they
proposed Titan would finance the proposed transaction and described recent
developments in Titan's business.
On September 30, 1997, the Titan Board held a special meeting. At that
meeting, Titan's management updated the Board with respect to negotiations with
DBA, and also discussed potential risks and benefits to Titan of the proposed
combination with DBA. The Titan Board then authorized the officers of Titan to
proceed with discussions with DBA within the parameters discussed at the
meeting, provided the final terms were subject to further Board approval.
On September 30, 1997, a special telephonic meeting of the DBA Board was
held with all members participating, other than Dr. Baney. Mr. Slack described
the discussions and negotiations of the September 24th meeting. The DBA Board
discussed the proposed transaction, including the proposed price for the DBA
Common Stock in the transaction. The DBA Board unanimously determined that DBA
propose to Titan a transaction price of approximately $10.00 per DBA share.
Thereafter, Mr. Slack called Dr. Ray and advised him of the DBA Board's
position.
On October 6, 1997, DBA engaged Robinson-Humphrey to render an opinion as to
the fairness, from a financial point of view, of the proposed merger
consideration to be received by DBA's shareholders. (The DBA Board had
previously approved the engagement of Robinson-Humphrey to act as exclusive
financial advisor to DBA.)
On October 8, 1997, a special meeting of the DBA Board was held with all
members present to discuss the proposed transaction with Titan. By invitation of
the DBA Board, Dr. Ray and Mr. DeMarco also attended a portion of the meeting.
Dr. Ray made a presentation to the DBA Board with respect to Titan's business,
products, financial results, prospects, growth strategy and possible synergies
with DBA. He then described a proposed transaction between DBA and Titan in
which a subsidiary of Titan would be merged with and into DBA and each share of
DBA's Common Stock would be canceled in exchange for shares of Titan Common
Stock in a tax-free transaction. (Based upon the then current market values of
DBA Common Stock and Titan Common Stock, the proposal placed a value of
approximately $9.25 per share on the DBA Common Stock.) Members of the DBA Board
asked Dr. Ray questions with respect to Titan and the proposed transaction and
then Dr. Ray and Mr. DeMarco left the meeting. The DBA Board discussed the
proposal, including the proposed consideration, and noted that the proposal
included non-solicitation and termination fee provisions. Dr. Ray and Mr.
DeMarco subsequently rejoined the meeting, and Mr. Slack proposed that the
exchange ratio be increased so as to place a value of approximately $10.00 per
share on the DBA Common Stock. Dr. Ray responded that he believed that they
would be able to reach agreement, but that he would have to have further
discussions with the Titan Board.
On October 9, 1997, the Titan Board held another special meeting, and agreed
that Dr. Ray should continue negotiations at an acquisition price of $10.00 per
share. Later that day, Dr. Ray contacted Mr. Slack by telephone and advised him
that Titan agreed to an acquisition price equal to $10.00 per share.
The Titan Board held another special meeting on October 13, 1997, at which
representatives of A.G. Edwards discussed the proposed transaction with the
Titan Board. On October 16 and October 17, 1997, representatives of Titan,
including an attorney from Titan's outside legal counsel, conducted a due
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diligence review of DBA at DBA's offices in Melbourne, Florida. Also during this
period, Titan's legal counsel prepared a draft merger agreement, and DBA's and
Titan's legal counsel engaged in negotiations with respect to the terms of the
merger agreement. From October 20 through October 22, 1997, representatives of
DBA, including Mr. Slack, Mr. Boyce, Mr. Bielski and two representatives of
Robinson-Humphrey conducted a due diligence review of Titan at Titan's offices
in San Diego, California. Mr. Slack also met with Dr. Ray and together they
visited Titan's facility in Reston, Virginia.
On October 22 and October 29, 1997, representatives of Titan's financial
advisor, A.G. Edwards, met with representatives of DBA and on October 29, 1997
also met with representatives of one of DBA's commercial joint venture partners.
On November 4, 1997, Mr. Slack and Mr. Bielski met with Dr. Ray and Mr.
DeMarco. Dr. Ray explained that Titan had concerns with respect to certain
aspects of DBA's business and that Titan's financial advisor expressed concerns
with respect to the proposed merger consideration. The meeting participants also
discussed the recent volatility of the stock markets, and expressed uncertainty
with regard to relative valuations. Based upon these concerns and the
differences in the positions of DBA and Titan, the parties agreed to terminate
discussions with respect to a possible business combination of the companies.
DBA instructed its financial advisor and counsel to stop work on the proposed
transaction, and Titan made similar requests of its advisors.
On November 6, 1997, the Titan Board held another special meeting, at which
Titan management updated the Titan Board with respect to the termination of
discussions with DBA.
On November 12, 1997, at a regular meeting of the DBA Board, Mr. Slack
informed the DBA Board that discussions with Titan had been terminated. On the
same day, DBA held its annual meeting of shareholders. At the shareholder
meeting, Mr. Boyce and Dr. Weaver were re-elected and Mr. James Pruitt was
elected to the DBA Board.
On November 21, 1997, Robinson-Humphrey met with Mr. Slack and other members
of DBA's management to report on the results of their July 1997 engagement to
evaluate DBA's alternatives to enhance shareholder value. Robinson-Humphrey
reported that they had evaluated DBA's financial situation, including DBA's
historical financial results, the historical market for DBA Common Stock, DBA's
current business, DBA's current financial condition and DBA's projected
financial results, and had concluded that there was limited opportunity for
growth of DBA's core business. Robinson-Humphrey described a number of strategic
alternatives available to DBA. Based upon the factors evaluated and the
alternatives available, Robinson-Humphrey advised DBA that, if DBA were to
determine to take action to enhance shareholder value, DBA should, absent any
realistic and strategic acquisition opportunities, attempt to find a buyer for
DBA. As an alternative, they suggested that DBA pursue acquisitions if DBA could
identify appropriately valued strategic acquisition opportunities which provided
the ability to capitalize on synergies.
During November and December 1997, Dr. Ray and other members of Titan
management monitored press releases and public disclosures of DBA and noted that
DBA had met certain of the objectives set forth by DBA in previous meetings with
Titan.
On December 12, 1997, Dr. Ray called Mr. Slack proposing to revive the
discussions between DBA and Titan, and generally proposing merger consideration
of $9.50 per share of DBA Common Stock. Dr. Ray also requested updated
information with respect to DBA's business and financial results.
On December 17, 1997, the Titan Board held a special meeting at which all
directors and a representative of Titan's legal counsel were in attendance. At
that meeting, Dr. Ray gave a report regarding the status of negotiations with
DBA and discussions regarding the proposed consideration of $9.50 per share of
DBA Common Stock. Following discussion, the Titan Board instructed Dr. Ray to
continue negotiations with DBA and indicated that the proposed merger
consideration as amended was acceptable.
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On December 19, 1997, Dr. Ray and Mr. DeMarco proposed during a telephone
call with Mr. Slack, Mr. Bielski and Dr. Charles Robertson, DBA's Vice President
of Administration, that Titan acquire DBA in a merger in which each share of DBA
Common Stock would be canceled in exchange for approximately 1.36 shares of
Titan Common Stock. The parties and their counsel thereafter negotiated
provisions of the draft merger agreement and related documents.
On December 26, 1997, the Titan Board held a special meeting to consider the
agreed upon terms of the draft merger agreement and the Merger and related
arrangements. All directors were in attendance in person or by conference
telephone, as were representatives of A.G. Edwards and Titan's legal counsel.
Prior to the meeting, near-final versions of the draft merger agreement and
related agreements had been made available, and a detailed written report from
A.G. Edwards relating to the transaction and its potential consequences was
distributed to each director. At the meeting, the Titan Board received a
detailed oral report from A.G. Edwards regarding the proposed transactions,
including its opinion that the consideration to be paid by Titan was fair, from
a financial point of view, to the stockholders of Titan (and such oral opinion
was subsequently confirmed by delivery of the written opinion of A.G. Edwards).
Following a discussion, the A.G. Edwards representatives exited the meeting.
Upon further discussion among the directors concerning the proposed terms of the
Merger and the Merger Agreement, and the business and management of DBA, the
Titan Board unanimously (i) determined that the terms of the proposed Merger
Agreement and the transactions contemplated thereby are fair to, and in the best
interests of, Titan and its stockholders, (ii) approved the proposed Merger
Agreement and the Merger and all related arrangements contemplated thereby,
including the issuance by Titan of shares of Titan Common Stock in connection
therewith, and (iii) resolved to recommend that the Titan stockholders vote for
the approval of the Merger Agreement and the Merger, and the issuance by Titan
of shares of Titan Common Stock in connection therewith, at a special meeting of
the Titan stockholders to be held for such purpose. The Titan Board also
instructed Titan's management to negotiate and finalize the terms of the draft
merger agreement. See "--Titan Reasons for the Merger"; and "Titan Board
Recommendations."
On December 26, 1997, a special meeting of the DBA Board was held. All of
the members of the DBA Board, except Mr. Pruitt, who was traveling, attended the
meeting in person or by conference telephone. Prior to the meeting, drafts of
the merger agreement and related agreements had been provided to each of the
directors. Mr. Slack summarized the terms of the proposed merger, including the
proposed exchange ratio of 1.366667 shares of Titan Common Stock in exchange for
each share of DBA common stock. Also at the meeting, DBA's officers made a
presentation to the DBA Board on their due diligence investigation with respect
to Titan, DBA's accountants made a presentation regarding "pooling of interests"
under applicable accounting rules and DBA's legal counsel made a presentation to
the DBA Board with respect to certain responsibilities of the directors in
connection with considering and acting upon a merger proposal. Robinson-Humphrey
representatives briefly summarized the report they made on November 21, 1997 to
Mr. Slack and other members of DBA's management on alternatives to enhance
shareholder value and then made an oral presentation to the DBA Board regarding
their opinion that, from a financial point of view, the consideration to be paid
to DBA's shareholders for their DBA Common Stock pursuant to the proposed merger
was fair. Robinson-Humphrey advised the DBA Board that its opinion was based
upon financial and market information through December 22, 1997, and further
advised the DBA Board that Robinson-Humphrey anticipated that it would update
its opinion and deliver it in written form prior to the mailing of the proxy
statement with respect to the Merger (and such oral opinion was subsequently
updated and confirmed by delivery of the written opinion of Robinson-Humphrey
dated as of February 5, 1998). See "--Opinion of Robinson-Humphrey."
The DBA Board then discussed the various presentations made to the DBA
Board, including the Robinson-Humphrey report on alternatives to enhance
shareholder value and the Robinson-Humphrey opinion as to the fairness, from a
financial point of view, of the Merger Consideration, and asked questions with
respect to the presentations. The DBA Board discussed the defense industry,
DBA's position in the defense industry and DBA's need for strategic acquisitions
in order to grow. Mr. Slack also discussed
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DBA's limited success to date in commercial activities. Mr. Slack then discussed
prospects for acquisitions by DBA and also discussed the prospects for the
acquisition of DBA by a third party. He described the previous contacts and
discussions in which he had participated over the past several years in respect
of proposed business combinations involving DBA. Mr. Slack stated that none of
these discussions led to the execution of a letter of intent or definitive
agreement. The DBA Board was also advised that, while there was no known
prospect for another potential business combination with DBA, if the draft
merger agreement were executed with Titan, and DBA subsequently sought to
consummate an alternative transaction, DBA would be obligated to pay a $500,000
termination fee to Titan. The DBA Board then discussed Titan's business
prospects, including both the upside potential and business risks, and discussed
possible synergies of a merger with Titan. See "DBA Reasons for the Merger."
During the discussions, Dr. Baney and Mr. Potter raised concerns with respect to
the proposed transaction, as summarized below. Finally, the DBA Board reviewed
the terms of the draft merger agreement, including the fact that the proposed
agreement did not provide for updating of the opinion of DBA's financial advisor
subsequent to the current DBA Board meeting. Thereafter, the DBA Board, by a
vote of three to two, with Mr. Slack abstaining and Dr. Baney and Mr. Potter
voting against, conditionally approved the transaction subject to the draft
merger agreement being revised to provide for an updating of the opinion of
DBA's financial advisor. The DBA Board directed that, following further
negotiations with representatives of Titan, another DBA Board meeting be called
for further discussion and a vote to approve the transaction, if appropriate.
Mr. Slack advised the DBA Board that he favored the transaction but abstained
from this vote due to the expectation that he would be employed by Titan
following the acquisition. He also advised the DBA Board that he had spoken with
Mr. Pruitt, and Mr. Pruitt had advised him that he also favored the transaction.
Following the DBA Board meeting, Mr. Slack discussed the DBA's Board's concerns
with representatives of Titan, and DBA's counsel further discussed the terms of
the draft merger agreement with Titan's counsel.
Dr. Baney and Mr. Potter stated that they voted against the proposed Merger
for the following reasons:
COMPARATIVE FINANCIAL CONDITION. Titan has debt of approximately $47
million and has experienced operating losses during three of the past six
years and in two of the past three years. Titan has two potentially dilutive
classes of preferred stock outstanding, and Titan has indicated that it may
issue additional shares in the near future. In contrast, DBA has no debt,
has $15 million in cash and has been profitable in each of the past six
years. See "Risk Factors--Fluctuations in Results of Operations" and
"--Additional Shares to be Issued by Titan; Shares Eligible for Future
Sale."
DECLINE IN BOOK VALUE. DBA shareholders will experience a decline in
the book value of their shares as a result of the Merger. See "Unaudited Pro
Forma Combined Condensed Financial Information."
BUSINESS PROSPECTS. They believe that Titan's business prospects are
speculative. They believe that Titan's attempts to date to engage in
commercial ventures have achieved mixed results. They also expressed their
belief that Titan's largest potential future venture, a material contract
for satellite ground stations in several Southeast Asian countries, may be
jeopardized by the recent severe currency devaluation in that region. See
"Risk Factors--Ability to Implement Spin-Out Strategy," "--Risk Associated
with Acquisition Strategy" and "--Risk of International Operations."
MERGER PROSPECTS. They believe that DBA can attract a merger partner
that is financially more secure and has had more success in promoting
commercial ventures and in successfully transitioning from the
government/defense sphere to the commercial arena. On November 12, 1997
(following the termination of the initial merger discussions with Titan),
Robinson-Humphrey advised Mr. Slack that Robinson-Humphrey could seek other
potential merger partners on behalf of DBA. DBA declined to engage
Robinson-Humphrey for this purpose. They believe that DBA should further
explore these alternatives.
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Following the DBA Board meeting, Dr. Ray had various conversations with
members of the Titan Board, and explained to them that the DBA Board would
subsequently meet and again discuss the proposed transactions. On December 31,
1997, another special meeting of the DBA Board was held, with all of the members
of the DBA Board present in person or by conference telephone. The DBA Board
expressed continued concern that the draft merger agreement did not provide for
the updating of the opinion of DBA's financial advisor. The DBA Board also
discussed the possibility of obtaining a provision for price adjustments or
similar provision addressing the concern with respect to possible fluctuation in
the market price of Titan Common Stock.
Following the DBA Board meeting, Mr. Slack discussed the DBA Board's
concerns with representatives of Titan, and DBA's counsel further discussed the
terms of the draft merger agreement with Titan's counsel. Dr. Ray also consulted
with members of the Titan Board. Titan's representatives agreed that the draft
merger agreement would be modified (i) to provide for the updating of the
opinions of both DBA's and Titan's financial advisors as of the date immediately
prior to the mailing of the proxy statement soliciting the approval of the
Merger and Merger Agreement, and (ii) to grant Titan and DBA termination rights
prior to closing under certain circumstances in the event the price of Titan
Common Stock (based on a 20-day average), as of the date scheduled for mailing
of the joint proxy statement relating to the Merger Agreement and the Merger,
was below $6.00 (triggering Titan's termination rights), or above $8.00
(triggering DBA's termination rights). The parties further agreed that in the
event such termination rights did arise due to such a fluctuation in the price
of Titan Common Stock, but the termination right was not exercised, the Exchange
Ratio would be adjusted upward or downward as appropriate to account for such
fluctuation. (Since no such fluctuation occurred, the Exchange Ratio was not
adjusted, and is now fixed at 1.366667. See "Terms of the Merger--Termination of
the Merger Agreement.")
On January 5, 1998, a special telephonic meeting of the DBA Board was held,
with all of the members of the DBA Board participating. The DBA Board discussed
the most recently proposed modifications to the draft merger agreement. Mr.
Slack informed the DBA Board that prior to the meeting he had spoken with a
representative of Robinson-Humphrey and had discussed the most recently proposed
modifications to the draft merger agreement, as well as the Exchange Ratio,
which by such date had been determined with certainty. He reported that
Robinson-Humphrey continued to stand by the opinion they had delivered orally to
the DBA Board on December 26, 1997. The DBA Board, with Mr. Boyce, Amb.
Ellsworth, Mr. Pruitt, Mr. Slack and Dr. Weaver voting in favor and Dr. Baney
and Mr. Potter voting against, (i) approved DBA's execution and delivery of the
Merger Agreement as a condition to the Merger, (ii) determined that the Merger
Agreement and the transactions contemplated thereby, including the Merger, are
in the best interests of DBA's shareholders, (iii) approved the transactions
contemplated thereby for purposes of Section 607.0902 of the FBCA and (iv)
resolved to recommend that the holders of the DBA Common Stock adopt the Merger
Agreement and the transactions contemplated therein, including the Merger. See
"--DBA Reasons for the Merger."
On January 5, 1998, the Merger Agreement was executed, and the parties
issued a press release announcing the execution thereof on January 6, 1998,
prior to the opening of the NYSE and Nasdaq trading sessions.
On January 21, 1998, DBA received an unsolicited letter from Microdyne
Corporation ("Microdyne") proposing, subject to existing contractual
commitments, that DBA and Microdyne discuss the possibility of a merger of DBA
and Microdyne. The letter indicated that Microdyne was prepared to discuss a
merger transaction in which DBA shareholders would receive up to a total of $45
million in Microdyne common stock and cash, with up to $20 million of the
consideration in cash. The letter did not indicate how the Microdyne common
stock would be valued.
DBA contacted Microdyne to seek clarification of certain terms of the letter
and also conducted a review of publicly available information with respect to
Microdyne, including reports filed by Microdyne
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with the Securities and Exchange Commission. Copies of the Microdyne letter and
the information collected with respect to Microdyne were distributed to the
members of the DBA Board.
On January 26, 1998, the DBA Board held a special meeting to discuss the
Microdyne letter. DBA management made a presentation to the DBA Board
summarizing the publicly available information with respect to Microdyne and the
proposal set forth in the Microdyne letter. The DBA Board discussed this
information, including Microdyne's businesses (which involves manufacturing
satellite telemetry equipment and providing customer telephone support services
for a major manufacturer of computer printers), Microdyne's recent financial
results, and possible synergies between DBA and Microdyne. The DBA Board also
compared the Microdyne proposal to the terms of the transaction with Titan set
forth in the Merger Agreement. Based upon the advice of counsel, the DBA Board
concluded that agreeing to enter into a strategic combination with Titan did not
require the DBA Board to offer DBA for sale to the highest bidder, and
therefore, the DBA Board was not subject to a fiduciary obligation to pursue any
or all offers to acquire DBA. Nevertheless, the DBA Board authorized and
directed Mr. Slack to meet with representatives of Microdyne to further
investigate the Microdyne proposal.
On the evening of January 27, 1998 and on January 28, 1998, Mr. Slack met
with the chief executive officer and chief financial officer of Microdyne and
discussed Microdyne's business and prospects and the offer set forth in the
Microdyne letter.
On January 31, 1998, the DBA Board held another special meeting. Mr. Slack
presented a report to the DBA Board on his meetings with the representatives of
Microdyne and the information obtained at those meetings. He also described to
the DBA Board an analysis prepared by Robinson-Humphrey which indicated that the
proposed transaction with Titan would be accretive to the earnings of the
combined company. He also presented an analysis which indicated that the
transaction proposed by Microdyne would be dilutive to the earnings of the
combined company.
The DBA Board discussed Mr. Slack's report and further compared Microdyne's
proposal to the transaction with Titan set forth in the Merger Agreement. The
DBA Board concluded that the proposed combination with Microdyne did not appear
to provide an opportunity for significant operating synergies or cost savings.
The DBA Board noted that the proposed transaction with Microdyne would be
taxable in whole or in part and could not be accounted for as a "pooling of
interests," which would result in the combined company accruing substantial
"good will" in connection with the proposed transaction. The DBA Board
considered the dilutive effect of the proposed transaction with Microdyne and
also noted that the consideration proposed by Microdyne was subject to reduction
based upon a proposed due diligence review of DBA by Microdyne. The DBA Board
also reviewed with counsel that the proposed transaction with Titan constituted
a strategic combination and that the DBA Board was not required to abandon the
long-term strategy reflected by the proposed transaction with Titan or to offer
DBA for sale. Based upon the foregoing considerations, the DBA Board voted
unanimously to reject the proposal received from Microdyne.
TITAN REASONS FOR THE MERGER
In the course of reaching its decision to approve the Merger, the Merger
Agreement, the issuance by Titan of shares of Titan Common Stock in connection
therewith, and each of the transactions and arrangements contemplated thereby,
the Titan Board consulted with Titan legal and financial advisors as well as
with Titan management, and considered a number of factors, including the
following:
- The combined company may possess increased opportunities and greater
government contract sales and product line coverage, thereby enhancing its
growth potential;
- The Merger represents a strategic opportunity to further diversify Titan's
product and services offerings with complementary information technology
services;
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- The combined company may be able to achieve certain operating efficiencies
as a result of the Merger enabling the combined company to maintain
competitive rates;
- The Merger will provide Titan with additional skilled and experienced
management personnel;
- The Merger may result in increased earnings per share for the combined
company;
- The Merger may result in additional complementary commercial products
addressing new markets; and
- The Merger will provide significant additional national and international
distribution capabilities and infrastructure which may enhance sales of
Titan existing products.
In the course of its deliberations, the Titan Board reviewed with management
a number of other factors relevant to the Merger, including, among other things:
(i) information concerning Titan and DBA's respective businesses, prospects,
financial performances, financial conditions and operations; (ii) the
presentation made by A.G. Edwards to the Titan Board and its opinion rendered in
connection therewith (see "--Opinion of A.G. Edwards"); (iii) an analysis of the
respective contributions to revenues, operating profits and net profits of the
combined company; (iv) the compatibility of the managements of Titan and DBA;
(v) potential synergies and alternatives for growth within the combined company;
and (vi) reports from management and legal advisors on the results of Titan's
due diligence investigation of DBA.
The Titan Board also considered a variety of potentially negative factors
concerning the Merger, including (i) the risk that the combined company might
not achieve revenue equal to the sum of the separate companies' anticipated
revenue; (ii) the risk that the combined company might not achieve sufficient
operating efficiencies to ensure that the Merger would not have a negative
effect on Titan's earnings per share; (iii) the charges expected to be incurred
in connection with the Merger, including transaction costs and costs of
integrating the businesses of the companies, to be reflected in a charge
estimated to be approximately $9 million, to be expensed in the periods in which
the costs will be incurred (see "Unaudited Pro Forma Combined Condensed
Financial Information"); (iv) the risk that the combined company's ability to
increase or maintain revenue might be diminished by intensified competition
among providers of similar or related information technology services; (v) the
risk that other benefits sought to be obtained by the Merger would not be
obtained; and (vi) other risks described above under "Risk Factors."
Based on the factors described above, the Titan Board determined that the
Merger is fair to and in the best interests of Titan and its stockholders,
approved the Merger, the Merger Agreement, the issuance by Titan of shares of
Titan Common Stock in connection therewith, and the transactions contemplated
thereby, and recommended that the stockholders of Titan vote for adoption and
approval of the Merger Agreement and approval of the Merger and the issuance by
Titan of shares of Titan Common Stock in connection therewith.
The foregoing discussion of the information and factors considered is not
intended to be exhaustive but is believed to include the material factors
considered by the Titan Board. In reaching a determination whether to approve
the Merger Agreement and the Merger, and the issuance by Titan of shares of
Titan Common Stock in connection therewith in view of the wide variety of
factors considered, the Titan Board did not find it practical to quantify or
otherwise attempt to assign any relative or specific weights to the foregoing
factors, and individual directors may have given differing weights to different
factors.
TITAN BOARD RECOMMENDATION
FOR THE REASONS DISCUSSED ABOVE, THE TITAN BOARD HAS DETERMINED THAT THE
MERGER IS ADVISABLE AND IN THE BEST INTERESTS OF TITAN AND ITS STOCKHOLDERS AND
HAS UNANIMOUSLY RECOMMENDED A VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
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DBA REASONS FOR THE MERGER
As part of its review, the DBA Board considered, among other things, (i)
information concerning the financial performance, condition, business operations
and prospects of each of DBA and Titan, (ii) the proposed terms and structure of
the Merger, (iii) the historical market prices of DBA Common Stock and Titan
Common Stock, (iv) the terms of the Merger Agreement, including the parties'
mutual representations, warranties and covenants and the conditions to their
respective obligations, (v) the alternatives to the Merger (including the
Robinson-Humphrey report on alternatives to enhance shareholder value), (vi) the
Robinson-Humphrey opinion relating to the fairness, from a financial point of
view, to the DBA shareholders of the consideration to be received in the Merger
by the DBA shareholders and (vii) the business advantages expected to result
from the combination of DBA and Titan. In considering the Robinson-Humphrey
opinion, the DBA Board took into account the fees payable to Robinson-Humphrey.
See "Approval of the Merger and Related Transactions--Opinion of
Robinson-Humphrey."
The DBA Board believes that the Merger is in the best interests of DBA's
shareholders for the following reasons:
GROWTH POTENTIAL. The DBA Board believes that the Merger will constitute a
strategic combination, accelerating the ability of DBA to achieve its strategic
objectives, albeit as part of a combined entity. This belief is based upon the
opportunities arising from the combination of the two companies, including (i)
complementary product lines, (ii) complementary management teams, as well as
little redundancy and greater overall management depth and (iii) the potential
to realize certain operating cost savings from the combination of the two public
companies. The DBA Board considered the risks associated with Titan's business
and recent financial results and concluded that the prospective benefits of the
combination of Titan and DBA outweighed these risks. The DBA Board also
considered the prospects for DBA making strategic acquisitions, including
matters then currently under investigation, and determined that the completion
of such acquisitions was speculative and that, even if completed, would result
in a combined company less than one-half of the size of Titan when combined with
DBA.
SHAREHOLDER VALUE. The DBA Board believes that the consideration to be
received in the Merger by the DBA shareholders is fair to the DBA shareholders,
that the Titan Common Stock has prospects for positive long-term performance and
that the Titan Common Stock, which is listed on the NYSE, will provide greater
liquidity to the DBA shareholders.
ALTERNATIVE TRANSACTIONS. The DBA Board considered that the Merger
Agreement provides that DBA may not solicit any alternate transaction. The DBA
Board discussed Mr. Slack's report on other acquisition discussions and
expressed the view that other acquisition proposals were unlikely. The DBA Board
noted that the Merger Agreement provides that DBA may furnish information to and
enter into discussions or negotiations with, any party that makes an unsolicited
bona fide written proposal to acquire DBA or substantially all of its assets on
terms which, in an exercise of the DBA Board's fiduciary duty after the
consideration of advice from DBA's legal advisors, a majority of DBA's directors
determines is likely to be more beneficial to DBA's shareholders than the
Merger. The DBA Board also noted that the Merger Agreement provides for the
payment of a termination fee of $500,000 if DBA enters into an alternate
transaction with another party and was aware that Titan would not have agreed to
enter into the Merger Agreement without this provision. The DBA Board concluded
that, while the existence of the termination fee provision might reduce the
likelihood that a third party would propose an alternate transaction, the
increased cost to a third party would not be material and the benefits of the
Merger to DBA outweighed the risks. The DBA Board also considered the prospects
for DBA making strategic acquisitions, including matters then currently under
investigation, and determined that the completion of such acquisitions was
speculative and that, even if completed, would result in a combined company less
than one-half of the size of Titan when combined with DBA.
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The DBA Board noted the decline in book value to DBA shareholders as a
result of the Merger and concluded that book value was not a good measure of the
value of Titan or DBA. DBA's book value is composed primarily of its cash
reserve and its real estate holdings. DBA's real estate is composed of its
offices, production facilities and excess facilities held for sale, which do not
contribute to revenues or earnings. DBA's cash reserve would contribute to DBA's
revenues and earnings only to the extent that could be used to make strategic
acquisitions. The DBA Board considered DBA's ability to identify and complete
strategic acquisitions as speculative.
In considering the Merger, the DBA Board acknowledged that there are certain
risks associated with the Merger, including (i) the risk that the combined
company might not achieve revenues equal to the sum of the separate companies'
anticipated revenues, (ii) the risk that the combined company might not achieve
sufficient operating efficiencies to avoid the Merger having a negative effect
on Titan's earnings per share, (iii) the risk that the other benefits sought to
be obtained by the Merger would not be obtained, (iv) other risks described
above under "Risk Factors" and (v) the possibility that the Merger might not be
consummated, resulting in a potential adverse effect on the market price of the
DBA Common Stock. Notwithstanding these risks, the DBA Board concluded that the
positive factors described above outweighed the negative considerations.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger Agreement, the DBA Board did not find it practical to,
and did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determinations.
DBA BOARD RECOMMENDATION
FOR THE REASONS DISCUSSED ABOVE, THE DBA BOARD HAS DETERMINED THAT THE
MERGER IS ADVISABLE AND IN THE BEST INTERESTS OF DBA AND ITS SHAREHOLDERS AND
HAS RECOMMENDED A VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
OPINION OF A.G. EDWARDS
(CAPITALIZED TERMS DEFINED IN THIS SECTION RELATING TO THE OPINION OF A.G.
EDWARDS ARE INTENDED TO APPLY TO THIS SECTION ONLY.)
On October 17, 1997, Titan retained A.G. Edwards to act as its financial
advisor and to render an opinion as to the fairness, from a financial point of
view, to the stockholders of Titan of the consideration to be paid by Titan in
the Merger. At the meeting of the Titan Board on December 26, 1997, A.G. Edwards
delivered its oral and written opinion, such written opinion dated December 26,
1997 ("A.G. Edwards Opinion"), that, as of that date, based upon and subject to
the various considerations set forth in the opinion, the consideration to be
paid by Titan under the Merger Agreement is fair, from a financial point of
view, to the Titan stockholders.
A.G. Edwards is a national securities and investment banking firm engaged
in, among other things, the evaluation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, competitive bidding, secondary distribution of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. A.G. Edwards was selected by Titan as financial advisor
based upon such expertise, the reputation of A.G. Edwards in investment banking
and mergers and acquisitions, and the historical relationship between A.G.
Edwards and Titan. A.G. Edwards is not aware of any present or contemplated
relationship between A.G. Edwards, Titan, Titan's directors and officers or its
shareholders, or DBA, which in its opinion would affect its ability to render a
fair and independent opinion in this matter.
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THE FULL TEXT OF THE OF A.G. EDWARDS OPINION, WHICH SETS FORTH, AMONG OTHER
THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS OF THE SCOPE OF THE REVIEW UNDERTAKEN BY A.G. EDWARDS IN RENDERING
ITS OPINION, IS ATTACHED AS APPENDIX B TO THIS PROSPECTUS/JOINT PROXY STATEMENT.
TITAN STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE A.G. EDWARDS OPINION
CAREFULLY AND IN ITS ENTIRETY. THE A.G. EDWARDS OPINION WAS DIRECTED TO THE
TITAN BOARD AND ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF
THE CONSIDERATION TO BE PAID BY TITAN PURSUANT TO THE MERGER AGREEMENT AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF TITAN CAPITAL STOCK AS TO HOW
TO VOTE WITH RESPECT TO THE MERGER AGREEMENT AND THE MERGER. THE SUMMARY OF THE
A.G. EDWARDS OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at the A.G. Edwards Opinion, A.G. Edwards, among other things:
(i) reviewed the Merger Agreement and related documents; (ii) reviewed Titan's
and DBA's historical audited financial statements, certain unaudited interim
financial statements and financial projections; (iii) held discussions with
management of Titan and DBA regarding the past and current business operations,
financial condition and future prospects of Titan and DBA, respectively,
including information relating to the strategic, financial and operational
benefits anticipated from the Merger; (iv) reviewed the pro forma impact of the
Merger on the sales, earnings before interest and taxes ("EBIT"), earnings
before interest, taxes, depreciation and amortization ("EBITDA"), earnings per
share and shareholders' equity of Titan; (v) compared certain financial and
stock market information for Titan and DBA with similar information and stock
market information for certain other companies, the securities of which are
publicly traded; (vi) reviewed the historical trading activity of Titan Common
Stock and DBA Common Stock; (vii) reviewed the financial terms of certain recent
business combinations in the defense communications and information technology
industries; and (viii) completed such other studies and analyses that A.G.
Edwards considered appropriate.
In rendering its opinion, A.G. Edwards has relied upon and assumed, without
independent verification, the accuracy and completeness of all financial and
other information, publicly available or furnished to, or otherwise discussed
with A.G. Edwards. A.G. Edwards was not engaged to, and therefore did not,
verify the accuracy or completeness of any such information. A.G. Edwards was
informed and assumed, without independent verification, that the internal
financial statements and other financial and operating data including
projections and estimates of the strategic, financial and operational benefits
anticipated from the Merger supplied to, discussed with or otherwise made
available to A.G. Edwards by Titan and DBA were reasonably prepared on a basis
reflecting the best then currently available estimates and judgments of their
respective managements as to the expected future financial performance of Titan
and DBA, in each case, on a stand-alone basis and after giving effect to the
Merger, including the projected cost savings and operating synergies resulting
from the Merger. A.G. Edwards has not independently verified such information or
assumptions nor does it express any opinion with respect thereto. A.G. Edwards
did not make any independent valuation or appraisal of the assets or liabilities
of Titan or DBA, respectively, nor was A.G. Edwards furnished with any such
appraisals (with the exception of an appraisal of DBA's property in Kissimmee,
Florida). A.G. Edwards assumed that the Merger would be accounted for as a
pooling-of-interests business combination in accordance with U.S. generally
accepted accounting principles and that the Merger would be treated as a
tax-free reorganization pursuant to the United States Federal Tax Code and will
be consummated in accordance with the terms set forth in the Merger Agreement,
without any waiver of any material terms or conditions by Titan.
In performing its analysis, A.G. Edwards made numerous assumptions with
respect to the defense communications and information technology industry, the
various commercial industries in which Titan and DBA operate, general business
and economic conditions and government regulations, which are beyond the control
of Titan. The analyses performed by A.G. Edwards are not necessarily indicative
of actual values or actual future results, which may be significantly more or
less favorable than suggested by such analysis. Such analyses were prepared
solely as part of A.G. Edwards' analysis of the fairness, from a financial point
of view, to Titan stockholders, of the consideration to be paid by Titan
pursuant to the
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Merger Agreement, and were provided to the Titan Board in connection with the
delivery of the A.G. Edwards Opinion.
In rendering the A.G. Edwards Opinion, A.G. Edwards assumed the planned
initial public offering of Linkabit Wireless would be completed at terms which
are fair to Titan's stockholders and therefore would not materially impact
Titan's intrinsic or stock market valuation. Given the assumed fairness of
pricing and the inherent uncertainty of the prospects for completion of such
offering as well as the pricing thereof, the pro forma impact of the offering
was not included in A.G. Edwards' financial analysis.
The A.G. Edwards Opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to it as of, the
date of the opinion. The A.G. Edwards Opinion as summarized herein is limited to
the fairness, from a financial point of view, to the Titan stockholders, of the
consideration to be paid by Titan pursuant to the Merger Agreement.
The following is a summary of the analyses performed by A.G. Edwards in
arriving at the A.G. Edwards Opinion.
(A) STOCK TRADING HISTORY. A.G. Edwards examined the history of the
trading prices and volumes for the shares of Titan Common Stock. This
examination showed that during the approximately four month period from
September 1, 1997 to December 26, 1997, the trading price of Titan Common
Stock ranged from $5.375 per share to $8.188 per share. A.G. Edwards also
examined the history of the trading prices and volumes for the shares of DBA
Common Stock. This examination showed that during the approximately four
month period from September 1, 1997 to December 26, 1997, the trading price
of DBA Common Stock ranged from $5.375 per share to $8.75 per share. The
ranges of Titan's and DBA's common stock were compared to the stock prices
of each company used in establishing the Exchange Ratio. Pursuant to the
Merger Agreement, the Exchange Ratio was established by dividing the $9.50
acquisition price of DBA's Common Stock by the average closing price of
Titan's Common Stock over the 20 trading days prior to December 24, 1997
(the average of the 20 day period approximated $6.95 per share) resulting in
an exchange ratio of approximately 1.37 (the "Exchange Ratio").
(B) COMPARABLE COMPANY ANALYSIS. A.G. Edwards compared certain
financial information of Titan and DBA with certain public financial
information of selected defense and commercial systems companies which
included, in the case of Titan, four peer groups (the "Comparable
Companies"): Defense Systems, Satcom/Linkabit, Software Systems and Scan
(medical sterilization), and, in the case of DBA, Defense Systems. Titan's
four peer groups were weighted by the proportion of Titan's fiscal 1997
estimated revenues represented by each business segment and used to derive a
range of estimated weighted average valuation multiples for Titan. DBA was
compared to only the Defense Systems group with special emphasis on Analysis
and Technology, Inc. as the single most comparable company. The Defense
Systems peer group included Advanced Communication Systems, Inc., Analysis
and Technology, Inc., CACI International Inc., Dynamic Research Corp., GRC
International, Inc., Nichols Research Corporation. The Satcom/Linkabit peer
group included Globecomm Systems Inc., Stanford Telecommunications, Inc.,
STM Wireless, Inc., and ViaSat, Inc. The Software Systems peer group
included Cambridge Technology Partners Inc., PowerCerv Corp., Scopus
Technology, Inc. The Scan (medical sterilization) peer was Steris
Corporation. The financial information reviewed included, among other
things, the company's stock price as a multiple of the last twelve months
("LTM") and calendarized First Call Corporation estimates for 1997 and 1998
earnings per share and the company's total market capitalization (defined as
market value of the relevant company's common equity plus total debt less
cash and cash equivalents) as a multiple of LTM revenues, LTM EBITDA and LTM
EBIT. The total market capitalization to revenues multiples were 0.9 times
for Titan, 1.1 times for the weighted average of Titan's peer group, 0.5
times for DBA, a median of 0.7 times for the Defense Systems peer group and
0.4 times for Analysis and Technology, Inc. The total market capitalization
to EBITDA multiples were 13.5 times for Titan, 11.3 times for the weighted
average of Titan's peer
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group, 3.8 times for DBA, a median of 8.8 times for the Defense Systems peer
group and 6.1 times for Analysis and Technology, Inc. The total market
capitalization to EBIT multiples were 28.8 times for Titan, 16.6 times for
the weighted average of Titan's peer group, 5.4 times for DBA, a median of
14.3 times for the Defense Systems peer group and 8.4 times for Analysis and
Technology, Inc. The stock price to LTM earnings per share multiples were
not meaningful for Titan due to its negative LTM earnings per share, 24.8
times for the weighted average of Titan's peer group, 13.6 times for DBA, a
median of 18.7 times for the Defense Systems peer group and 18.1 times for
Analysis and Technology, Inc. The stock price to 1997 estimated earnings per
share multiples were 24.5 times for Titan, 25.2 times for the weighted
average of Titan's peer group, 13.9 times for DBA, a median of 19.4 times
for the Defense Systems peer group and 16.3 times for Analysis and
Technology, Inc. The stock price to 1998 estimated earnings per share
multiples were 17.5 times for Titan, 19.3 times for the weighted average of
Titan's peer group, 12.4 times for DBA, a median of 16.5 times for the
Defense Systems peer group and a 1998 forecast for Analysis and Technology,
Inc. was not available.
No company used in A.G. Edwards' analysis is identical to Titan or DBA.
A.G. Edwards' analysis involves complex considerations and judgments
concerning differences in the potential financial and operating
characteristics of the Comparable Companies.
(C) PRO FORMA ANALYSIS OF THE MERGER. A.G. Edwards analyzed the pro
forma impact of the Merger on Titan's estimated sales, EBIT, and earnings
per share for the calendar years 1998, 1999 and 2000. Such analysis was
based on Titan's and DBA's respective managements' projections for the
corresponding periods, with DBA's projections calendarized to conform to
Titan's December 31 year end, and an exchange ratio of 1.37. A.G. Edwards
observed that, assuming the Merger was treated as a pooling-of-interests for
accounting purposes and before taking into account any one-time
restructuring charge or any synergies resulting from the combination, the
Merger would result in earnings per share accretion for Titan stockholders
of 4.2%, 2.7% and 1.6% for the estimated calendar years 1998, 1999 and 2000,
respectively, based on the Exchange Ratio. A.G. Edwards also observed, based
on the foregoing assumptions, that the Merger would result in earnings per
share accretion for Titan stockholders of 9.3%, 7.5% and 2.2% for the
estimated calendar years 1998, 1999 and 2000, respectively, assuming
estimated synergies as provided by the management of Titan. Additionally,
A.G. Edwards analyzed the pro forma impact of the Merger based on revised
assumptions in which the operating earnings of DBA's commercial business
were reduced below management's projections. Assuming no cost saving
synergies, the Merger was not projected to become significantly dilutive
until the operating earnings of DBA's commercial business were reduced by
more than 40%, 25% and 15% for the estimated calendar years 1998, 1999 and
2000, respectively. Assuming synergies as provided by the management of
Titan, the Merger was not projected to become significantly dilutive until
the operating earnings of DBA's commercial business were reduced by more
than 90%, 65% and 50% for the estimated calendar years 1998, 1999 and 2000,
respectively.
(D) ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. As part of this
analysis, A.G. Edwards reviewed publicly available information regarding 38
completed and two announced but not completed defense-related software and
systems engineering transactions since May 1988 (the "Precedent
Transactions"). Special emphasis was given to the following transactions:
TRW Inc.'s pending acquisition of BDM International, Inc. ("TRW/BDM"),
Northrop Grumman Corp.'s acquisition of Logicon, Inc. ("Northrop/Logicon"),
Titan's acquisition of Eldyne, Inc., Unidyne Corp. and Diversified Control
Systems, LLC. ("Titan/Eldyne"), Logicon, Inc.'s acquisition of Geodynamics
Corp. ("Logicon/Geodynamics") and defense-related software and systems
engineering transactions under $100 million in aggregate transaction value.
Among other things, A.G. Edwards analyzed as available: (i) the
aggregate transaction value (common equity value, plus book value of debt
and preferred stock less cash and marketable securities) to LTM sales, LTM
EBIT and LTM EBITDA; (ii) the amount paid for the equity to LTM net income
and LTM book value; and (iii) similarity of such transactions to the Merger.
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In comparing the multiples in the Precedent Transactions to the Merger,
TTN's share price was assumed to be $7.00 per share with an the exchange
ratio of 1.37. This resulted in a transaction value (on a fully diluted
basis) of $46.0 million. Subtracting DBA's projected cash balance, the
estimated value of DBA's real estate held for sale and cash received from
the exercise of DBA's outstanding options, resulted in an aggregate
transaction value of approximately $24.0 million.
For the aggregate transaction value to LTM sales, the Precedent
Transaction multiples ranged from a low of 0.4 times to a high of 1.3 times
(TRW/BDM - 0.9 times; Northrop/Logicon - 1.3 times; Titan/Eldyne - 0.5
times; Logicon/Geodynamics - 0.6 times; transactions under $100 million -
0.4 times) with a median of all transactions of 0.6 times and DBA's implied
multiple of 0.9 times. For the aggregate transaction value to LTM EBIT, the
Precedent Transaction multiples ranged from a low of 8.4 times to a high of
18.2 times (TRW/BDM - 18.2 times; Northrop/Logicon - 13.2 times; Titan/
Eldyne - 8.4 times; Logicon/Geodynamics - 10.5 times; transactions under
$100 million - 8.6 times) with a median of all transactions of 10.9 times
and DBA's implied multiple of 10.2 times. For the aggregate transaction
value to LTM EBITDA, the Precedent Transaction multiples ranged from a low
of 6.0 times to a high of 13.3 times (TRW/BDM - 13.3 times; Northrop/Logicon
- 11.6 times; Titan/ Eldyne - 6.8 times; Logicon/Geodynamics - 6.0 times;
transactions under $100 million - 6.3 times) with a median of all
transactions of 7.7 times and DBA's implied multiple of 7.4 times. For the
amount paid for the equity to LTM net income, the Precedent Transaction
multiples ranged from a low of 7.2 times to a high of 34.2 times (TRW/BDM -
34.2 times; Northrop/Logicon - 24.9 times; Titan/Eldyne - 7.2 times;
Logicon/Geodynamics - 22.9 times; transactions under $100 million - 10.8
times) with a median of all transactions of 17.9 times and DBA's implied and
adjusted multiple of 16.4 times. For the amount paid for the equity to LTM
book value, the Precedent Transaction multiples ranged from a low of 1.3
times to a high of 5.0 times (TRW/BDM - 4.8 times; Northrop/Logicon - 5.0
times; Titan/ Eldyne - 3.1 times; Logicon/Geodynamics - 1.3 times;
transactions under $100 million - 2.2 times) with a median of all
transactions of 2.5 times and DBA's implied multiple of 1.6 times.
In certain cases, the ranges for the Precedent Transaction multiples
exclude certain multiples deemed not meaningful by A.G. Edwards due to
unusual factors associated with one or more specific transaction(s). No
transaction used in the Analysis of Selected Precedent Transactions is
identical to the Merger.
(E) STOCK PRICE PREMIUM ANALYSIS. A.G. Edwards reviewed the premiums
paid in selected transactions dating through January 1996 in defense-related
software and systems engineering (seven transactions) and also the
Northrop/Logicon acquisition, Logicon/Geodynamics acquisition and Tracor,
Inc. acquisition of AEL Industries, Inc. ("Tracor/AEL"). A.G. Edwards also
reviewed 1996 Mergerstat Review Data in the following industries: computer
software supplies and services (22 transactions), aerospace aircraft and
defense (two transactions), and all industries (381 transactions) (the
"Premium Transactions"). A.G. Edwards reviewed the Premium Transactions to
determine the percentage increase in stock price movements ("Stock Price
Premiums") over trading levels prior to the public announcement of the
respective transactions (i.e., trading levels one day, one week and one
month prior to the transaction announcement date).
A.G. Edwards' analysis indicated that the Premium Transactions' Stock
Price Premiums over trading levels at the following points in time were as
follows: (i) one day prior to announcement - a range for public targets of
22.8% to 44.1% (Northrop/Logicon - 23.2%; Logicon/Geodynamics - 40.0%;
Tracor/AEL - 32.7%) (with a median of related software and systems
engineering of 32.5% and DBA's implied premium of 56.2%; (ii) one week prior
to announcement - a range for public targets of 25.8% to 58.5%
(Northrop/Logicon - 28.8%; Logicon/Geodynamics - 42.4%; Tracor/AEL - 58.5%)
with a median of related software and systems engineering of 38.6% and DBA's
implied premium of 53.1%; (iii) one month prior to announcement - a range
for public targets of 27.1% to 58.5% (Northrop/Logicon - 43.2%;
Logicon/Geodynamics - 44.8%; Tracor/AEL - 58.5%) with a median of related
software and systems engineering of 41.1% and DBA's implied premium of
39.2%.
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The Mergerstat Review Data control premiums were as follows: computer
software supplies and services - 39.1%; aerospace aircraft and defense -
30.1%; and all industries - 36.6%.
(F) DISCOUNTED CASH FLOW ANALYSIS. A.G. Edwards performed a discounted
cash flow analysis of DBA using certain estimates for operating cash flows,
capital expenditures, depreciation and amortization, working capital and tax
rates for the years ending June 30, 1997 through 2002, as projected by DBA's
management, calendarized through 2001. In calculating a range of values for
DBA's equity, A.G. Edwards discounted to a range of present values the
future tax-adjusted cash flows using a range of discount rates and EBITDA
multiples.
In calculating the range of values for DBA's equity, A.G. Edwards used
several assumptions in its discounted cash flow analysis, including: (i) a
discount rate range of 11.0% to 17.0% for DBA's defense business based upon the
weighted average cost of capital of comparable companies adjusted for specific
risks to DBA and a discount rate range of 20.0% to 50.0% for DBA's commercial
business based upon typical discount rates applied to early-stage venture
investments, and (ii) a range of terminal EBITDA multiples of 5.0 times to 8.0
times. Based on this analysis, A.G. Edwards determined the present value of
DBA's common equity per share to be between $7.66 per share and $11.04 per
share. This range encompasses the $9.50 consideration used in the calculation of
the exchange rate to be received by DBA shareholders.
In connection with the review of the Merger by the Titan Board, A.G. Edwards
performed a variety of financial and comparative analyses for purposes of its
opinion given in connection therewith. While the foregoing summary describes the
analyses and factors reviewed by A.G. Edwards in connection with its opinion, it
does not purport to be a complete description of all the analyses performed by
A.G. Edwards in arriving at its opinion. The preparation of a fairness opinion
is a complex process and is not susceptible to partial analysis or summary
description. In rendering its opinion, A.G. Edwards applied its judgment to a
variety of complex analyses and assumptions, considered the results of all of
its analyses as a whole and did not attribute any particular weight to any
analysis or factor considered by it. Furthermore, selecting any portion of its
analyses, without considering all analyses, would create an incomplete view of
the process underlying its opinion. In addition, A.G. Edwards may have given
various analyses and factors more or less weight than other analyses and
factors, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be A.G. Edwards' view
of the actual value of Titan or DBA. In performing its analyses, A.G. Edwards
made numerous assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond the control
of Titan or DBA. The assumptions made and judgments applied by A.G. Edwards in
rendering its opinion are not readily susceptible to description beyond that set
forth in the written text of the fairness opinion itself. Any estimates
contained herein are not necessarily indicative of future results or actual
values, which may be significantly more or less favorable than those suggested
by such estimates. A.G. Edwards does not assume responsibility if future results
are different from those projected. The analyses performed were prepared solely
as part of A.G. Edwards' analysis of the fairness, from a financial point of
view, to Titan stockholders of the consideration to be paid to shareholders of
DBA in the Merger and were conducted in connection with the delivery of A.G.
Edwards' fairness opinion. As described above, A.G. Edwards' opinion to the
Titan Board was one of many factors taken into consideration by the Titan Board
in making its determination to approve the Merger Agreement and the Merger and
the issuance by Titan of shares of Titan Common Stock in connection therewith.
The decision to enter into the Merger Agreement was solely that of the Titan
Board.
The terms of the engagement of A.G. Edwards by Titan are set forth in a
letter agreement between A.G. Edwards and Titan (the "Engagement Letter").
Pursuant to the terms of the Engagement Letter, as compensation for rendering
its financial advisory services and its opinion to the Board of Directors of
Titan, Titan agreed to pay A.G. Edwards a fee, payable upon the delivery of an
opinion, of $225,000. Titan has agreed to reimburse A.G. Edwards for reasonable
fees of A.G. Edwards' counsel and for
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A.G. Edwards' travel and out-of-pocket expenses incurred in connection with its
engagement. Titan has also agreed to indemnify A.G. Edwards against certain
liabilities in connection with the engagement of A.G. Edwards.
OPINION OF ROBINSON-HUMPHREY
(CAPITALIZED TERMS DEFINED IN THIS SECTION RELATING TO THE OPINION OF
ROBINSON-HUMPHREY ARE INTENDED TO APPLY TO THIS SECTION ONLY.)
On December 26, 1997, Robinson-Humphrey delivered its oral opinion (the
"Robinson-Humphrey Opinion") to the DBA Board that as of the date of such
opinion the amount of Titan Common Stock to be received for each share of DBA
Common Stock in the Merger is fair to the shareholders of DBA from a financial
point of view. On February 5, 1998, Robinson-Humphrey updated its opinion and
confirmed it in written form.
The full text of the Robinson-Humphrey Opinion, which sets forth assumptions
made, matters considered and limitations on the review undertaken in connection
with such opinion, is attached as Appendix C. Shareholders are urged to read the
opinion in its entirety. No limitations were imposed by DBA or the DBA Board
with respect to the investigations made or procedures followed by Robinson-
Humphrey in rendering its opinion. Robinson-Humphrey conducted valuation
analyses of Titan Common Stock and DBA Common Stock, but was not asked to and
did not recommend a specific amount of Titan Common Stock to be received for
each share of DBA Common Stock. The summary of the opinion of Robinson-Humphrey
set forth in this Proxy Statement is qualified in its entirety by reference to
the full text of such opinion.
In connection with its opinion, Robinson-Humphrey conducted, among other
analyses, (a) a review of the industry and the competitive climate in which DBA
and Titan operate, and their respective competitive position therein; (b) a
review of the business, historical financial performance and prospects of DBA
and Titan; (c) a review of the historical and current market prices and trading
patterns of Titan Common Stock and DBA Common Stock; (d) an analysis of the
Merger consideration in relation to the market prices of securities of, and
financial data of, other companies engaged in similar businesses as DBA; (e) an
analysis of the Merger Consideration in relation to multiples paid in previous
mergers and acquisitions of other companies engaged in similar businesses as
DBA; (f) a review and analysis of prices and premiums paid in, and other terms
of, other recent acquisition transactions in the defense contractors/technology
industry; (g) a discounted cash flow analysis of DBA and Titan; (h) an analysis
of the market price of Titan in relation to the market prices of securities of,
and financial data of, other companies engaged in similar businesses as Titan.
Robinson-Humphrey also held discussions with members of the senior management of
DBA and Titan regarding the past and current business operations, financial
condition and future prospects of both companies.
Robinson-Humphrey relied without independent verification upon the accuracy
and completeness of all of the financial and other information reviewed by it
for purposes of its opinion. In that regard, with respect to DBA's internal
financial forecasts, which the management of DBA instructed Robinson-Humphrey to
use for purposes of its analyses, Robinson-Humphrey assumed that such forecasts
were reasonably prepared on a basis reflecting the best currently available
estimates and judgments of DBA's senior management as to the future financial
performance of DBA. With respect to Titan's financial forecasts, which the
management of Titan instructed Robinson-Humphrey to use for purposes of its
analyses, Robinson-Humphrey assumed that such forecasts were reasonably prepared
on a basis reflecting the best currently available estimates and judgments of
Titan's senior management as to the future financial performance of Titan. In
addition, Robinson-Humphrey was not requested or authorized to solicit, and did
not solicit, interest from any party with respect to an acquisition of all or
any portion of the outstanding DBA Common Stock, DBA or its constituent
businesses.
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The following is a summary of the presentation by Robinson-Humphrey to the DBA
Board on December 26, 1997 in connection with its December 26, 1997 fairness
opinion. The analyses in this fairness opinion presentation were based on the
exchange ratio of 1.357 shares of Titan Common Stock for each share of DBA
Common Stock. Based on Titan's closing stock price value of $6.25 per common
share on December 22, 1997, this implies an implied merger consideration (the
"Implied Merger Consideration") for the DBA Common Stock equal to $8.48 per
share. However, Robinson-Humphrey reviewed the final terms of the Merger
Agreement, including the revised exchange ratio of 1.366667, and on January 5,
1998 advised the DBA Board that they continued to stand by the opinion they had
delivered to the DBA Board on December 26, 1997.
ANALYSIS OF DBA SYSTEMS, INC.
HISTORICAL STOCK PRICE ANALYSIS. Robinson-Humphrey analyzed the prices at
which DBA Common Stock traded from December 18, 1996 to December 18, 1997. The
average closing price over the last year, last thirty days and last five days
prior to December 18, 1997 was $5.87, $7.06 and $6.31 per share, respectively.
The high closing price from December 18, 1996 to December 18, 1997 was $8.75 and
the low price was $4.375. In addition, Robinson-Humphrey compared DBA's stock
performance relative to the Dow Jones Industrial Average and the Standard and
Poor's 500.
VALUATION SUMMARY OF SELECTED COMPARABLE PUBLICLY-TRADED
COMPANIES. Robinson-Humphrey reviewed and compared certain financial, operating
and stock market information of DBA and the following publicly traded companies
in the defense contractor industry: Advanced Communication Systems, Inc.,
Aeroflex Inc., Diagnostic/Retrieval Systems Inc., Ducommun Inc., Electromagnetic
Sciences Corp., II-VI Inc., Microdyne Corp. and Tracor Inc. (the "Comparable
Companies"). This group was selected because they are publicly traded technology
companies which provide a significant portion of their products and services to
the defense industry. Robinson-Humphrey calculated, among other things, current
market price as a multiple of book value and as a multiple of earnings per share
("EPS") for the last twelve months ("LTM") and calendar years 1997 and 1998
estimates. The EPS estimates were based on the mean of publicly available
earnings estimates made by research analysts as provided by First Call Investor
Service. Robinson-Humphrey averaged the multiples of the Comparable Companies in
order to apply these multiples to DBA's values. Robinson-Humphrey excluded
certain outlying values that differed from the relative groupings of the other
values. Robinson-Humphrey believes that these outlying values for certain
companies reflect temporary market aberrations and can skew mean values.
With respect to the Comparable Companies, the LTM price / earnings ("P/E")
ratios ranged from 14.7x to 22.0x with an average of 18.7x. With respect to the
Comparable Companies, the estimated calendar 1997 P/E ratios ranged from 14.6x
to 22.3x with an average of 18.4x while the estimated calendar 1998 P/E ratios
ranged from 11.0x to 16.4x with an average of 14.2x. Based on LTM EPS and
forecasted calendar 1997 and 1998 EPS as provided by DBA, the Implied Merger
Consideration for DBA is equal to 18.8x LTM EPS, 18.8x projected calendar 1997
EPS and 15.4x projected calendar 1998 EPS. Robinson-Humphrey noted that the
multiples derived from consideration received were in line with the average
multiples of the Comparable Companies.
Robinson-Humphrey also considered the current market value to book value
multiples of the Comparable Companies, which ranged from values of 1.7x to 3.5x,
with an average of 2.7x. Robinson-Humphrey noted that the Implied Merger
Consideration implied a multiple of 1.3x, which was below the range of multiples
of the Comparable Companies. Robinson-Humphrey believes that this was caused by
two factors. First, some of the comparable companies had experienced recent
losses, lowering respective book values as compared to DBA's recently profitable
operations and strong book valuation. Additionally, DBA has significantly
stronger cash balances, as compared to the comparable companies, which increases
DBA's book value.
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Robinson-Humphrey also considered the implied values for DBA based on
multiples of firm value (defined as equity value plus debt assumed minus cash
and marketable securities) to LTM revenues, LTM earnings before interest, taxes,
depreciation and amortization ("EBITDA") and LTM earnings before interest and
taxes ("EBIT"). With respect to the Comparable Companies, the LTM revenue
multiple ranged from 0.62x to 2.04x with an average of 1.22x, the LTM EBIT
multiple ranged from 7.2x to 16.6x with an average of 12.2x and the LTM EBITDA
multiple ranged from 5.0x to 14.4x with an average of 9.8x. Based on LTM data as
of September 30, 1997, the Implied Merger Consideration yields an implied LTM
revenue multiple of 0.96x, an implied LTM EBIT multiple of 9.5x and an implied
LTM EBITDA multiple of 6.7x for DBA. Robinson-Humphrey noted that DBA's LTM
multiples were within the range of the Comparable Companies but below the
average multiples of the Comparable Companies. Robinson-Humphrey believes DBA's
slower historical and projected growth rate for revenue and net income as
compared to the Comparable Companies projected growth were the primary reasons
for DBA's multiples being below the average multiples for the Comparable
Companies.
DISCOUNTED CASH FLOW ANALYSIS. Robinson-Humphrey performed a discounted
cash flow analysis using financial forecasts provided by DBA's management. Using
the discounted cash flow analysis, Robinson-Humphrey estimated the present value
of the future cash flows set forth in these forecasts. Robinson-Humphrey
calculated a net present value of free cash flows (defined as earnings before
interest after taxes plus depreciation and amortization less capital
expenditures and any increase in net working capital) for the fiscal years 1998
through 2002 using discount rates ranging from 9.6% to 12.1%. Robinson-Humphrey
calculated DBA's terminal values in the year 2002 based on multiples of year
2002 projected EBIT, EBITDA and a terminal growth rate of year 2002 free cash
flow. Based on year 2002 projected EBIT with multiples ranging from 3.2x to 8.2x
and a midpoint of 5.2x, Robinson-Humphrey observed that the valuation produced a
midpoint equity value of $40.7 million, which was higher than the Implied Merger
Consideration equity value of $37.5 million. Based on year 2002 projected EBITDA
with multiples ranging from 1.6x to 4.6x and a midpoint of 3.6x,
Robinson-Humphrey observed that the valuation produced a midpoint equity value
of $35.3 million, which was lower than the Implied Merger Consideration equity
value of $37.5. Based on a range of terminal growth rates applied to 2002 free
cash flow ranging from 2.0% to 4.0% with a midpoint of 3.0%, Robinson-Humphrey
observed that the valuation produced a midpoint equity value of $49.7 million,
which was higher than the Implied Merger Consideration equity value of $37.5
million.
VALUATION SUMMARY OF SELECTED MERGERS AND ACQUISITIONS. Robinson-Humphrey
prepared an analysis of the multiples paid in 24 completed mergers and
acquisitions in the Defense Contractors/Technology industry (the "Comparable M&A
Transactions"). The transactions were:
<TABLE>
<C> <S>
(i) Rossiter & Co/Resdel Industries;
(ii) Mitsui & Co Ltd/Unisys Corp.;
(iii) Litton Industries/Intermec Corp.;
(iv) Identix Inc./ANADAC;
(v) Sentrol Lifesafety Corp./Aritech Corp.;
(vi) Technology Marketing Inc./Omni Technology Corp.;
(vii) Tudor Investment Corp./Alliant Techsystems Inc.;
(viii) GN Great Nordic Ltd./Laser Precision Corp.;
(ix) Loral Corp./Unisys Corp. (Defense Electronic Division);
(x) Raytheon Co./E-Systems Inc.;
(xi) Investor Group/Base Ten Systems, Inc.;
(xii) Tracor Inc./AEL Industries Inc.;
</TABLE>
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<TABLE>
<C> <S>
(xiii) Litton Industries Inc./PRC Inc.;
(xiv) Lockheed Martin Corp./Loral Corp.;
(xv) Tracor Inc./Westmark Systems Inc.;
(xvi) Giga-tronics Inc./ASCOR Inc.;
(xvii) Ultra Electronics Ltd./Measurement Systems Inc.;
(xviii) Investor Group/ILC Technology Inc.;
(xix) Nichols Research Corp./Advanced Marine Enterprises;
(xx) Industrial Training Corp./Anderson Soft-Teach;
(xxi) DENTSPLY International Inc./New Image Industries Inc.;
(xxii) Northrop Grumman Corp./Logicon, Inc.;
(xxiii) American Industrial Partners/Bucyrus International Inc.; and
(xxiv) General Dynamics Corp./Advanced Technology Systems
</TABLE>
Robinson-Humphrey considered the multiples paid in Comparable M&A
Transactions based on firm value to LTM revenue, LTM EBIT and LTM EBITDA
multiples as well as equity value to LTM Net Income and Book Value multiples.
With respect to the Comparable M&A Transactions, the LTM Net Income multiple
ranged from 10.3x to 55.3x with an average of 26.3x, the Book Value multiple
ranged from 1.4x to 5.5x with an average of 3.1x, the LTM revenue multiple
ranged from 0.30x to 1.47x with an average of 0.90x, the LTM EBIT multiple
ranged from 8.5x to 21.2x with an average of 9.5x and the LTM EBITDA multiple
ranged from 5.9x to 13.9x with an average of 9.7x. Robinson-Humphrey noted that
DBA's implied LTM multiples were within the range of the Comparable M&A
Transactions except for the Book Value multiple. Robinson-Humphrey believes that
this was caused by two factors. First, some of the comparable companies had
experienced recent losses, lowering respective book values as compared to DBA's
recently profitable operations and strong book valuation. Additionally, DBA has
significantly stronger cash balances, as compared to the comparable companies,
which increases DBA's book value.
ANALYSIS OF ACQUISITION PREMIUMS. Robinson-Humphrey reviewed and compared
the acquisition premiums derived from the difference between the total equity
considerations paid compared to the target companies' stock prices 1 day prior,
1 week prior, and 4 weeks prior to the announcement of the transactions for 118
transactions ranging from $25 million to $75 million that were announced between
December 1, 1996 and December 22, 1997. The average percent premiums paid
compared to the target's stock price 1 day prior, 1 week prior and 4 weeks prior
to the announcement of the transaction were 19.1%, 23.0% and 28.6%,
respectively. Assuming the announcement date had occurred on December 22, 1997,
DBA's premium when comparing its stock price to the Implied Merger Consideration
equity value per share 1 day prior, 1 week prior and 4 weeks prior to December
22, 1997 would have been 38.3%, 35.7% and 23.3%, respectively.
SUMMARY
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analysis or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying Robinson-Humphrey's opinion. In arriving at its fairness
determination, Robinson-Humphrey considered the results of all such analyses.
Robinson-Humphrey did not separately consider the extent to which any one of the
analyses supported or did not support the Robinson-Humphrey fairness opinion. No
company or transaction used in the above analyses as a comparison is identical
to DBA or the contemplated merger. The analyses were prepared solely for
purposes of Robinson-Humphrey in providing its opinion to the DBA Board as to
the fairness of the Implied Merger Consideration of $8.48 per share Merger
Consideration to be received by the shareholders in the Merger and do not
purport to be appraisals or necessarily
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reflect the prices at which businesses or securities actually may be sold.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, none of DBA, Robinson-Humphrey or any
other person assumes responsibility if future results are materially different
from those forecast.
As described above, Robinson-Humphrey's opinion to the DBA Board was one of
many factors taken into consideration by the DBA Board in making its
determination to approve the Merger Agreement. The foregoing summary does not
purport to be a complete description of the analysis performed by Robinson-
Humphrey and is qualified by reference to the written opinion of
Robinson-Humphrey set forth in Exhibit hereto.
Robinson-Humphrey, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements, and other valuation services. The Board of Directors selected
Robinson-Humphrey as financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions similar
to the Merger. As compensation for its services, DBA has paid Robinson-Humphrey
a total fee of $190,000.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the DBA Board with respect to the
Merger Proposal, holders of shares of DBA Common Stock should be aware that
certain directors and executive officers of DBA have certain interests in the
Merger that are in addition to the interests of holders of DBA Common Stock
generally. The DBA Board has considered these interests, among other matters, in
approving the Merger Agreement and the Merger.
EMPLOYMENT ARRANGEMENTS. Titan expects to employ DBA's current officers
upon consummation of the Merger and such persons have been informed of that
potential employment. The Merger Agreement provides that Titan expects that John
L. Slack, President and Chief Executive Officer of DBA, will, following the
Merger, become President and Chief Executive Officer of Titan Defense Systems
Corporation, a Delaware corporation and a wholly-owned subsidiary of Titan
("Titan Defense"). In addition, the Merger Agreement provides that except to the
extent otherwise agreed in writing by Titan and DBA, DBA's officers following
the Merger will be the same persons, holding the same offices, as the officers
of DBA immediately prior to the Merger.
STOCK OPTIONS. In connection with Mr. Slack's employment by DBA in 1989,
DBA agreed to grant Mr. Slack an option to purchase 25,000 shares of DBA Common
Stock exercisable upon the acquisition of DBA in a transaction approved by DBA's
shareholders. The agreement did not specify the exercise price of the option,
and in connection with approving the Merger Agreement and the Merger, the
Compensation Committee of the DBA Board fixed the exercise price of this option
at $2.00 per share. Mr. Slack also received pursuant to the agreement a grant of
8,000 shares of DBA Common Stock which will vest in connection with the Merger
as of the Effective Time. Of the members of the DBA Board, Amb. Ellsworth, Mr.
Potter and Dr. Weaver each hold options for 5,000 DBA shares and Mr. Slack holds
options for 120,000 shares (including the 25,000 shares referred to above). In
addition, DBA's other executive officers, Mr. Bielski, Mr. Gordon and Mr.
Robertson, hold options to purchase 15,000, 40,000 and 30,000 shares,
respectively, of DBA Common Stock, which will be assumed by Titan in connection
with the Merger as of the Effective Time. See "Terms of the Merger--Treatment of
Employee Equity Benefit Plans."
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REGULATORY MATTERS
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and
specified waiting period requirements have been satisfied. Titan and DBA filed
notification and report forms under the HSR Act with the FTC and Antitrust
Division on January 29, 1998. These filings commenced a 30-day waiting period
under the HSR Act, with respect to which Titan and DBA have requested early
termination. If, prior to the expiration of such period, the FTC or the
Antitrust Division should request additional information or documentary material
under the HSR Act, consummation of the Merger could be delayed until after the
companies have substantially complied with the request.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the consummation of the Merger, the FTC, the Antitrust Division, state
attorneys general or others could take action under antitrust laws with respect
to the Merger, including seeking to enjoin consummation of the Merger, seeking
to cause the divestiture of significant assets of Titan or DBA or their
subsidiaries or seeking to impose conditions on Titan with respect to the
business operations of the combined companies. In addition, the review of the
Merger pursuant to the HSR Act may substantially delay or proscribe consummation
of the Merger. There can be no assurance that a challenge to the Merger on
antitrust grounds will not be made, or if such challenge is made, that Titan
would prevail or would not be required to terminate the Merger Agreement, to
divest certain assets, to license certain proprietary technology to third
parties or to accept certain conditions in order to consummate the Merger. Titan
does not have any obligation under the Merger Agreement to (i) dispose or cause
any of its subsidiaries to dispose of any assets, (ii) discontinue or make any
changes to its operations or proposed operations or to the operations or
proposed operations of any of its subsidiaries, or (iii) make any commitment (to
any governmental body or otherwise) regarding its future operations, or the
future operations of its subsidiaries, or the future operations of DBA or its
subsidiaries, even though the disposition of such asset or the making of such
change or commitment might facilitate the obtaining of a required governmental
authorization or might otherwise facilitate the consummation of the Merger.
CERTAIN FEDERAL INCOME TAX MATTERS
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of DBA
Common Stock. This discussion assumes that holders of shares of DBA Common Stock
hold such shares as capital assets. This discussion is based on currently
existing provisions of the Code, existing Treasury Regulations thereunder and
current administrative rulings and court decisions, all of which are subject to
change. Any such change, which may or may not be retroactive, could alter the
tax consequences to DBA's shareholders.
DBA shareholders should be aware that this discussion does not deal with all
federal income tax considerations that may be relevant to particular DBA
shareholders in light of their particular circumstances, such as shareholders
who are dealers in securities, banks, insurance companies or tax-exempt
organizations, who are subject to the alternative minimum tax provisions of the
Code, who are non-United States persons who acquired their shares in connection
with stock option or stock purchase plans or in other compensatory transactions
or who hold their shares as a hedge or as part of a hedging, straddle,
conversion or other risk reduction transaction. In addition, the following
discussion does not address the tax consequences of the Merger under foreign,
state or local tax laws or the tax consequences of transactions effectuated
prior to or after the Merger (whether or not such transactions are in connection
with the Merger).
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As of the date hereof, it is intended that the Merger constitute a
reorganization pursuant to Section 368(a) of the Code (a "Reorganization"). The
respective obligations of the parties to consummate the Merger are conditioned
on the receipt by Titan of an opinion from Cooley Godward LLP ("Cooley
Godward"), and on the receipt by DBA of an opinion from Arent Fox Kintner
Plotkin & Kahn, PLLC ("Arent Fox"), confirming that the Merger will constitute a
Reorganization (collectively, the "Tax Opinions"); provided, however, that if
Arent Fox does not render such opinion to DBA, the condition to DBA's
obligations shall nonetheless be deemed to be satisfied with respect to DBA if
Cooley Godward renders such opinion to DBA. DBA has indicated that it will not
waive the condition that such opinion be given, and will not agree to consummate
the Merger without receiving such opinion, without resoliciting a vote of the
DBA shareholders and disclosing the proposed waiver. See "Terms of the
Merger--Conditions of the Merger." The Tax Opinions of counsel as to such
federal income tax consequences (i) will not be binding on the Internal Revenue
Service (the "IRS") nor preclude the IRS from adopting a contrary position, (ii)
will be based on certain assumptions, including an assumption that the
continuity of interest requirement will be met, as well as representations
received and to be received from Titan, Titan Sub, DBA and certain shareholders
of DBA, (iii) will be based on the assumption that the Merger will be
consummated in accordance with the terms of the Merger Agreement and (iv) will
be subject to the limitations discussed below. Neither Titan nor DBA has
requested, or will request, a ruling from the IRS with regard to any of the
federal income tax consequences of the Merger. See "The Merger and Related
Transactions--Related Agreements--Affiliate Agreements."
The discussion below assumes that the Merger will qualify as a
Reorganization, based upon the Tax Opinions. The tax description set forth below
has been prepared and reviewed by Cooley Godward and Arent Fox, and in their
opinion, to the extent such description relates to statements of law, it is
correct in all material respects. Subject to the limitations and qualifications
referred to herein, and as a result of the Merger's qualifying as a
Reorganization, the following federal income tax consequences should, under
currently applicable law, result:
- No gain or loss will be recognized for federal income tax purposes by the
holders of DBA Common Stock upon the receipt of Titan Common Stock solely
in exchange for such DBA Common Stock in the Merger (except to the extent
that cash is received in lieu of fractional shares).
- The aggregate tax basis of the Titan Common Stock so received by DBA
shareholders in the Merger (including any fractional shares of Titan
Common Stock not actually received) will be the same as the aggregate tax
basis of the DBA Common Stock surrendered in exchange therefor.
- The holding period of the Titan Common Stock so received by each DBA
shareholder in the Merger will include the holding period of the shares of
DBA Common Stock surrendered in exchange therefor.
- Cash payments received by holders of DBA Common Stock in lieu of
fractional shares will be treated as if such fractional shares of Titan
Common Stock had been issued in the Merger and then redeemed by Titan.
Under Section 302 of the Code, if such redemption is "not essentially
equivalent to a dividend" after giving effect to the constructive
ownership rules of the Code, the holder will generally recognize capital
gain or loss equal to the cash amount received for the fractional share of
Titan Common Stock reduced by the portion of the holder's tax basis in the
shares of DBA Common Stock surrendered that is allocable to such
fractional share interest in Titan Common Stock. For non-corporate
holders, any such capital gain will be taxed at a maximum federal income
tax rate of 39.6% if the holder's holding period in the fractional share
interest is 1 year or less, at a maximum federal tax rate of 28% if the
holder's holding period in the fractional share interest is more than 1
year but not more than 18 months, and at a maximum federal income tax rate
of 20% if the holder's holding period in such fractional share interest is
more than 18 months. If such redemption is essentially equivalent to a
dividend, the entire amount of the payment will be subject to tax at
ordinary income rates (with a maximum federal rate of 39.6%) and
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the basis attributable to the fractional share will be added to the basis
of the holder's Titan Common Stock. If a holder of DBA Common Stock holds
all of the holder's DBA Common Stock in a single brokerage account (or
directly in the holder's name), the fractional share payment should not
exceed the market price of one share of Titan Common Stock received in the
Merger.
One key assumption underlying the Tax Opinions is that the "continuity of
interest" requirement will be satisfied in the Merger. In order for this
requirement to be met, shareholders of DBA must not, pursuant to a plan or
intent existing at or prior to the Merger, dispose of so much of (i) their DBA
Common Stock in anticipation of the Merger, plus (ii) the Titan Common Stock
received by them in the Merger (collectively, the "Planned Dispositions") such
that the DBA shareholders, as a group, would no longer have a "significant
equity interest" in the DBA business being conducted by Titan after the Merger.
DBA shareholders will generally be regarded as having a significant equity
interest as long as the Titan Common Stock received in the Merger (after taking
into account Planned Dispositions), in the aggregate, represents a "substantial
portion" of the entire consideration received by the DBA shareholders in the
Merger. This requirement is frequently referred to as the "continuity of
interest" requirement. If the continuity of interest requirement is not
satisfied, the Merger would not be treated as a Reorganization. The law is
unclear as to what constitutes a "significant equity interest" or a "substantial
portion." For example, the case law appears to be more liberal than the IRS
Ruling Guidelines, and in one early case, the Supreme Court ruled that
approximately 40% continuity was sufficient. The IRS ruling guidelines require
50% continuity and, for public companies, such as DBA, representations regarding
continuity ("Continuity Representations") from all shareholders who own 5% or
more of the company's outstanding stock ("5% Shareholders"). To date, Titan and
DBA have received Continuity Representations from some but not all of the 5%
Shareholders of DBA. Without all of the Continuity Representations, the Merger
would not meet the IRS Ruling Guidelines for Reorganizations. Accordingly,
although the Merger has been structured so that no cash consideration will be
paid to DBA shareholders in exchange for their DBA Common Stock (other than cash
paid in lieu of fractional shares), no assurance can be made that the Planned
Dispositions will not exceed the IRS's 50% continuity requirement. Consequently,
no assurance can be given that the "continuity of interest" requirement will be
satisfied, and if such requirement is not satisfied, the Merger will not be
treated as a Reorganization.
On January 23, 1998, the IRS issued new regulations that liberalize the
continuity of interest requirement. The effective date of the new regulations is
January 28, 1998. The new regulations apply to all transactions that occur after
the effective date, except for transactions occurring pursuant to a binding
written agreement entered into prior to or on the effective date. Since the
Merger Agreement was entered into on January 5, 1998, the new regulations do not
apply to the Merger, and thus the Merger is governed by the principles described
above.
A successful IRS challenge to the Reorganization status of the Merger could
result in significant adverse tax consequences to DBA shareholders. An DBA
shareholder would recognize gain or loss with respect to each share of DBA
Common Stock surrendered equal to the difference between the shareholder's basis
in such share and the fair market value, as of the Effective Time, of the Titan
Common Stock received in exchange therefor. In such event, a shareholder's
aggregate basis in the Titan Common Stock so received would equal its fair
market value, and the shareholder's holding period for such stock would begin
the day after the Merger is consummated.
Even if the Merger qualifies as a Reorganization, a recipient of Titan
Common Stock would recognize income to the extent that, for example, any such
shares were determined to have been received in exchange for services, to
satisfy obligations or in consideration for anything other than the DBA Common
Stock surrendered. In addition, to the extent that a DBA shareholder were
treated as receiving (directly or indirectly) consideration other than Titan
Common Stock in exchange for such shareholder's DBA Common Stock, gain, if any,
would have to be recognized.
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Certain noncorporate DBA shareholders may be subject to backup withholding
at a rate of 31% on cash payments received in lieu of a fractional share
interest in Titan Common Stock. Backup withholding will not apply, however, to a
shareholder who furnishes a correct taxpayer identification number ("TIN") and
certifies that he, she or it is not subject to backup withholding on the
substitute Form W-9 included in the Transmittal Letter, who provides a
certificate of foreign status on Form W-8, or who is otherwise exempt from
backup withholding. A shareholder who fails to provide the correct TIN on Form
W-9 may be subject to a $50 penalty imposed by the IRS.
Each DBA shareholder will be required to retain records and file with such
holder's U.S. federal income tax return a statement setting forth certain facts
relating to the Merger.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. THUS, HOLDERS OF
DBA COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING
REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER
APPLICABLE TAX LAWS AND THE EFFECTS OF ANY PROPOSED CHANGES IN THE TAX LAWS.
ACCOUNTING TREATMENT
Titan expects to account for the acquisition of DBA as a "pooling of
interests" pursuant to generally accepted accounting principles. Titan
management and DBA management have concluded that no conditions exist relating
to DBA that would preclude Titan from accounting for the Merger as a pooling of
interests.
NO APPRAISAL RIGHTS OF DBA SHAREHOLDERS
Under Section 607.1302 of the FBCA, shareholders of a constituent Florida
corporation generally have the right to dissent from, and obtain payment of the
fair value of their shares in the event of, (i) the consummation of a plan of
merger, (ii) the consummation of a plan of share exchange if such corporation is
the corporation the shares of which will be acquired or (iii) any amendment of
the articles of incorporation if such amendment would adversely affect such
shareholder by, among other things, effecting an exchange of shares which would
alter or abolish the shareholder's voting rights or percentage of equity
ownership. However, such right to receive fair payment is not available to the
shareholders of any class or series which is not entitled to vote on the plan of
merger, plan of share exchange or amendment to the articles of incorporation, or
which, on the date fixed to determine the shareholders entitled to vote at the
meeting of shareholders at which a plan of merger or share exchange is to be
acted upon, were either registered on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc., or held of
record by not less than 2,000 shareholders.
Since DBA Common Stock was designated as a national market system security
on Nasdaq as of the close of business on the Record Date, the holders of DBA
Common Stock do not have the right to dissent from the Merger and are not
entitled to receive fair payment for their shares under the FBCA in connection
with the Merger.
NO APPRAISAL RIGHTS OF TITAN STOCKHOLDERS
Under Section 262 of the DGCL, appraisal rights are generally available to
stockholders of a constituent Delaware corporation in connection with a merger.
However, appraisal rights are not available to the stockholders of a constituent
Delaware corporation if (i) as of the record date for the meeting of
stockholders to approve the merger, the corporation's stock is either (a) listed
on a national securities exchange or designated as a national market system
security on an interdealer quotation system by the
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National Association of Securities Dealers, Inc. or (b) held of record by more
than 2,000 stockholders; and (ii) the consideration to be received by such
stockholders in the merger consists only of (a) shares of the capital stock of
the corporation surviving the merger, (b) shares of the capital stock of any
other corporation provided that such stock, as of the date on which the merger
becomes effective, is either (1) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (2) held of
record by more than 2,000 stockholders, (c) cash in lieu of fractional shares,
or (d) a combination of the foregoing.
Titan stockholders are not entitled to any appraisal rights with respect to
the Merger because, under the DGCL, Titan is not a constituent corporation in
the Merger. The vote of Titan stockholders with respect to the Merger Agreement
and the Merger is being solicited by Titan to comply with NYSE requirements for
listed corporations.
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TERMS OF THE MERGER
THIS SECTION OF THE PROSPECTUS/JOINT PROXY STATEMENT DESCRIBES CERTAIN
ASPECTS OF THE PROPOSED MERGER. THE MERGER AGREEMENT PROVIDES FOR THE MERGER OF
TITAN SUB, A NEWLY FORMED, WHOLLY-OWNED FLORIDA SUBSIDIARY OF TITAN, WITH AND
INTO DBA. THE DISCUSSION IN THIS PROSPECTUS/JOINT PROXY STATEMENT OF THE MERGER
AND THE DESCRIPTION OF THE PRINCIPAL TERMS OF THE MERGER AGREEMENT ARE ACCURATE
IN ALL MATERIAL RESPECTS BUT DO NOT PURPORT TO BE COMPLETE AND ARE SUBJECT TO
AND QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, A COPY OF
WHICH IS ATTACHED TO THIS PROSPECTUS/JOINT PROXY STATEMENT AS APPENDIX A AND
INCORPORATED HEREIN BY REFERENCE. ALL TITAN STOCKHOLDERS AND DBA SHAREHOLDERS
ARE URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY.
EFFECTIVE TIME
The Merger will be consummated no later than the second business day
following approval of the Merger Proposal by the Titan stockholders and the DBA
shareholders and the satisfaction or waiver of all other conditions to
consummation of the Merger. The Merger will become effective on the date the
Articles of Merger are duly filed with the Florida Secretary of State (the
"Effective Time"). At the Effective Time, Titan Sub will merge with and into
DBA, with the result that DBA will be the Surviving Subsidiary in the Merger and
will be wholly-owned by Titan. As described below, the shareholders of DBA will
become stockholders of Titan, and their rights will be governed by the Titan
Certificate, the Titan Bylaws and the DGCL. See "Comparison of Rights of Titan
Stockholders and DBA Shareholders."
MANNER AND BASIS FOR CONVERTING SHARES
EXCHANGE RATIO. At the Effective Time, each outstanding share of DBA Common
Stock will be converted into the right to receive 1.366667 (the "Exchange
Ratio") shares of Titan Common Stock. The Exchange Ratio will adjust prior to
the Effective Time to the extent necessary to account for certain changes in
capitalization of Titan or DBA. Further, the Exchange Ratio was subject to
adjustment prior to the date hereof in the event certain rights to terminate the
Merger Agreement had arisen but were not exercised. (Such termination rights did
not arise, and the Exchange Ratio was not so adjusted. See "--Termination of the
Merger Agreement.") Each share of DBA Common Stock owned by Titan, DBA, Titan
Sub or any direct or indirect wholly-owned subsidiary of Titan or DBA
immediately prior to Effective Time will be canceled and extinguished without
any conversion thereof.
Based upon the capitalization of DBA as of the close of business on the
Record Date, an aggregate of approximately 6,110,764 shares of Titan Common
Stock (the "Merger Consideration") will be issued in the Merger, and Titan will
assume all outstanding DBA options, which will be converted into options to
acquire approximately 441,020 additional shares of Titan Common Stock.
At the Effective Time, all options to purchase DBA Common Stock then
outstanding either under DBA's 1992 Employee Incentive Stock Option Plan or 1993
Director's Stock Option Plan (collectively, the "DBA Option Plans") or outside
of the DBA Option Plans (each a "DBA Option" and, collectively, the "DBA
Options") will be assumed by Titan. See "--Treatment of Employee Equity Benefit
Plans."
Each share of Common Stock, $.01 par value per share, of Titan Sub issued
and outstanding as of the Effective Time will be converted into one validly
issued, fully paid and nonassessable share of Common Stock of the Surviving
Subsidiary. Each certificate evidencing ownership of shares of Titan Sub Common
Stock will evidence ownership of such shares of capital stock of the Surviving
Subsidiary.
Promptly after the Effective Time, Titan, acting through the Exchange Agent,
will deliver to each holder of record as of the Effective Time of a certificate
or certificates which immediately prior to the Effective Time represented
outstanding shares of DBA Common Stock, a letter of transmittal with
instructions to be used by such holder in surrendering such certificates in
exchange for certificates representing shares of Titan Common Stock.
CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS OF DBA COMMON STOCK UNTIL
SUCH HOLDERS RECEIVE THE LETTER
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OF TRANSMITTAL FROM THE EXCHANGE AGENT, AND THEN ONLY IN ACCORDANCE WITH THE
TERMS OF SUCH LETTER OF TRANSMITTAL.
FRACTIONAL SHARES. No fractional shares of Titan Common Stock will be
issued in the Merger. Instead, each DBA shareholder who would otherwise be
entitled to receive a fraction of a share of Titan Common Stock will receive an
amount in cash (without interest) determined by multiplying such fraction by the
closing price of Titan Common Stock as reported on the NYSE on the last trading
date immediately preceding the Effective Time. Titan intends to use its current
cash resources to fund the payments for fractional shares.
EFFECT OF THE MERGER
Once the Merger is consummated, Titan Sub will cease to exist as a
corporation, and DBA will remain as the Surviving Subsidiary.
Pursuant to the Merger Agreement, the Articles of Incorporation of DBA will
become the Articles of Incorporation of the Surviving Subsidiary immediately
following the Merger and the Bylaws of DBA immediately prior to the Effective
Time will become the Bylaws of the Surviving Subsidiary. The officers of the
Surviving Subsidiary will be the respective individuals who are serving as
officers of DBA immediately prior to the Effective Time. The directors of the
Surviving Subsidiary will be Gene W. Ray, Eric M. DeMarco and Cheryl L. Barr.
There will be no change in the current Titan Board and officers of Titan as a
result of the Merger.
If the combined company is to realize the anticipated benefits of the
Merger, the operations of the two companies must be integrated and combined
efficiently. The process of rationalizing management services, administrative
organizations, facilities, management information systems and other aspects of
operations, while managing a larger and geographically expanded entity, will
present a significant challenge to the management of the combined company. There
can be no assurance that the integration process will be successful or that the
anticipated benefits of the business combination will be fully realized. The
dedication of management resources to such integration may detract attention
from the day-to-day business of the combined company. The difficulties of
integration may be increased by the necessity of coordinating geographically
separated organizations, integrating personnel with disparate business
backgrounds and combining different corporate cultures. There can be no
assurance that there will not be substantial costs associated with the
integration process, that such activities will not result in a decrease in
revenues or that there will not be other material adverse effects of these
integration efforts. Such effects could materially reduce the short-term
earnings of the combined company. Subsequent to the Merger, Titan expects to
incur transaction and integration costs currently estimated to be $9 million, to
reflect the combination. This amount is a preliminary estimate only. There can
be no assurance that Titan will not incur additional charges to reflect costs
associated with the Merger.
TREATMENT OF EMPLOYEE EQUITY BENEFIT PLANS
STOCK OPTIONS. As of the Effective Time, each DBA Option, whether or not
exercisable, will be assumed by Titan and will continue to have, and be subject
to, the same terms and conditions set forth in the stock option plan under which
it was issued (if applicable) and the stock option agreement by which it is
evidenced. From and after the Effective Time, (i) each DBA Option will be or
become exercisable for Titan Common Stock rather than DBA Common Stock, (ii) the
number of shares of Titan Common Stock subject to each DBA Option shall be equal
to the number of shares of DBA Common Stock subject to such option immediately
prior to the Effective Time multiplied by the Exchange Ratio, rounding down to
the nearest whole share (with cash, less the applicable exercise price, being
payable for any fraction of a share), (iii) the per share exercise price under
each DBA Option shall be adjusted by dividing the per share exercise price under
such option by the Exchange Ratio and rounding up to the nearest cent and (iv)
any
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restriction on the exercise of any such option shall continue in full force and
effect and the term, exercisability, vesting schedule and other provisions of
each such option shall otherwise remain unchanged.
FORM S-8 FILING. Titan may file with the Commission a registration
statement on Form S-8, following the Effective Time to register shares of Titan
Common Stock issuable as the result of the assumption of the DBA Options.
STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the capitalization of DBA as of the close of business on the
Record Date, using the Exchange Ratio set forth in the Merger Agreement, an
aggregate of approximately 6,110,764 shares of Titan Common Stock will be issued
to DBA shareholders in the Merger and Titan will assume options to acquire up to
approximately 441,020 additional shares of DBA Common Stock. Based upon the
number of shares of Titan Common Stock issued and outstanding as of January 30,
1998, and after giving effect to the issuance of Titan Common Stock as described
in the previous sentence and the exercise of all options to purchase DBA Common
Stock assumed by Titan, the former holders of DBA Common Stock and options to
purchase DBA Common Stock would hold, and have voting power with respect to,
approximately 26% of Titan's total issued and outstanding shares. The foregoing
numbers of shares and percentages are subject to change to reflect any changes
in the capitalization of either Titan or DBA subsequent to the dates indicated
and prior to the Effective Time, and there can be no assurance as to the actual
capitalization of Titan or DBA as of the Effective Time or of Titan at any time
following the Effective Time.
REPRESENTATIONS AND WARRANTIES
Pursuant to the Merger Agreement, each of Titan, DBA and Titan Sub made
certain representations and warranties relating to its respective business and
various other matters. None of such representations and warranties will survive
the Merger.
COVENANTS
Pursuant to the Merger Agreement, DBA has agreed (on behalf of itself and
each of its direct and indirect majority-owned subsidiaries) that, until the
earlier of the termination of the Merger Agreement pursuant to its terms and the
Effective Time (the "Pre-Closing Period"), subject to certain exceptions, and
except to the extent that Titan consents in writing, it will conduct its
business and operations in the ordinary course and in accordance with past
practices use reasonable efforts preserve intact its current business
organization, keep available the services of its current officers and employees
and maintains its relations and goodwill with all suppliers, customers,
landlords, creditors, employees and others with which it has business
relationships, and use all reasonable efforts to keep in full force all of its
existing insurance policies.
In addition, except as permitted by the terms of the Merger Agreement, and
subject to certain exceptions, during the Pre-Closing Period, DBA has agreed not
to do any of the following or to permit its subsidiaries to do any of the
following without the prior written consent of Titan:
(a) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other
securities;
(b) sell, issue, authorize the issuance of (i) any capital stock or
other security, (ii) any option, call, warrant or right to acquire any
capital stock or other security, or (iii) any instrument convertible into or
exchangeable for any capital stock or other security; provided, however,
that DBA may issue DBA Common Stock upon the valid exercise of DBA Options;
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(c) amend or permit the adoption of any amendment to its articles of
incorporation or bylaws or other charter or organizational documents, or
effect or become a party to any merger, consolidation, share exchange,
business combination, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(d) form any subsidiary or acquire any equity interest or other interest
in any other entity;
(e) make any capital expenditure other than in accordance with DBA's
capital budget that exceeds (when aggregated with other capital expenditures
during the Pre-Closing Period) in the aggregate $100,000;
(f) enter into or become bound by or permit any of the assets owned or
used by it to become bound by, any material contract or (ii) amend or
prematurely terminate or waive any material right or remedy under, any
material contract, except in the ordinary course of business and consistent
with prior practices;
(g) acquire, lease or license any material right or other material asset
from any other person or entity or sell or otherwise dispose of, or lease or
license, any material right or other material asset to any other person or
entity (except in each case for assets acquired, leased, licensed or
disposed of by DBA in the ordinary course of business) or waive or
relinquish any material right;
(h) lend money to any person or entity, or incur or guarantee any
indebtedness (except that DBA may make ordinary advances for travel and
entertainment), other than trade payables not exceeding $200,000 (in
aggregate) incurred in the ordinary course of business and consistent with
past practices;
(i) change any of its methods of accounting or accounting practices in
any respect (except as required under generally accepted accounting
principles, consistently applied ("GAAP");
(j) make any tax election;
(k) commence or settle any legal proceeding;
(l) enter into any material transaction or take any other material
action outside the ordinary course of business or inconsistent with past
practices; or
(m) agree or commit to take any of the actions described in clauses (a)
through (l) above.
DBA has further agreed that during the Pre-Closing Period it will not (a)
amend or waive any of its rights under, or accelerate the vesting under, any
provision of any of DBA's stock option plans, any provision of any agreement
evidencing any outstanding stock option or any restricted stock purchase
agreement, or otherwise modify any of the terms of any outstanding option,
warrant or other security or any related contract or (b) establish, adopt or
amend any employee benefit plan, pay any bonus or make any profit-sharing or
similar payment to, or increase the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of its
directors, officers or employees, or hire any employee whose aggregate annual
compensation is expected to exceed $100,000.
Each of DBA and Titan has agreed in the Merger Agreement, until the earlier
of the Merger or termination of the Merger Agreement, to notify the other of
certain material events prior to closing; to take actions necessary to give
notice of, convene and hold a meeting of shareholders or stockholders, as
appropriate, and solicit proxies with respect to the meeting; and to provide
certain documents to the other and keep the other's information confidential.
NO SOLICITATION
Under the terms of the Merger Agreement, DBA has agreed that, during the
Pre-Closing Period, it will not directly or indirectly, and will not authorize
or permit any subsidiary of DBA or any of its or its
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subsidiaries' officers, directors, employees, agents, attorneys, accountants,
advisors or representatives directly or indirectly to, (i) solicit, initiate,
encourage or induce the making, submission or announcement of any Acquisition
Proposal (as defined below) or take any action that could reasonably be expected
to lead to an Acquisition Proposal, (ii) furnish any information regarding DBA
or any of its subsidiaries to any person or entity in connection with or in
response to an Acquisition Proposal, (iii) continue to engage in discussions or
negotiations with any person or entity with respect to any Acquisition Proposal
(iv) approve, enclose or recommend any Acquisition Proposal; or (v) enter into
any letter of intent or similar document contemplating any Acquisition
Transaction (as defined below). An "Acquisition Proposal" means any offer or
proposal (other than from Titan) contemplating or otherwise relating to any
Acquisition Transaction. An "Acquisition Transaction" means any transaction not
contemplated by this Merger Agreement involving: (a) any sale, lease, license,
exchange, transfer or other disposition of the assets of DBA constituting more
than 20% of the assets of DBA or accounting for more than 20% of the revenues of
DBA in any one transaction or in a series of related transactions; (b) any offer
to purchase, tender offer, exchange offer or any similar transaction or series
of related transactions made by any individual, entity or governmental body or
group of individuals, entities or governmental bodies within the meaning of
Section 13(d)(3) of the Exchange Act, involving more than 20% of the outstanding
shares of the capital stock of DBA; or (c) any merger, consolidation, business
combination, share exchange, reorganization or similar transaction or series of
related transactions involving DBA. Pursuant to the Merger Agreement, DBA
further agreed to cease any and all activities, discussions or negotiations with
any parties conducted prior to the date of the Merger Agreement with respect to
any Acquisition Proposal. In addition, DBA agreed that it will promptly advise
Titan orally and in writing of any Acquisition Proposal (including the identity
of the person making or submitting such Acquisition Proposal and the terms
thereof) that is made or submitted by any person during the Pre-Closing Period.
Notwithstanding the foregoing, but subject to the restrictions on the
conduct of DBA's business described above, prior to the Effective Time, to the
extent the DBA Board determines, in good faith, based upon written advice of its
outside legal counsel, that the Board's fiduciary duties under applicable law
require it to do so, DBA may participate in discussions or negotiations with,
and furnish nonpublic information and afford access to the properties, books or
records of DBA to, any person, entity or group after such person, entity or
group has delivered to DBA in writing an unsolicited bona fide Acquisition
Proposal which the DBA Board in its good faith reasonable judgment determines,
based on written advice of its financial advisor, could reasonably be expected
to result in a transaction more favorable than the Merger to the shareholders of
DBA from a financial point of view (a "Superior Proposal"). Prior to furnishing
any such nonpublic information to, or entering into discussions with, such
person, entity or group, DBA must give Titan written notice of the identity of
such person, entity or group and of DBA's intention to furnish nonpublic
information to, or enter into discussions with, such person, entity or group,
and must obtain from such person, entity or group an executed confidentiality
agreement containing customary limitations on the use and disclosure of all
nonpublic written and oral information furnished to such person, entity or group
by or on behalf of DBA. In addition, prior to furnishing any such nonpublic
information to such person, entity or group, DBA must furnish such nonpublic
information to Titan (to the extent such nonpublic information has not been
previously furnished by DBA to Titan).
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<PAGE>
CONDITIONS TO THE MERGER
The respective obligations of each party to the Merger Agreement to effect
the Merger are subject to the satisfaction at or prior to the Effective Time of
the following conditions (subject to certain materiality qualifications): (i)
the Merger Agreement shall have been approved and adopted, and the Merger shall
have been duly approved, by the requisite vote under applicable law by the Titan
stockholders and the DBA shareholders; (ii) the Commission shall have declared
the Registration Statement of which this Prospectus/Joint Proxy Statement is a
part effective and no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of this
Prospectus/Joint Proxy Statement, shall have been initiated or threatened in
writing by the Commission; (iii) there shall have been no material legal
proceedings relating to the Merger or prohibiting the consummation of the Merger
or any of the other transactions contemplated by the Merger Agreement; (iv) all
waiting periods, if any, under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, relating to the transactions contemplated hereby will have
expired or terminated early; (v) Titan and DBA shall have received a legal
opinion from Arent Fox and Cooley Godward, respectively, dated as of the Closing
Date, reasonably satisfactory in form and substance to the receiving party; (vi)
Titan and DBA shall each have received written opinions from their respective
tax counsel (Cooley Godward and Arent Fox, respectively), in form and substance
reasonably satisfactory to them, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and such
opinions shall not have been withdrawn; provided, however, that, if the counsel
to DBA does not render such opinion, this condition shall nonetheless be deemed
to be satisfied with respect to DBA if counsel to Titan renders such opinion to
DBA; (vii) the shares of Titan Common Stock issuable to shareholders of DBA in
the Merger shall have been authorized for listing on the NYSE upon official
notice of issuance; (viii) there shall have been no material adverse effect on
Titan or DBA, or any of their respective majority-owned subsidiaries, and there
shall not have occurred any change or development that would reasonably be
expected to have a material adverse effect on Titan, DBA or any of their
respective subsidiaries; (ix) Titan shall have received a certificate from DBA's
Chief Executive Officer and DBA shall have received a certificate from Titan's
Chief Executive Officer confirming that certain conditions have been duly
satisfied; (x) no temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Merger shall have
been issued by any court of competent jurisdiction and remain in effect, and
there shall not be any legal requirement enacted or deemed applicable to the
Merger that makes consummation of the Merger illegal; (xi) there shall not be
pending any legal proceeding in which there is a reasonable probability of an
outcome that would have a material adverse effect on DBA or Titan, as
applicable, relating to the Merger; or (xii) there shall not be pending or
threatened any legal proceeding in which a governmental body is or is threatened
to become a party: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the transactions contemplated thereby; (b)
relating to the Merger and seeking to obtain from Titan, DBA or any of their
respective majority-owned subsidiaries, any damages that may be material to
Titan, DBA and any of their respective majority-owned subsidiaries taken as a
whole; (c) seeking to prohibit or limit in any material respect Titan's ability
to exercise ownership or voting rights with respect to stock of the surviving
corporation; or (d) which would materially and adversely affect the right of
Titan or any of its subsidiaries, or of the surviving corporation, to own the
assets of or operate the business of DBA.
In addition, the obligation of DBA to consummate and effect the Merger is
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, exclusively by
DBA: (i) subject to certain materiality thresholds, the representations and
warranties of Titan and Titan Sub contained in the Merger Agreement shall have
been true and correct on and as of the date of the Merger Agreement and such
representations and warranties shall be true and correct on and as of the
Effective Time except for changes contemplated by the Merger Agreement and
except in such cases where the failure to be so true and correct would not have
a material adverse effect on Titan; and (ii) Titan and Titan Sub shall have
performed or complied in all material respects with all agreements
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<PAGE>
and covenants required by the Merger Agreement to be performed or complied with
by them at or prior to the Effective Time.
Further, the obligations of Titan and Titan Sub to consummate and effect the
Merger are subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, exclusively
by Titan: (i) subject to certain materiality thresholds, the representations and
warranties of DBA contained in the Merger Agreement shall have been true and
correct on and as of the date of the Merger Agreement and such representations
and warranties shall be true and correct on and as of the Effective Time except
for changes contemplated by the Merger Agreement and except in such cases where
the failure to be so true and correct would not have a material adverse effect
on DBA; and (ii) DBA shall have performed or complied in all material respects
with all agreements and covenants required by the Merger Agreement to be
performed or complied with by it at or prior to the Effective Time.
Finally, the obligation of Titan to consummate and effect the Merger are
subject to Titan's receipt of the following agreements and documents (i) written
resignations of certain officers and directors of DBA and its majority-owned
subsidiaries; (ii) Continuity of Interest Certificates in the form attached to
the Merger Agreement, executed by John L. Slack, Charles B. Robertson, Edward M.
Bielski, Dudley J. Gordon, Dr. Richard N. Baney, Ambassador Robert F. Ellsworth,
William C. Potter, Dr. Lynn E. Weaver, Thomas J. Boyce, Jr., James E. Pruitt,
Norman J. Wechsler, and Kathryn A. Eckstein; (iii) a letter from Arthur Andersen
LLP, with respect to the Registration Statement dated as of the Closing Date,
reasonably satisfactory in form and substance to Titan; (iv) Affiliate
Agreements in the form attached to the Merger Agreement, executed by each person
who is reasonably determined to be an "affiliate" of DBA (as that term is used
in Rule 145 promulgated under the Act); and (v) letters dated on the Effective
Date regarding the availability with respect to the Merger of the "pooling of
interests" method of accounting for financial reporting purposes. See "Approval
of the Merger and Related Transactions--Certain Federal Income Tax Matters."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement provides that it may be terminated at any time prior to
the Effective Time as follows:
(a) by mutual written consent of Titan and DBA;
(b) by either Titan or DBA, if the Merger is not consummated by May 31,
1998 for any reason, provided that the right to terminate the Merger
Agreement as provided in this clause (b) is not available to any party whose
failure to act has been a principal cause of or resulted in the failure of
the Merger to occur on or before such date and such action or failure to act
constitutes a breach of the Merger Agreement;
(c) by either Titan or DBA, if a court of competent jurisdiction or any
governmental entity issues an order, decree or ruling or takes any other
action, in any case having the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger, which order, decree, ruling or other
action is final and nonappealable;
(d) by DBA if the following shall have occurred: (i) the Board of
Directors of Titan shall have failed to recommend that Titan's stockholders
vote in favor of, or shall for any reason have withdrawn or shall have
amended or modified in a manner adverse to DBA its unanimous recommendation
that Titan's stockholders vote in favor of the Merger Proposal; (ii) Titan
shall have failed to include in this Prospectus/Joint Proxy Statement the
unanimous recommendation of Titan's Board of Directors that Titan's
stockholders vote in favor of approval and adoption of the Merger Agreement
and the Merger; or (iii) Titan shall have failed to hold the Titan
Stockholders' Meeting as promptly as practicable and in any event within 45
days after a definite Prospectus/Joint Proxy Statement was filed with the
SEC;
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(e) by Titan if the following shall have occurred: (i) the Board of
Directors of DBA shall have failed to recommend that DBA's shareholders vote
in favor of, or shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Titan its recommendation (by 5 to 2 majority
vote) that DBA's shareholders vote in favor of, the Merger or approval or
adoption of the Merger Agreement; (ii) DBA shall have failed to include in
this Prospectus/Joint Proxy Statement the recommendation of the Board of
Directors of DBA that DBA's shareholders vote in favor of approval and
adoption of the Merger Agreement and the Merger; (iii) the Board of
Directors of DBA shall have approved, endorsed or recommended any
Acquisition Proposal; (iv) DBA shall have entered into any letter of intent
or similar document or any contract relating to any Acquisition Proposal;
(v) DBA shall have failed to hold the DBA Shareholders' Meeting as promptly
as practicable and in any event within 45 days after a definitive
Prospectus/Joint Proxy Statement was filed with the SEC; (vi) a tender or
exchange offer relating to securities of DBA shall have been commenced and
DBA shall not have published, sent or given to its securityholders, within
ten (10) business days after the commencement of such tender or exchange
offer, a statement disclosing that DBA recommends rejection of such tender
or exchange offer; or (vii) an Acquisition Proposal is publicly announced,
and DBA (A) fails to issue a press release announcing its opposition to such
Acquisition Proposal within ten (10) business days after such Acquisition
Proposal is announced or (B) otherwise fails to actively oppose such
Acquisition Proposal;
(f) by Titan or DBA if any of the other party's representations and
warranties contained in this Merger Agreement shall be or shall have become
materially inaccurate, or if any of the other party's covenants contained in
this Agreement shall have been breached in any material respect subject to
certain materiality thresholds and cure provisions;
(g) by DBA (at any time prior to the adoption and approval of this
Agreement, the Merger and the transactions contemplated hereby) if DBA and
its Board of Directors elect to accept a Superior Proposal;
(h) by DBA on the date mutually agreed to between Titan and DBA as the
date the Registration Statement is to be declared effective by the SEC
(which date shall be the earliest practicable date on which the Registration
Statement can be declared effective by the SEC) (the "Determination Date"),
if the average NYSE closing price per share of Titan Common Stock over the
twenty (20) trading days prior to such date ("Updated Average Price") is
more than $8.00, or by Titan on the Determination Date if the Updated
Average Price is less than $6.00; provided neither Titan nor DBA shall have
the right to exercise their right of termination if such party is not in
compliance in all material respects with its covenants and obligations
relating to the Registration Statement under the Merger Agreement. If the
Updated Average Price is less than $6.00 or more than $8.00 and the Merger
Agreement is not terminated herein by either party (as applicable), the
Exchange Ratio shall be adjusted to equal the number (rounded at six decimal
places) that results from dividing $9.50 by such Updated Average Price. (As
of the date of this Prospectus/Joint Proxy Statement, the Determination Date
has occurred, the Exchange Ratio has been fixed, and no termination rights
have arisen, or will arise, under this provision.) (See "--Manner of
Converting Shares");
(i) by Titan if the Titan Board shall not have received the written
opinion of A.G. Edwards dated on or about the Determination Date (or a
written addendum, or "bring-down" to an earlier opinion, reasonably
satisfactory to Titan), to the effect that the consideration to be paid by
Titan in the Merger is fair to the stockholders of Titan from a financial
point of view, which fairness opinion shall be in customary form, without
any unusual limitations or qualifications; and
(j) by DBA if the DBA Board shall not have received the written opinion
of Robinson-Humphrey dated on or about the Determination Date (or a written
addendum, or "bring-down" to an earlier opinion, reasonably satisfactory to
DBA), to the effect that the consideration to be received by
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DBA shareholders in the Merger is fair to the shareholders of DBA from a
financial point of view, which fairness opinion shall be in customary form,
without any unusual limitations or qualifications.
EFFECT OF TERMINATION
If the Merger Agreement is terminated by Titan or DBA as described above,
the Merger Agreement will be of no further force or effect, except that certain
provisions contained therein, including those discussed below relating to
"break-up" fees payable by Titan to DBA or by DBA to Titan under certain
circumstances, will survive such termination, and Titan, DBA and Titan Sub will
remain liable for certain breaches of the Merger Agreement occurring prior to
such termination.
BREAK-UP FEES
The Merger Agreement provides that if the Merger Agreement is terminated by
Titan or DBA as provided in clauses (d), (e), (f), (g) or (h) set forth under
"--Termination of the Merger Agreement" above, a nonrefundable fee of $500,000
in cash shall be paid concurrenlty with the effectivenss of such termination by:
Titan to DBA pursuant to clause (d), DBA to Titan pursuant to clause (e), either
Titan or DBA, as the case may be, upon breach of representation or warranty
pursuant to clause (f); DBA to Titan upon DBA's or the DBA Board election to
accept a superior proposal pursuant to clause (g); DBA to Titan upon DBA's
termination of the Merger Agreement pursuant to clause (h); and Titan to DBA
upon Titan's termination of the Merger Agreement pursuant to clause (h).
MERGER EXPENSES AND FEES AND OTHER COSTS
Except as described above, all fees and expenses incurred in connection with
the Merger Agreement and the transactions contemplated by the Merger Agreement
shall be paid by the party incurring such expenses, whether or not the Merger is
consummated; provided, however, that Titan and DBA shall share equally all fees
and expenses, other than attorneys' fees, incurred in connection with the
printing and filing of the Registration Statement and this Prospectus/Joint
Proxy Statement and any amendments or supplements thereto. See "--Termination of
the Merger Agreement."
Pursuant to an engagement letter between Titan and A.G. Edwards, Titan has
agreed to pay A.G. Edwards for its services a fee of $225,000 for rendering its
opinion. Titan also has agreed to reimburse A.G. Edwards for reasonable expenses
incurred by A.G. Edwards and to indemnify A.G. Edwards and certain related
persons for certain liabilities that may arise out of its engagement and the
rendering of its opinion.
Pursuant to the Robinson-Humphrey engagement letter, DBA has agreed to pay
Robinson-Humphrey for its services a fee of $190,000 in connection with the
delivery of the opinion of Robinson-Humphrey. In addition, DBA has agreed to
reimburse Robinson-Humphrey for its expenses, including the reasonable fees and
disbursements of its counsel. DBA also has agreed to indemnify Robinson-Humphrey
against certain liabilities, including liabilities under the federal securities
laws arising in connection with its engagement by DBA.
Titan and DBA estimate that they will incur direct transaction costs of
approximately $2 million associated with the Merger. These nonrecurring
transaction costs will be charged to operations upon consummation of the Merger,
expected in the quarter ending March 31, 1998. See "Unaudited Pro Forma Combined
Condensed Financial Information" and "Risk Factors--Integration of Operations."
RELATED AGREEMENTS
VOTING AGREEMENTS
In connection with the execution of the Merger Agreement, certain executive
officers and directors of DBA entered into voting agreements with Titan pursuant
to which such officers and directors agreed that,
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prior to the earlier of the date on which the Merger Agreement is terminated or
the date of the Effective Time (the "Expiration Date"), each such person:
(a) will not, directly or indirectly, (i) offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise dispose
of or transfer (or announce any offer, sale, offer of sale, contract of sale
or grant of any option to purchase or other disposition or transfer of) any
shares of DBA Common Stock held by such person (the "DBA Subject Shares") to
any person other than Titan or Titan's designee, (ii) create or permit to
exist any encumbrance with respect to any of the DBA Subject Shares, (iii)
reduce his beneficial ownership of, interest in or risk relating to any of
the DBA Subject Shares or (iv) commit or agree to do any of the foregoing;
(b) will vote the DBA Subject Shares (i) in favor of the Merger Proposal
and each of the other actions contemplated by the Merger Agreement and (ii)
against any action or agreement that would result in a breach of any
representation, warranty, covenant or obligation of DBA in the Merger
Agreement; and
(c) will not deposit any of the DBA Subject Shares into a voting trust
or grant another proxy (except as described below) or enter into a voting
agreement with respect to any of the DBA Subject Shares.
In addition, certain executive officers and directors of DBA delivered to
Titan an irrevocable proxy granting Titan the power to vote the DBA Subject
Shares in favor of the Merger Proposal and each of the other actions
contemplated by the Merger Agreement and against any action or agreement that
would result in a breach of any representation, warranty, covenant or obligation
of DBA in the Merger Agreement.
In connection with the execution of the Merger Agreement, certain executive
officers and directors of Titan entered into voting agreements with DBA pursuant
to which such stockholders agreed that, prior to the Expiration Date, each such
person:
(a) will not, directly or indirectly, (i) offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise dispose
of or transfer (or announce any offer, sale, offer of sale, contract of sale
or grant of any option to purchase or other disposition or transfer of) any
shares of Titan Common Stock held by such person (the "Titan Subject
Shares") to any person other than DBA or DBA's designee, (ii) create or
permit to exist any encumbrance with respect to any of the Titan Subject
Shares, (iii) reduce his beneficial ownership of, interest in or risk
relating to any of the Titan Subject Shares or (iv) commit or agree to do
any of the foregoing;
(b) will vote the Titan Subject Shares (i) in favor of the Merger
Proposal each of the other actions contemplated by the Merger Agreement and
(ii) against any action or agreement that would result in a breach of any
representation, warranty, covenant or obligation of Titan in the Merger
Agreement; and
(c) will not deposit any of the Titan Subject Shares into a voting trust
or grant another proxy (except as described below) or enter into a voting
agreement with respect to any of the Titan Subject Shares.
In addition, certain executive officers and directors of Titan delivered to
DBA an irrevocable proxy granting DBA the power to vote the Titan Subject Shares
in favor of the Merger Proposal and each of the other actions contemplated by
the Merger Agreement and waived any rights of appraisal and any dissenters'
rights such stockholder may otherwise have in connection with the Merger.
AFFILIATE AGREEMENTS
To help ensure that its stockholders comply with applicable securities laws,
certain affiliates of DBA (as defined for purposes of Rule 145) have entered
into agreements pursuant to which such affiliates will
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agree not to sell, pledge or otherwise transfer such shares except in compliance
with Rule 145 or under certain other limited circumstances. Such agreements also
restrict such persons rights to transfer shares of DBA Common Stock prior to the
Merger and Titan Common Stock (or any other securities of Titan) following the
Merger until such time as Titan has published financial results showing at least
30 days of combined operations of Titan and DBA. See "--Affiliates' Restrictions
on Sale of Titan Common Stock."
AFFILIATES' RESTRICTIONS ON SALE OF TITAN COMMON STOCK
The shares of Titan Common Stock to be issued pursuant to the Merger and the
Merger Agreement will have been registered under the Securities Act pursuant to
the Registration Statement, thereby allowing such shares to be traded without
restriction by all former holders of DBA Common Stock who (i) are not deemed to
be affiliates of DBA at the time of the DBA Meeting (as "affiliates" is defined
for purposes of Rule 145) and (ii) who do not become affiliates of Titan after
the Merger. The directors of DBA, certain officers and certain significant
shareholders of DBA may be deemed to be affiliates of DBA at the time of the DBA
Meeting. John L. Slack will become a possible affiliate of Titan after the
Merger.
Certain executive officers and directors of DBA have entered into agreements
not to make any public sale of any Titan Common Stock received upon conversion
of DBA Common Stock in the Merger except in compliance with Rule 145 or under
certain other limited circumstances. Such agreements also restrict such persons
rights to transfer shares of DBA Common Stock prior to the Merger and Titan
Common Stock (or any other securities of Titan) following the Merger until such
time as Titan has published financial results showing at least 30 days of
combined operations of Titan and DBA. See "Terms of the Merger--Related
Agreements--Affiliate Agreements" above. In general, Rule 145, as currently in
effect, imposes restrictions on the manner in which such affiliates may make
resales of Titan Common Stock and also on the number of shares of Titan Common
Stock that such affiliates and others (including persons with whom the
affiliates act in concert) may sell within any three-month period. Rule 145 will
not generally preclude sales by affiliates. These Rule 145 restrictions will
generally apply for a period of at least one year after the Effective Time (or
longer if the person remains or becomes an affiliate of Titan). Titan has agreed
to register the resale of shares of Titan Common Stock following the Merger held
by any shareholders of DBA who hold 20% or more of the outstanding shares of DBA
Common Stock immediately prior to the Merger, which will permit such
shareholders to resell their shares of Titan Common Stock without regard to the
volume limitations of Rule 145.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements
give effect to the Merger of Titan and DBA under the pooling of interests method
of accounting. These pro forma financial statements are presented for
illustrative purposes only and therefore are not necessarily indicative of the
operating results or financial position that might have been achieved had the
Merger occurred as of an earlier date, nor are they necessarily indicative of
operating results or financial position which may occur in the future.
A pro forma combined condensed balance sheet is provided as of September 30,
1997, giving effect to the Merger as though it had been consummated on that
date. Pro forma combined condensed statements of operations are provided for the
nine-month period ended September 30, 1997 and the fiscal years ended December
31, 1994, 1995 and 1996, giving effect to the Merger as though it had occurred
at the beginning of the earliest period presented. For purposes of the pro forma
operating data, Titan's consolidated financial statements for the three fiscal
years ended December 31, 1996 and for the nine months ended September 30, 1997
have been combined with DBA's consolidated financial statements, adjusted as
necessary to permit consolidation with Titan's consolidated financial statements
providing for fiscal years ending December 31 and the nine months ending
September 30.
The pro forma combined condensed statements of operations for each of the
three years in the period ended December 31, 1996 are derived from the audited
historical consolidated financial statements of Titan and historical
consolidated financial statements of DBA, adjusted as necessary to permit
consolidation with Titan's consolidated financial statements for the years ended
December 31 and the nine months ended September 30, and should be read in
conjunction with historical financial statements and accompanying notes for
Titan and DBA included elsewhere in this Prospectus/Joint Proxy Statement. The
pro forma combined condensed financial statements as of or for the nine-month
periods ended September 30, 1997 have been prepared in accordance with generally
accepted accounting principles applicable to interim financial information and,
in the opinions of Titan and DBA's respective managements, include all
adjustments necessary for a fair presentation of financial information for such
interim periods.
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THE TITAN CORPORATION AND DBA SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
TITAN DBA (NOTE 2) COMBINED
---------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues......................................................... $ 136,206 $ 24,212 $ -- $ 160,418
Total costs and expenses......................................... 124,786 23,003 -- 147,789
---------- --------- ------ -----------
Operating profit................................................. 11,420 1,209 -- 12,629
Interest expense................................................. (923) (225) -- (1,148)
Interest income.................................................. 291 167 -- 458
---------- --------- ------ -----------
Income from continuing operations before income taxes............ 10,788 1,151 -- 11,939
Income tax provision............................................. 3,657 31 -- 3,688
---------- --------- ------ -----------
Income from continuing operations................................ 7,131 1,120 -- 8,251
Loss from discontinued operation net of taxes.................... (1,178) -- -- (1,178)
---------- --------- ------ -----------
Net income (loss)................................................ 5,953 1,120 -- 7,073
Dividend requirements on preferred stock......................... 695 0 -- 695
---------- --------- ------ -----------
Net income applicable to common stock............................ $ 5,258 $ 1,120 $ -- $ 6,378
---------- --------- ------ -----------
---------- --------- ------ -----------
Per weighted average common shares:
Income from continuing operations.............................. $ 0.48 $ 0.27 $ -- $ .40
Loss from discontinued operation............................... (0.08) -- -- (0.06)
---------- --------- ------ -----------
Net Income....................................................... $ 0.40 $ 0.27 $ -- $ 0.34
---------- --------- ------ -----------
---------- --------- ------ -----------
Weighted average common shares outstanding....................... 13,288 4,208 1,543 19,038
---------- --------- ------ -----------
---------- --------- ------ -----------
</TABLE>
The accompanying notes are an integral part of these
unaudited proforma combined financial statements.
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THE TITAN CORPORATION AND DBA SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
TITAN DBA (NOTE 2) COMBINED
---------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues......................................................... $ 131,535 $ 25,958 $ -- $ 157,493
Total costs and expenses......................................... 132,893 24,846 -- 157,739
---------- --------- ------ -----------
Operating profit (loss).......................................... (1,358) 1,112 -- (246)
Interest expense................................................. (1,154) (179) -- (1,333)
Interest income.................................................. 95 451 -- 546
---------- --------- ------ -----------
Income from continuing operations before income taxes............ (2,417) 1,384 -- (1,033)
Income tax provision (benefit)................................... (582) 70 -- (512)
---------- --------- ------ -----------
Income from continuing operations................................ (1,835) 1,314 -- (521)
Loss from discontinued operation net of taxes.................... (1,972) 0 -- (1,972)
---------- --------- ------ -----------
Net income (loss)................................................ (3,807) 1,314 -- (2,493)
Dividend requirements on preferred stock......................... 695 0 -- 695
---------- --------- ------ -----------
Net income applicable to common stock............................ $ (4,502) $ 1,314 $ -- $ (3,188)
---------- --------- ------ -----------
---------- --------- ------ -----------
Per weighted average common shares:
Income from continuing operations.............................. $ (0.19) $ 0.30 $ -- $ (0.06)
Loss from discontinued operation............................... (0.14) -- -- (0.10)
---------- --------- ------ -----------
Net Income....................................................... $ (0.33) $ 0.30 $ -- $ (0.16)
---------- --------- ------ -----------
---------- --------- ------ -----------
Weighted average common shares outstanding....................... 13,445 4,385 1,608 19,438
---------- --------- ------ -----------
---------- --------- ------ -----------
</TABLE>
The accompanying notes are an integral part of these
unaudited proforma combined financial statements.
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THE TITAN CORPORATION AND DBA SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
TITAN DBA (NOTE 2) COMBINED
---------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues......................................................... $ 135,484 $ 22,698 $ -- $ 158,182
Total costs and expenses......................................... 132,123 21,376 -- 153,499
---------- --------- ------ -----------
Operating Profit................................................. 3,361 1,322 -- 4,683
Interest expense................................................. (3,026) (165) -- (3,191)
Interest income.................................................. 65 669 -- 734
---------- --------- ------ -----------
Income from continuing operations before income taxes............ 400 1,826 -- 2,226
Income tax provision............................................. 136 444 -- 580
---------- --------- ------ -----------
Income from continuing operations................................ 264 1,382 -- 1,646
Loss from discontinued operation net of taxes.................... (3,642) -- -- (3,642)
---------- --------- ------ -----------
Net income (loss)................................................ (3,378) 1,382 -- (1,996)
Dividend requirements on preferred stock......................... 803 -- -- 803
---------- --------- ------ -----------
Net income applicable to common stock............................ $ (4,181) $ 1,382 $ -- $ (2,799)
---------- --------- ------ -----------
---------- --------- ------ -----------
Per weighted average common shares:
Income from continuing operations.............................. $ (0.03) $ 0.31 $ -- $ 0.04
Loss from discontinued operation............................... (0.24) -- -- (0.17)
---------- --------- ------ -----------
Net Income....................................................... $ (0.27) $ 0.31 $ -- $ (0.13)
---------- --------- ------ -----------
---------- --------- ------ -----------
Weighted average common shares outstanding....................... 15,278 4,497 1,649 21,424
---------- --------- ------ -----------
---------- --------- ------ -----------
</TABLE>
The accompanying notes are an integral part of these
unaudited proforma combined financial statements.
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THE TITAN CORPORATION AND DBA SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARES AND PAR VALUE)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
TITAN DBA (NOTE 2) COMBINED
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash........................................................... $ 1,397 $ 1,259 $ -- $ 2,656
Investments.................................................... -- 12,321 -- 12,321
Accounts receivable--net....................................... 52,889 5,465 -- 58,354
Inventories.................................................... 13,667 1,998 -- 15,665
Net assets of discontinued operation........................... 8,896 -- -- 8,896
Prepaid expenses and other..................................... 1,726 741 -- 2,467
Deferred income taxes.......................................... 4,961 -- 3,600 8,561
---------- --------- ----------- -----------
Total current assets......................................... 83,536 21,784 3,600 108,920
Property and equipment--net.................................... 18,838 10,250 (3,000) 26,088
Goodwill--net.................................................. 20,333 222 -- 20,555
Other assets................................................... 8,388 1,820 (1,600) 8,608
Net assets of discontinued operations.......................... 4,186 -- -- 4,186
---------- --------- ----------- -----------
Total assets................................................. $ 135,281 $ 34,076 $ (1,000) $ 168,357
---------- --------- ----------- -----------
---------- --------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................... $ 9,640 $ 845 $ -- $ 10,485
Line of credit................................................. 14,650 -- -- 14,650
Current portion of long-term debt.............................. 1,076 -- -- 1,076
Accrued compensation and benefits.............................. 5,962 -- -- 5,962
Other accrued liabilities...................................... 4,778 3,507 4,400 12,685
---------- --------- ----------- -----------
Total current liabilities.................................... 36,106 4,352 4,400 44,858
---------- --------- ----------- -----------
Long-term debt................................................... 39,218 -- -- 39,218
Other non-current liabilities.................................... 7,421 -- -- 7,421
Series B cumulative convertible redeemable preferred stock,
$3,000 liquidation preference, 6% cumulative annual dividend,
500,000 shares issued and outstanding.......................... 3,000 -- -- 3,000
Stockholders' Equity:
Preferred stock: $1 par value, authorized 2,500,000 shares:
Cumulative convertible, $13,897 liquidation preference: 694,872
shares issues and outstanding................................ 695 -- -- 695
Series A junior participating, authorized 250,000 shares: none
issued....................................................... -- -- -- --
Common stock: (Titan: $.01 par value, authorized 45,000,000
shares; issued and outstanding: 17,184,476; DBA $.10 par
value; authorized 10,000,000 shares; issued 5,569,000,
outstanding 4,425,562)....................................... 172 557 -- 729
Capital in excess of par value................................. 42,936 24,554 -- 67,490
Retained earnings.............................................. 8,362 23,687 (5,400) 26,649
Treasury stock: (Titan: 985,894 shares; DBA: 1,147,000 shares,
at cost)..................................................... (2,629) (19,074) -- (21,703)
---------- --------- ----------- -----------
Total stockholders' equity..................................... 49,536 29,724 (5,400) 73,860
---------- --------- ----------- -----------
Total liabilities and stockholders' equity................... $ 135,281 $ 34,076 $ (1,000) $ 168,357
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
unaudited proforma combined financials.
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<PAGE>
THE TITAN CORPORATION AND DBA SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
TITAN DBA (NOTE 2) COMBINED
---------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues......................................................... $ 127,212 $ 19,449 $ -- $ 146,661
Total costs and expenses......................................... 118,171 17,462 -- 135,633
---------- --------- ------ -----------
Operating Profit................................................. 9,041 1,987 -- 11,028
Interest expense................................................. (3,887) (19) -- (3,906)
Interest income.................................................. 35 636 -- 671
---------- --------- ------ -----------
Income from continuing operations before income taxes............ 5,189 2,604 -- 7,793
Income tax provision............................................. 1,816 980 -- 2,796
---------- --------- ------ -----------
Income from continuing operations................................ 3,373 1,624 -- 4,997
Loss from discontinued operation net of taxes.................... (343) -- -- (343)
---------- --------- ------ -----------
Net income (loss)................................................ 3,030 1,624 -- 4,654
Dividend requirements on preferred stock......................... 656 -- -- 656
---------- --------- ------ -----------
Net income applicable to common stock............................ $ 2,374 $ 1,624 $ -- $ 3,998
---------- --------- ------ -----------
---------- --------- ------ -----------
Per weighted average common shares:..............................
Income from continuing operations.............................. $ 0.17 $ 0.36 $ -- $ 0.19
Loss from discontinued operation............................... (0.02) -- -- (.01)
---------- --------- ------ -----------
Net income....................................................... $ 0.15 $ 0.36 $ -- $ 0.18
---------- --------- ------ -----------
---------- --------- ------ -----------
Weighted average common shares outstanding....................... 16,311 4,495 1,648 22,454
---------- --------- ------ -----------
---------- --------- ------ -----------
</TABLE>
The accompanying notes are an integral part of these
unaudited proforma combined financial statements.
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THE TITAN CORPORATION AND DBA SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma combined statements of operations combine the
historical statements of operations of the Titan Corporation ("Titan") for the
nine months ended September 30, 1997 and the years ended December 31, 1996, 1995
and 1994 with the historical statements of operations of DBA Systems, Inc.
("DBA") for the nine months ended September 30, 1997 and twelve months ended
December 31, 1996, 1995 and 1994. The DBA statements for the years ended June
30, 1997, 1996 and 1995 were conformed to be consistent with the Titan fiscal
year end of December 31, by utilizing the DBA statements for the three months
ended September 30, 1997 and for the six months ended December 31, 1996, 1995,
1994 and 1993.
NOTE 2. MERGER COSTS
Titan and DBA estimate they will incur direct transaction costs of
approximately $2 million associated with the Merger, consisting primarily of
investment banking, filings with regulatory agencies, accounting, legal,
financial printing and other related costs.
In addition, it is expected that as a direct result of the Merger, the
combined company will incur cash and non-cash restructuring charges estimated to
be approximately $7 million. The restructuring charges are expected to include:
- $3 million related to the elimination of excess owned and leased property
and facilities.
- $1.6 million related to the write-off of investments in other assets.
- $4.4 million related to severance and outplacement costs and other costs
specifically related to
the Merger.
These estimates are preliminary and are therefore subject to change. These
nonrecurring costs will be charged to operations as incurred. The unaudited pro
forma combined balance sheet gives effect to such charges as if they had been
incurred as of September 30, 1997, but the effect has not been reflected in the
unaudited pro forma combined statements of operations as they are nonrecurring
in nature.
The income tax effect of these charges has also been reflected as a pro
forma adjustment.
NOTE 3. PRO FORMA NET INCOME (LOSS) PER SHARE
The unaudited pro forma combined net income (loss) per common share is based
upon the weighted average number of common and equivalent shares of Titan and
DBA outstanding for each period at the exchange ratio of 1.36667 shares of Titan
common stock for each share of DBA common stock. The effect of the assumed
conversion of Titan's convertible subordinated debentures was antidilutive for
the periods presented.
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TITAN BUSINESS
GENERAL DEVELOPMENT AND DESCRIPTION OF BUSINESS
Titan provides state-of-the-art information technology and electronic
systems and services to commercial and government customers. These systems and
services enable Titan's customers to cost-effectively generate, digitize,
process, compress, transmit, store or distribute information in a timely manner.
Titan operates its business primarily through subsidiaries that are focused on
targeted markets and/or technologies.
Titan was founded in 1981 as a defense communications company. Since its
inception, Titan has received U.S. Department of Defense funds in excess of $1
billion, a substantial portion of which was directed to research and development
of advanced information technology systems. This significant investment has
enabled Titan to develop a rich technology portfolio.
In 1991, Titan implemented a market-driven strategy to leverage the
technologies and expertise developed through its defense businesses into
targeted commercial markets. A key to this strategy has been to attract, retain
and motivate key management teams by offering equity incentives at the
subsidiary level. Titan has demonstrated an ability to successfully execute this
strategy with the application of its Demand Assigned Multiple Access ("DAMA")
technology originally developed for defense purposes into the commercial rural
telephony market. Initially, Titan made the investments necessary to
commercialize its core technologies. Titan believes that its core businesses
have now reached the point where they can fund their growth independent of the
parent, either internally or through third-party investments.
Titan groups its businesses into four core business segments--Communications
Systems, Software Systems, Information Technologies, and Medical Sterilization
and Food Pasteurization--and a fifth business segment, Emerging Technologies and
Businesses. The Communications Systems segment, through Titan's wholly owned
Linkabit Wireless subsidiary ("Linkabit Wireless"), develops and produces
advanced satellite ground terminals, satellite voice/data modems, networking
systems and other products used to provide bandwidth-efficient communications.
Linkabit Wireless currently has a registration statement on file with the
Commission for a proposed public offering of approximately 26% of its common
stock. The Software Systems segment is a systems integrator that provides a
broad range of information technology services and solutions. The Information
Technologies segment provides information systems solutions to defense-related
government customers with large data management, information manipulation,
information fusion, knowledge-based systems, and communications requirements.
The Medical Sterilization and Food Pasteurization segment utilizes its linear
accelerator technology to provide sterilization systems and services for medical
device manufacturers. The Emerging Technologies and Businesses segment consists
of new technologies and early-stage businesses, including minority-owned
businesses, utilizing technologies originally developed by Titan.
COMPANY STRATEGY
Titan's goal is to profitably leverage its information technology and
electronics systems expertise into its targeted industries. To achieve this
goal, Titan employs the following strategies:
PROFITABLY BUILD AND GROW CORE BUSINESSES. Titan intends to continue to
enhance and expand its core business segments by responding to market demands
and trends with leading edge products and services targeted to both commercial
and government customers. Titan intends for each of its core businesses to fund
its own growth independently of the parent. Titan's strategy is to ensure that
such funding is made while focusing on profitability.
CULTIVATE ENTREPRENEURIAL ATMOSPHERE. Titan believes that maintaining an
entrepreneurial atmosphere is essential to continuing its growth and
development. Accordingly, Titan attempts to attract, retain and motivate high
caliber management, engineers and scientists through equity incentive programs,
both at the subsidiary and parent levels, as well as utilizing flexible work
schedules and market-based compensation, to
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create the foundation for the same entrepreneurial environment inherent in
stand-alone early-stage ventures.
SPIN-OUT SUBSIDIARIES. Titan intends from time to time to undertake
spin-outs of certain of its existing and future subsidiaries. Titan believes
that this strategy provides its subsidiaries with direct access to the capital
markets to fund growth and future acquisitions, increases visibility into the
subsidiaries' operations and establishes an independent value for Titan's
investments in its subsidiaries.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. To grow its existing
businesses or gain access to new markets, Titan pursues acquisitions of
complementary government and commercial businesses, technologies and products.
Titan also pursues strategic alliances, primarily to establish channels of
distribution for Titan's core businesses and technologies.
IMPROVE EFFICIENCIES AND REDUCE COSTS. Titan intends to achieve operating
efficiencies and cost savings following its acquisitions of complementary
businesses through centralization of strategic planning, corporate development,
administrative, financial and other services. Titan also intends to continue to
aggressively identify areas within its businesses where additional efficiencies
and cost reductions can take place, particularly through utilization of its
centralized services.
COMMUNICATIONS SYSTEMS SEGMENT
The Communications Systems segment, through Linkabit Wireless, develops and
produces advanced satellite ground terminals, satellite voice/data modems,
networking systems and other products used to provide bandwidth-efficient
communications for commercial and government customers. Linkabit Wireless'
market-driven product development efforts have resulted in products which are
particularly well suited for two significant market opportunities, rural
telephony and secure defense communications.
Linkabit Wireless has developed substantial expertise in DAMA technology and
critical engineering disciplines such as satellite ground system design, RF and
digital engineering, digital and communications signal processing software,
network management and modem technology. Linkabit Wireless has benefited from
substantial and continued investment in its technology and products. Since 1986,
the U.S. government, third parties and Titan have collectively invested over
$250 million in Linkabit Wireless' research and development programs. A
significant portion of this investment has been focused in the area of DAMA
technology, which enables more cost-effective and efficient use of satellite
transmission capacity and allows each ground terminal in a satellite network to
communicate with any other terminal in the network. Linkabit Wireless'
commercial products leverage the advanced technologies and broad technical
competencies developed from the substantial investment in its government
business. Similarly, the government business has benefited from Linkabit
Wireless' investment in the design and production of cost-effective commercial
products which can satisfy the government's demand for more commercial off-the-
shelf products.
RURAL TELEPHONY. Telephone service for remote areas of many developing
countries has not been practical for a number of economic and technical reasons,
and consequently, nearly 50% of the world's population has never made a
telephone call. However, the development of low-cost ground terminals,
availability of satellite capacity covering rural areas and advancements in
voice transmission technologies have made satellite communications a practical
solution for rural telephony. Recently, governments in developing countries,
particularly in Southeast Asia, have shown an increased interest in providing
rural telephone services for both economic and political reasons. For example,
the Indonesian government has mandated that 20% of all new telephone lines be
installed in rural areas. In addition, consumers and businesses in these areas
are in need of affordable telephone services.
Linkabit Wireless' leading commercial product, Xpress Connection, uses
existing geosynchronous satellites to provide low-cost voice, facsimile and data
services using satellites to connect villages to a national Public Switched
Telephone Network ("PSTN"), making it possible to provide low-cost telephone
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service to vast unserved areas. Xpress Connection is well-suited to Linkabit
Wireless' target markets because it: (i) is easy to operate; (ii) can be quickly
installed in rugged terrain without special test instruments or tools; (iii)
operates reliably in extreme heat, rain and humidity conditions with no
requirement for periodic maintenance, calibrations or manual adjustments; (iv)
requires limited human intervention as the network is unmanned with the
exception of the central control site; and (v) can operate at low power on a
wide range of locally available power sources, including solar energy.
Linkabit Wireless develops and markets its rural telephony products through
strategic alliances. In September 1995, Linkabit Wireless received an
approximately $10 million contract from PT. Pasifik Satelit Nusantra ("PSN") to
develop the Xpress Connection system for use in a rural telephony network in
Indonesia. In December 1997, Linkabit Wireless received a follow-on order from
PSN for 10,000 additional terminals at a contract value of approximately $27
million. This contract also contains a priced option to purchase up to 10,000
additional terminals, which may be exercised at any time during the contract
term. Linkabit Wireless and PSN are marketing Xpress Connection to other
countries covered by PSN's satellites. In addition, Linkabit Wireless is working
with Alcatel Telespace ("Alcatel") to market Xpress Connection to other
developing regions, including Africa and Latin America.
Linkabit Wireless was selected to participate in a consortium led by
Alcatel, which is designing and developing a satellite-based alternative to
conventional telephone systems. The consortium's Multi-Media Asia ("M(2)A")
product will provide feature-rich telephone, facsimile, and high speed Internet
access to homes and businesses in suburban and rural areas initially throughout
Indonesia and potentially to other developing countries throughout the world.
Linkabit Wireless will develop key portions of the ground terminals, primarily
RF circuits, software and Application Specific Integrated Circuit ("ASIC") chip
sets incorporating technology derived from Titan's Xpress Connection.
Linkabit Wireless is leveraging its experience in rural telephony to
selectively pursue private networking opportunities in developing countries. In
Thailand, Linkabit Wireless is providing elements of a private voice, data and
facsimile communications network for use by The Bank for Agriculture and
Agricultural Cooperatives.
SECURE DEFENSE COMMUNICATIONS PRODUCTS. The U.S. military has sought to
increase its satellite communications capacity to meet increasing user demands
by improving the efficiency of its existing constellation of military
satellites, in which it has a significant investment, as well as by enabling its
communications hardware to use commercial satellites. Despite declining defense
spending, the government is increasing its investment in communications products
which are seen as "force multipliers," making military assets more effective in
a conflict. Additionally, the government is increasingly using open systems that
incorporate commercial off-the-shelf products to minimize the impact of the
shrinking defense budget.
To improve the capacity utilization of its ultra high frequency ("UHF")
satellites, the Joint Chiefs of Staff has mandated that all UHF satellite
communications users have terminals capable of DAMA operations (the "JCS
mandate"). DAMA can increase satellite capacity by a factor of as much as eight
by dynamically allocating channels among all users.
Linkabit Wireless is well-positioned to capitalize on both the JCS mandate
and the trend towards procurement of commercial off-the-shelf products. Linkabit
Wireless is a leader in the development and production of UHF satellite
terminals that incorporate DAMA technology. Linkabit Wireless offers a complete
range of solutions that satisfy the JCS mandate, including add-on modules which
can be incorporated into existing military communications products and
standalone products which operate with existing military products, and new
systems incorporating DAMA technology. Linkabit Wireless' solutions also have
the design flexibility to incorporate off-the-shelf products. Linkabit Wireless
markets directly to all branches of the U.S. military, its allies and
international companies that supply such allies, and also works with strategic
partners such as Motorola Corporation to incorporate its technologies into their
products.
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Linkabit Wireless' leading defense product, the Mini-DAMA terminal, is a
full UHF satellite communications terminal that is designed to provide dual
channel, multi-mode communications for up to 16 simultaneous users. This
terminal condenses the communications capabilities formerly housed in two
six-foot high racks into a single 25-inch high terminal and provides a weight
savings of over 500 pounds and a power savings of approximately 60% to 70% over
prior systems. The Mini-DAMA terminal's small size and reduced power
requirements permit aircraft, submarines and small ships for the first time to
enter critical UHF satellite communications command and control networks and
transmit secure voice and data communications. This terminal employs a modular,
open systems architecture that allows it to incorporate cards for multiple UHF
channels while leaving space for embedded encryption devices and other growth
options.
Linkabit Wireless' goal is to become a preeminent solutions provider to
emerging satellite-based communications markets in developing countries,
international commercial sectors and the U.S. and allied defense markets. To
achieve this goal, Linkabit Wireless intends to: (i) pursue the global rural
telephony market with its Xpress Connection, M(2)A and private network products;
(ii) expand its government business, particularly in secure communications for
defense agencies; (iii) remain on the leading edge of technology; (iv) leverage
these technologies and capabilities into other markets; and (v) expand its
strategic alliances with existing and new partners.
The industries and markets in which Linkabit Wireless competes are highly
competitive, and Titan expects that competition will increase in such markets.
Linkabit Wireless encounters intense competition from numerous other companies,
including large and emerging domestic and international companies, many of which
have far greater financial, engineering, technological, marketing, sales and
distribution and customer service resources than Linkabit Wireless. Some of
Linkabit Wireless' competitors in the secure defense communications market
include GEC (UK), Raytheon Corporation, Rockwell International and ViaSat, Inc.
Some of Linkabit Wireless' commercial competitors include Gilat Satellite
Networks Ltd., Hughes Network Systems, Scientific Atlanta Inc., STM Wireless
Inc. and ViaSat, Inc. Furthermore, the satellite communications industry itself
competes with other technologies such as terrestrial wireless, copper wire and
fiber optic communications systems.
As of December 31, 1997, Linkabit Wireless had a total of 195 employees.
SOFTWARE SYSTEMS SEGMENT
Titan's Software Systems segment ("Titan Software") is a systems integrator
that provides a broad range of information technology ("IT") services and
solutions to commercial and non-defense government clients.
The growing worldwide demand for IT services has been driven by increasing
global competition and the increasing reliance upon IT as a strategic tool.
Organizations face constant pressure to improve the quality of products and
services, respond to shorter technology cycles and reduce the time to market for
new products, strengthen customer service and improve operating efficiencies. In
response, organizations are continuously upgrading their business processes and
improving their information systems. At the same time, rapid advances in
technology have accelerated the transition from centralized to distributed
computing architectures, and from disparate systems to enterprise-wide
integrated systems. The new distributed computing environments require the
integration of multiple operating systems, networking protocols, databases,
standard (commercial off-the-shelf) client/server software products, as well as
custom software applications written in a variety of computer languages.
Rapid technological change, increasing network complexity and Year 2000
compliance have placed a heavy burden on internal IT departments and created a
shortage of trained software engineers. In addition, organizations are
increasingly focusing on core competencies and trimming or limiting the growth
of IT departments. As a result, IT departments often lack the breadth or
diversity of IT skills necessary to design, develop or implement required
technology enhancements. These limited IT resources have
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generated an increasing demand for third party IT service providers to assist in
the development and implementation of IT solutions and to provide management
services.
Titan Software provides system integration services and solutions for
companies with distributed computing environments. Titan Software has assembled
a team of software engineers and technicians with substantial experience in
software engineering for client/server applications, data warehousing, database
management and internet/intranet technologies. Titan Software's services include
systems integration and package software implementation services, business
process re-engineering, data warehousing and database administration,
client/server application development, Year 2000 solutions, intranet/internet
infrastructure design and development, and electronic commerce solutions. Titan
Software's core competencies include: (i) development of client/server
applications utilizing tools and languages such as PowerBuilder, C, Visual C++,
Visual Basic and Oracle's Developer/2000, (ii) networked system expertise, and
(iii) operating system selection, integration and implementation (including
Windows NT and Windows 95, UNIX, VMS, MVS and Novell NetWare). Titan Software
also uses state-of-the-art tools such as Arbor Essbase, Powerplay, Oracle's
Datamart and MicroStrategy DSS Agent to provide powerful value-added data
warehousing solutions, and develops and operates databases, using leading
products such as Oracle, Sybase, MS SQL Server and Informix, running in a
variety of UNIX and Windows NT networked environments.
Titan Software seeks to cross-sell multiple services in its targeted
vertical markets, which include the telecommunications and financial services
industries, as well as non-defense governmental agencies. For example, Titan
Software leverages its expertise in providing Year 2000 solutions into broader
contractual arrangements for IT services with its customers. By assisting its
clients' internal IT departments with transition management, knowledge transfer
and training, Titan Software believes that it achieves client loyalty and
cross-selling opportunities within the client organization.
To enhance its service offerings and expand its customer base, Titan
Software is actively developing relationships with software companies offering
products that require integration. For example, Titan Software and PointCast are
approaching large PointCast users and offering Titan Software's services to
install, integrate and develop custom features, including executive information
systems interfaced with PointCast, to add value to PointCast's push technology.
Titan Software intends to grow primarily through the expansion of services
and solutions to commercial clients in its targeted industries and non-defense
governmental agencies. To achieve this objective, Titan Software intends to: (i)
emphasize IT services involving long-term contracts with recurring revenues;
(ii) broaden the scope of IT services provided to existing customers; (iii)
expand the customer base within targeted industries; (iv) leverage relationships
into additional IT services and applications such as providing value-added
features to prepackaged software products; (v) develop strategic relationships
with major software companies; and (vi) recruit, retain and motivate qualified
key personnel through an entrepreneurial work environment, flexible work
schedules and market-based compensation.
Examples of the services provided by Titan Software for its major customers
include the following:
- GOVERNMENT AGENCY SOLUTION. The Federal Aviation Administration (the
"FAA") had multiple legacy data systems that made it difficult and
inefficient to integrate data needed to support its management and
executive decision making processes. Titan Software was hired to provide a
total IT solution to the FAA's processes. Titan Software initially was
retained to identify areas to improve the flow of data, design
enterprise-wide information architecture and standards for data management
and storage, and establish a national data warehouse for the agency. After
successful completion of these initial projects, Titan Software was asked
to develop an executive information system that combined internet
information push technologies of PointCast with the FAA's national data
warehouse. The system developed and implemented by Titan Software extracts
data from the data warehouse, highlights exceptions from performance
metrics and displays summaries together
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with long-term trends, as well as providing FAA executives a broad array
of information from the Internet filtered for their needs.
- FINANCIAL INSTITUTION SOLUTION. A multi-national bank operating in a
distributed computing environment needed an IT solution to automate the
management of its IT assets. The IT solution had to support the bank's
global operation and integrate with disparate systems. Titan Software
provided a solution that enables the client on a global basis to track IT
assets from acquisition to disposition, including ongoing maintenance
costs. The applications supported by Titan Software included: (i) a
billing/chargeback system; (ii) logistics system enhancement design and
integration with the client's legacy systems through middleware products;
(iii) an invoice processing system with electronic data loading from
vendors; (iv) a system allowing automated workflow from the
processing/approval system to the payment system for IT acquisitions; (v)
an assets management system for tracking licensed software assigned to
individual users or desktops; (vi) a system for IT asset accounting and
valuation with sales tax allocations; and (vii) data warehousing.
- TELECOMMUNICATIONS SOLUTION. A major telecommunications local carrier
needed an advanced operational support system to automate Primary
Interexchange Carrier Customer Account Record Exchange (PIC/CARE)
processing. The system was to have a three-tier client/server architect
and had to co-exist with existing legacy systems. Titan Software designed
and implemented the solution and continues to enhance and maintain the
application under a three-year agreement.
- YEAR 2000 SOLUTION. A major telecommunications long distance carrier
needed significant assistance in modifying complex, mission-critical,
client/server applications to be Year 2000 compliant. The applications run
across mainframe, mid-range and desktop computers and are written in a
variety of languages, running on a variety of operating systems. Titan
Software is applying its web-based "Titan 2000" Year 2000 compliance
process to meet the client's needs.
The IT services industry is highly competitive. Titan Software competes
against a large number of multinational, national, regional and local firms,
including system integrators, custom software developers and service groups of
software vendors. Many of Titan Software's competitors have substantially
greater financial, technical and marketing resources and greater name
recognition than Titan Software. In addition, many of Titan Software's clients
have internal IT resources and may elect to do work in-house instead of using
Titan Software's services. Titan Software believes that the primary competitive
factors for its IT services include technical skills, knowledge of specific
industry operations for which software is integrated or developed, customer
relationships and quality and cost of service.
As of December 31, 1997, Titan Software had a total of 74 employees.
INFORMATION TECHNOLOGIES SEGMENT
Titan's Information Technologies segment ("Titan Information Technologies")
provides information systems solutions to defense-related government customers
with large data management, information manipulation, information fusion,
knowledge-based systems, and communications requirements.
The U.S. government is the largest single buyer of information systems and
services in the world. Federal Sources, Inc., an independent market research
firm specializing in the U.S. federal market, estimates that the U.S. government
has budgeted $26.5 billion in its fiscal year 1997 for information technology
services and products. The U.S. government's focus on information systems
reflects the critical role that those systems play both in national security and
in improving government efficiency. The U.S. military is placing greater
emphasis on increasing productivity while using fewer resources by employing
systems that act as "force multipliers." These are solutions and technologies
that enable fewer personnel and assets and lower levels of military spending to
produce more effective performance. To further this strategy, military agencies
are relying on communications products and systems, such as those that provide
secure and reliable transmission of voice and data in demanding environments.
Furthermore, changes in
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the world political environment, coupled with technological advances, have
created new demands for secure information and data management systems that
operate in distributed client/server networks in support of national defense
requirements.
Since the end of the Cold War, the U.S. government has engaged in fewer, but
larger-scale, procurements to meet its defense-related requirements.
Accordingly, companies must now have greater financial and technical resources
to participate competitively in the bidding process. In an effort to compete
against larger companies, smaller defense companies have responded either by
increased use of teaming agreements among several firms or through strategic
mergers and acquisitions of complementary businesses. This has led to a general
consolidation trend among companies in the defense industry.
Titan Information Technologies focuses on marketing its services to U.S.
government agencies, in particular the intelligence community, NATO and other
U.S. defense partners around the world where Titan Information Technologies has
extensive knowledge of the enterprise's operations, relationships and
information systems needs. In addition, Titan Information Technologies has
expanded its defense systems business capabilities to provide a full range of
systems engineering procurement and technical support for the Command, Control,
Communication, Computing and Intelligence (C4I) initiatives of the Department of
Defense. This expertise assists Titan Information Technologies 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.
Titan Information Technologies' goal is to become a leading provider of
information systems solutions to government customers and to leverage promising
technologies into commercial applications. To achieve this goal, Titan
Information Technologies intends to continue to: (i) build its core business and
technologies both in terms of size and scope; (ii) participate in the
consolidation of the defense industry by pursuing potential acquisitions that
are complementary to its core business and technologies; (iii) leverage its
technologies and expertise into targeted commercial markets; and (iv) improve
efficiencies and reduce costs.
Titan Information Technologies' services include systems analysis and
design, object-oriented software development services and systems integration.
Titan Information Technologies' initial work generally involves a joint analysis
of the customer's enterprise structure and processes and information system
needs. Once this analysis is completed, Titan Information Technologies provides
process re-engineering and designs the technology solution to meet the
customer's needs. This process typically involves software development by Titan
Information Technologies, coupled with integration of off-the-shelf software and
hardware as available. Titan Information Technologies also provides a variety of
professional and technical support services, including electronics and
mechanical design and fabrication, computer-aided drafting and manufacturing
services, technical documentation and prototyping.
Examples of Titan Information Technologies' government information systems
work include the following:
- NATO INFORMATION SYSTEMS. Titan Information Technologies' initial contract
with NATO provided for the design and delivery of an integrated secure
communications and information system for automated support of
intelligence sites throughout Europe. This program evolved from process
development to a system prototype delivered to the NATO user, followed by
a successful deployment to key military locations. Titan Information
Technologies has since won NATO's two follow-on command and control system
contracts and, to date, has been NATO's primary contractor for its command
and control systems.
- BATTLE FORCE TACTICAL TRAINING SYSTEM. The Battle Force Tactical Training
System ("BFTT") provides combat system team training in a realistic
environment across warfare areas on shipboard operational equipment. The
services provided to BFTT by Titan Information Technologies include: (i)
updating and maintaining the configuration database required to support
BFTT; (ii) developing
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and maintaining the BFTT database for web access information; (iii)
maintaining a database to track fleet failures and analyzing the problem
reports to determine whether such problems could have been prevented; (iv)
maintaining the databases that track the status and location of all
documentation; (v) developing the specific AIT Integrated Logistics
Support Delivery Plan for installation in each ship; and (vi) developing
and maintaining the bar coding process for tracking the hardware and
master parts tracking system database.
Titan Information Technologies is one of many companies involved in
providing information systems solutions for a variety of programs for agencies
of the U.S. government and prime contractors for these agencies. Most activities
in which Titan Information Technologies engages are very competitive and require
highly skilled and experienced technical personnel. Many of Titan Information
Technologies' competitors have significantly greater financial and personnel
resources than does Titan Information Technologies. Competitors in this industry
include Booz-Allen Hamilton Inc., Science Applications International
Corporation, Computer Science Corporation, BDM Corporation and Anteon Corp.
Titan Information Technologies believes that the primary competitive factors for
its information systems services include technical skills, experience in the
industry and customer relationships.
As of December 31, 1997, Titan Information Technologies had a total of 779
employees.
MEDICAL STERILIZATION AND FOOD PASTEURIZATION SEGMENT
Titan's Medical Sterilization and Food Pasteurization Segment ("Titan Scan")
utilizes its linear accelerator technology to provide sterilization systems and
services for medical device manufacturers.
Commercial sterilization began in the early 1960s with the sterilization of
medical device products. Government regulations in the U.S. and many other
countries require medical device products to be sterile or to have minimal
microbial levels. Accordingly, sterilization has become an essential step in the
manufacturing process for medical device products in at least 46 countries
throughout the world. In order to provide safe products and to comply with
applicable government regulations, manufacturers generally have either developed
internal sterilization capabilities or have outsourced their sterilization needs
through service contracts.
The market for sterilization systems historically has been dominated by two
technologies--EtO sterilization and Gamma sterilization. EtO sterilization is
accomplished by exposing products to ethylene oxide gas in a lengthy three-step
procedure: (i) preconditioning of the product, involving an increase in
temperature and humidity; (ii) fumigation of the product; and (iii) aeration of
the product, to allow the gas residue to dissipate to acceptable levels. Due to
this three-step procedure, the processing time for EtO sterilization generally
ranges from 7 to 14 days, with turnaround time (measured from intake of the
product to shipment back to the manufacturer) being slightly longer. The length
of this procedure, as well as safety and environmental concerns and regulatory
restrictions related to the use of ethylene oxide gas, has led to a decrease in
EtO sterilization over the past 10 years.
Gamma sterilization is accomplished by exposing a product to Cobalt-60, an
isotope that emits Gamma radiation. The exposure sterilizes the product by
disrupting the DNA structure of microorganisms on or within the product.
Although the processing time for Gamma sterilization is shorter than for EtO
sterilization, it still generally requires from 4 to 8 hours to process the
product. Turnaround time typically ranges from 3 to 7 days due to the staging
required as part of the Gamma sterilization process and the need to locate
service providers in remote areas. In addition, the long exposure of the product
to the Gamma source can result in the product becoming discolored, brittle
and/or deformed. Furthermore, supply problems can exist with Cobalt-60 due to:
(i) the limited number of suppliers of Cobalt-60; (ii) the restrictions on
transporting radioactive materials; and (iii) the time-consuming "re-sourcing"
of Cobalt-60 periodically required due to its decaying nature.
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Titan Scan has developed a proprietary electronic beam sterilization process
that utilizes linear accelerator technology. Like Gamma sterilization, Titan
Scan's E-Beam sterilization process disrupts the DNA structure of microorganisms
on or within the product rendering them sterile. The fundamental difference
between the two processes is that Gamma sterilization uses Cobalt-60 while
E-Beam sterilization uses electrons from a commercial electrical source.
Titan Scan believes its E-Beam sterilization system (the "Surebeam") offers
a reliable, environmentally acceptable and efficient alternative to both Gamma
sterilization and EtO sterilization. The primary advantages of the Surebeam
include the following:
- SIGNIFICANTLY SHORTER TURNAROUND TIME/REDUCED INVENTORY CARRYING
COSTS. The processing time for the Surebeam is 5 to 7 minutes, rather than
the hours or days required for Gamma sterilization and EtO sterilization.
This results in a shorter turnaround time and requires less product to be
held in inventory by the customer, resulting in potentially significant
cost savings for the customer.
- REDUCED DEGRADATION OF PRODUCT. Because of the significantly shorter
exposure time to the irradiation source, the Surebeam process reduces the
oxidation effects to products and thus reduces product and packaging
degradation.
- SAFETY. Unlike EtO sterilization, the Surebeam does not utilize
potentially dangerous chemicals or gases in the facility, nor is there the
potential that chemicals or gases might remain on or in the product. In
addition, the Surebeam is run from the normal electrical power
distribution system, unlike Gamma sterilization which uses Cobalt-60 as
its source. The Surebeam can be deactivated by simply turning off the
power in the event of a problem.
- LACK OF SUPPLY PROBLEMS. Because the Surebeam uses electronic beams rather
than Cobalt-60, it does not encounter the supply problems associated with
Gamma sterilization.
- TURNKEY SYSTEM CAPABILITIES. The Surebeam is more suitable for in-house
manufacturing than either Gamma or EtO systems due to the safety concerns
and operational constraints associated with these other systems. In
addition, the Surebeam on-site system is scaleable to meet the customer's
current and future needs. In-house sterilization eliminates the customer's
transportation costs and further reduces the customer's inventory carrying
costs.
POTENTIAL MARKETS. Although contaminated food is one of the most widespread
health problems in the world, lack of regulatory approval and consumer
acceptance historically has limited the development of the market for food
pasteurization. Estimates from the Centers for Disease Control and Prevention in
Washington, D.C., suggest that up to 33 million people in the United States are
stricken with food-borne diseases each year. In addition, nearly 200 people in
the United States die each week from illnesses they contract from food. Although
the recent outbreaks of E. coli and salmonella have increased public interest in
food pasteurization, the potential market for food pasteurization remains
largely undeveloped. Titan believes the absence of a market for food
pasteurization historically has been due in part to the lack of FDA approval for
the pasteurization of most foods, including red meat. On December 3, 1997,
however, the FDA approved irradiation of red meat. The FDA also found that
irradiation of meat, at its recommended doses, affects neither the food's taste
nor its nutritional value in any detectable way. The meat pasteurization process
is still subject to final approval by the USDA, which approval the USDA expects
to provide sometime in 1998. Despite the FDA's approval, however, the
development of this potential market is still dependent on broad consumer
acceptance of pasteurized foods, which may not occur. Although Titan Scan, until
recently, has focused its efforts in the area of medical device products, Titan
Scan believes it is well-positioned to take advantage of the food pasteurization
market if it develops.
Titan Scan's goal is to become the leading provider of medical device
sterilization and food pasteurization systems. To achieve this goal, Titan Scan
intends to: (i) increase its focus on selling on-site systems; (ii) continue to
leverage its expertise in medical device sterilization into the food
pasteurization market; and (iii) enter into additional alliances to support its
marketing efforts in food pasteurization.
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Titan Scan can meet its customers needs in two principal ways: (i) by
developing and installing on-site, turnkey sterilization and pasteurization
systems for use in either in-line or end-of-line applications and (ii) by
providing contract sterilization services through its owner-operated facilities
in Denver and San Diego.
Titan Scan believes that its on-site system is the only small, low-cost,
turnkey system currently available for customers' in-house manufacturing use. In
February 1997, Titan Scan agreed to install its first turnkey on-site
sterilization system at Guidant Corporation, one of the leading medical device
manufacturers in the United States. Titan Scan also provides contract
sterilization services through its facilities in Denver and San Diego. Titan
Scan has been providing such contract services since 1993.
The market for sterilization services is intensely competitive and is
characterized by significant price competition. Titan Scan's market is
fragmented as a result of geographical limitations on the transportation of
products for sterilization, multiple technologies and the mix of in-house and
contract sterilization facilities. Although Titan Scan believes that it is the
only provider of small, low-cost, turnkey systems for in-house manufacturers,
Titan Scan currently faces competition from several providers of contract Gamma
sterilization services, several providers of contract E-Beam sterilization
services and a significantly larger number of providers of contract EtO
sterilization services. Certain of Titan Scan's competitors and potential
competitors have substantially greater financial, marketing, distribution,
technical and other resources than Titan Scan, or offer multiple sterilization
technologies or operate multiple sterilization facilities at geographically
advantageous sites, which may enable them to address a broader range of the
sterilization requirements of individual customers.
As of December 31, 1997, Titan Scan had a total of 28 employees with respect
to its medical sterilization business.
EMERGING TECHNOLOGIES AND BUSINESSES SEGMENT
The Emerging Technologies and Businesses segment consists of new
technologies and early-stage businesses, including minority-owned businesses,
utilizing technologies originally developed by Titan. In addition to its
minority-owned businesses, the Emerging Technologies and Businesses segment owns
patents relating to technologies derived from research and development
activities of Titan. Titan intends to utilize both public and private
investments as the primary funding source for the continued development of its
technologies. Examples of such technologies and businesses of Titan are as
follows:
SERVNOW! NETTECHNOLOGIES, INC. ServNOW! NetTechnologies, Inc. is a
minority-owned company of Titan that develops software to enable internet and
intranet providers to reduce server blockage and scale to high-end complex
environments in a cost-effective manner. ServNOW! products are still in the
development stage.
TOMOTHERAPEUTICS, INC. TomoTherapeutics, Inc. is a majority-owned company
of Titan that is developing an x-ray needle system designed to rapidly generate
x-rays at a local level in the treatment of tumors and other abnormal tissues.
This system is still in the development stage.
The Emerging Technologies and Businesses segment is attempting to
commercialize new products in relatively new markets. The success of these
technologies and businesses will depend on many factors, including the ability
of Titan or its partners to raise the capital necessary to fund development, to
attract, retain and motivate key personnel and to develop markets for new
products. There can be no assurance that Titan or its partners will be able to
develop such products or that Titan will be able to penetrate its target markets
with such products. If Titan fails to develop its products or if markets for
Titan's products fail to materialize or grow more slowly than anticipated, it
could have a material adverse effect on the business, financial condition and
results of operation of the Emerging Technologies and Businesses segment.
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GOVERNMENT CONTRACTS
A substantial portion of Titan's revenues are dependent upon continued
funding of U.S. and allied government agencies as well as continued funding of
the programs targeted by Titan's businesses. For the years ended December 31,
1995 and 1996, U.S. government business represented approximately 61% and 75% of
Titan's revenues, respectively. U.S. defense budgets and the budgets of other
government agencies have been declining in real terms since the mid-1980's, and
may continue to do so in the future. Any significant reductions in the funding
of U.S government agencies or in the funding areas targeted by Titan's
businesses could materially and adversely affect Titan's business, results of
operations and financial condition.
Titan's direct contracts with the U.S. government and its subcontracts with
prime contractors that have direct contracts with the U.S. government are
subject to termination for the convenience of the government, and termination,
reduction or modification in the event of any change in the government's
requirements or budgetary constraints. When Titan subcontracts with prime
contractors, such subcontracts are also subject to the ability of the prime
contractor to perform its obligations under its prime contract. Titan often has
little or no control over the resources allocated by the prime contractor to the
prime contract, and any failure by the prime contractor to perform its
obligations under the prime contract could result in Titan's loss of its
subcontract. In addition, Titan's contract-related costs and fees, including
allocated indirect costs, are subject to audits and adjustments by negotiation
between Titan and the U.S. government. As part of the audit process, the
government audit agency verifies that all charges made by a contractor against a
contract are legitimate and appropriate. Audits may result in recalculation of
contract revenues and non-reimbursement of some contract costs and fees. Any
audits of Titan's contract-related costs and fees could result in material
adjustments to Titan's revenues. In addition, U.S. 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. Any failure of such agencies to
continue to fund such contracts could have a material adverse effect on Titan's
business, results of operations and financial condition.
RAW MATERIALS
Titan 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 Titan is to apply for patents and other appropriate statutory
protection when it develops new or improved technology. Titan 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, Titan relies on the laws of unfair competition and trade secrets to
protect its unpatented proprietary rights. Titan 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 Titan for its products and services have been registered with the U.S. Patent
and Trademark Office.
BACKLOG
Contracts undertaken by Titan 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 Titan's
backlog. Although backlog represents only business which is considered to be
firm, there can be no
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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 Titan to all or a portion of its costs incurred and
potential fees.
Titan's commercial backlog represents contracts primarily for services. As
of September 30, 1997 by segment, the commercial backlog is approximately $3.7
million, $1.6 million, $0, $7.9 million and $2.9 million for Communications
Systems, Software Systems, Information Technologies, Medical Sterilization and
Food Pasteurization, and Emerging Technologies and Businesses, respectively.
Many of Titan'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 Titan 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 Titan's customers
incrementally allot funding to existing contracts, whether Titan 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 Titan.
"Backlog" is the total of the commercial and government funded and unfunded
backlog.
Titan's backlog consists of the following approximate amounts as of the
following date:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
BACKLOG 1997 1996
- ------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Commercial backlog........................................... $ 16,130,100 $ 47,113,000
U.S. government funded backlog............................... 39,522,000 49,256,000
U.S. government unfunded backlog............................. 212,064,000 98,881,000
-------------- --------------
$ 267,716,000 $ 195,250,000
-------------- --------------
-------------- --------------
</TABLE>
In addition to the backlog described above, at December 31, 1997, Titan had
remaining priced options of over $56 million from the U.S. Navy for full-scale
production of its Mini-DAMA satellite communications terminal. Titan 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. Titan'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.
Titan expects to realize approximately 70% of its 1997 backlog by the end of
1998.
RESEARCH AND DEVELOPMENT
Titan 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 $6,917,000,
$7,658,000 and $15,545,000 for the nine months ended September 30, 1997 and for
the years ended December 31, 1996 and 1995, respectively. These expenditures
included company funded research and development of $4,997,000, $3,152,000 and
$4,782,000 and customer sponsored research and development of $1,920,000,
$4,506,000 and $10,763,000, for the nine months ended September 30, 1997, and
for the years ended December 31, 1996 and 1995, respectively. The majority of
Titan's customer sponsored research and development activity is funded under
contracts with the U.S. government.
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EMPLOYEES
At the end of fiscal 1997, Titan employed approximately 1,192 employees,
predominantly located in the United States.
PROPERTIES
Titans's operations occupy approximately 568,051 square feet of space
located throughout the United States. The large majority of the space is office
space. Substantially all of Titan's facilities are leased. Titan's principal
executive offices are located at 3033 Science Park Road, San Diego, California
92121, in a 161,119 square foot facility, under a lease agreement that expires
in July 2007.
It is management's policy to maintain Titan'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 Titan's present needs.
The locations of the principal operating facilities of Titan and its
consolidated subsidiaries at the end of 1997 were as follows:
COMMUNICATIONS SYSTEMS
San Diego, California
INFORMATION TECHNOLOGIES
Reston, Virginia
Norfolk, Virginia
Richmond, Virginia
Hanover, Maryland
Vallejo, California
San Diego, California
Heathrow, Florida
Denver, Colorado
Westborough, Massachusetts
Akron, Ohio
Huntsville, Alabama
Niantic, Connecticut
Middleton, Rhode Island
National City, California
Port Hueneme, California
Gales Ferry, Connecticut
Albuquerque, New Mexico
Chatsworth, California
Princeton, New Jersey
SOFTWARE SYSTEMS
San Diego, California
Reston, Virginia
Washington, D.C.
Colorado Springs, Colorado
Tampa, Florida
MEDICAL STERILIZATION
AND FOOD PASTEURIZATION
San Diego, California
Denver, Colorado
San Leandro, California
Dublin, California
EMERGING TECHNOLOGIES
AND BUSINESSES
Bozeman, Montana
Tempe, Arizona
Phoenix, Arizona
Albuquerque, New Mexico
San Leandro, California
Dublin, California
LEGAL PROCEEDINGS
In the ordinary course of business, defense contractors are subject to many
levels of audit and investigation by various government agencies. Further, Titan
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 Titan.
Titan 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. Titan intends to vigorously 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 Titan.
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TITAN MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
OPERATING RESULTS
GENERAL
In the fourth quarter of 1997, Titan realigned certain operations within its
segments and added a fifth segment to better position these operations for
strategic transactions pursuant to Titan's corporate strategy. However, the
discussion below with respect to Titan's segments, as well as the other
financial data contained in this Prospectus/Joint Proxy Statement, do not
reflect this 1997 realignment.
As discussed in Note 15 to the accompanying financial statements, on April
11, 1997 Titans' Board of Directors adopted a plan to divest Titan's Broadband
Communications business. The results of Broadband have been accounted for as a
discontinued operation, and all prior year financial statements and related
disclosures have been restated to reflect this discontinuance.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues for the third quarter of 1997 were $41,973, an increase of 21% from
revenues of $34,588 in the third quarter of 1996. Revenues for the nine months
ended September 30 were $127,212 and $94,645 in 1997 and 1996, respectively.
Revenue increases in both the third quarter and nine months were experienced in
the Communications Systems, Defense Systems, and Emerging Technologies segments.
Titan reported net income of $1,537 and $3,030 for the third quarter and nine
months of 1997 compared to net losses of $1,969 and $3,580 for the third quarter
and nine months of 1996. Included in the nine months of 1997 is a loss from
discontinued operation of $343, compared to a loss from discontinued operation
of $1,173 and $3,414 for the third quarter and nine months of 1996,
respectively. Titan deferred losses from the discontinued operation of $3,033
and $6,324 in the third quarter and nine months ended September 30, 1997,
respectively, which primarily represented amortization costs of intangible
assets, and to a lesser degree, wind-down costs of that business. Income from
continuing operations in the third quarter and nine months of 1997 was $1,537
and $3,373, compared to losses of $796 and $166 in the third quarter and nine
months of 1996. The improvement in earnings was primarily due to the impact of
the increased revenues noted above as well as the impact of cost reduction
measures taken by Titan.
Selling, general and administrative expense ("SG&A") as a percentage of
revenue decreased from 17% in the third quarter of 1996 to 11% for the same
period in 1997, and from 17% in the nine months of 1996 to 12% for the same
period in 1997. These decreases were due primarily to the impact of cost
reductions measures taken across all business segments. Research and development
costs increased overall from $1,055 in the third quarter of 1996 to $1,740 for
the same period in 1997, and from $2,190 for the nine months of 1996 to $4,997
for the same period in 1997, reflecting increased efforts in Titan's commercial
and defense satellite communications businesses, specifically related to costs
incurred to obtain certification on Titan's compact satellite modem.
Net interest expense increased $639 and $2,014 in the third quarter and nine
months ended September 30, 1997, respectively, compared to the comparable
periods of 1996, primarily from interest related to the convertible subordinated
debentures that Titan issued in November 1996.
The income tax provision is a 35% effective rate in 1997 compared to a 39%
effective rate in 1996. These effective rates approximate the expected combined
federal and state statutory rates, less expected credits, primarily R&D credits.
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BUSINESS SEGMENTS
Revenues for the Communications Systems segment increased $9,272 from $2,193
in the nine months ended September 30, 1996 to $11,465 in the nine months ended
September 30, 1997, due to increased shipments made on Titan's contract for a
rural telephony system in Indonesia. Segment operating loss decreased $1,149
from $1,492 in the nine months ended September 30, 1996 to $343 in the nine
months ended September 30, 1997, principally due to the increased sales volume.
The Software Systems segment revenues decreased $1,780 from $13,986 in the
nine months ended September 30, 1996 to $12,206 in the nine months ended
September 30, 1997, principally due to a reduction of revenues from a major
telecommunications customer, partially offset by growth in other custom software
business. Operating income improved $2,964 from an operating loss of $344 in the
nine months ended September 30, 1996 to operating income of $2,620 in the nine
months ended September 30, 1997, resulting from the impact of cost reduction
measures taken by Titan.
Defense Systems revenues increased $21,851 from $62,169 in the nine months
ended September 30, 1996 to $84,020 in the nine months ended September 30, 1997.
Increased revenues from Eldyne, Unidyne and DCS of $23,490, and increased 1997
revenues related to the Mini-DAMA satellite terminal production contract as well
as certain non-recurring credits which were partially offset by decreased
revenues from the wind-down of the work subcontracted to the buyer of the
Applications Group (sold in April 1994) and the impact of the sale of the
Electronics division in July 1996. Segment operating income increased $3,332
from $6,383 in the nine months ended September 30, 1996 to $9,715 in the nine
months ended September 30, 1997. This increase was due to the impact of the
non-recurring credits and the increase in revenues noted above.
The Emerging Technologies segment revenues increased $3,224 from $16,297 in
the nine months ended September 30, 1996 to $19,521 in the nine months ended
September 30, 1997, due primarily to revenues on Titan's contract to provide a
turnkey medical device sterilization system as well as revenues on a contract to
build pulse generator systems. Segment operating income increased $719 from an
operating loss of $56 in the nine months ended September 30, 1996 to operating
income of $663 in the nine months ended September 30, 1997, principally due to
the increased sales volume.
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The table below sets forth Titan's consolidated operating results for each
of the three years ended December 31, 1996 (All three years have been restated
to reflect the discontinued operation of Broadband. See Note 15):
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues................................................. $ 135,484 $ 131,535 $ 136,206
Operating profit (loss).................................. 3,361 (1,358) 11,420
Interest expense, net.................................... 2,961 1,059 632
Income (loss) from continuing operations, before income
taxes................................................... 400 (2,417) 10,788
Income tax provision (benefit)........................... 136 (582) 3,657
Loss from discontinued operation, net.................... (3,642) (1,972) (1,178)
Net income (loss)........................................ (3,378) (3,807) 5,953
</TABLE>
Titan's consolidated revenues were $135,484, $131,535 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
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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 $7,499, $10,373 and $8,360
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 Titan'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 Titan'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 Titan in November 1996. Borrowings from Titan'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 Titan'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
As noted above, the following discussion does not reflect a realignment of
segments made by Titan in the fourth quarter of 1997.
COMMUNICATIONS SYSTEMS: The Communications Systems segment develops and
sells satellite earth station networks and related systems which address the
demand for telephony services.
Revenues in this segment were $3,647, $5,058 and $6,319 in 1996, 1995 and
1994, respectively. The composition of the revenues was significantly different
over the three year period. 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 $4,546 and $2,524 in 1995 and 1994, respectively. The decrease in
pro forma revenues to $3,647 in 1996 from $4,546 in 1995 was principally due to
delays in shipments on Titan's rural telephony contract.
The segment's operating loss was $2,323 in 1996 compared to $1,891 in 1995
and $6,142 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 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.
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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 Titan'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 Titan'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. Titan'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 Titan'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
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relation to Titan'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
NINE MONTHS ENDED SEPTEMBER 30, 1997
During the nine months ended September 30, 1997, Titan used $6.4 million
cash for continuing operations. Titan's increased investment in its government
and commercial satellite businesses, which reflects the growth in these
businesses, primarily resulted from an increase in receivables and inventories
of $7,169 and $1,348, respectively. Other significant cash uses included funding
requirements for certain accrued compensation obligations of $2,099 and funding
of other liabilities which included approximately $1,500 in payments of certain
accrued acquisition costs of Eldyne, Unidyne and DCS. Cash was provided
primarily by the Company's line of credit, which provided $14,650, and by the
timing of vendor payments, which provided $1,622.
In May 1997, Titan completed an agreement with Sumitomo Bank of California
and Imperial Bank for a $24,000 line of credit maturing May 31, 1998, amending
and replacing the previous $14,000 line with Sumitomo Bank, and replacing the
existing line of credit with Crestar Bank. Titan has the option to borrow at a
bank prime rate or at LIBOR plus 2%. The agreement contains, among other
financial covenants, provisions which require Titan to have annual net income,
as defined, prohibits two consecutive quarterly losses in aggregate of greater
than $500, and contains other financial covenants which require Titan to
maintain stipulated levels of net worth and minimum interest coverage, and fixed
charge coverage and quick ratios. Under the agreement, Titan and its wholly
owned subsidiaries, Titan Information Systems Corporation ("TIS"), Eldyne and
Unidyne, granted the banks a security interest in substantially all of their
non-real property assets, including accounts receivable, inventory, equipment
and patents, and Titan pledged the stock of TIS, Eldyne and Unidyne to the
banks.
At September 30, 1997, borrowings outstanding under this agreement were
$14,650, at a weighted average interest rate of 7.92%. Titan also had
commitments under letters of credit under this agreement of $1,177, which
reduced availability under the line of credit to $8,173. On May 23, 1997, Titan
repaid in full the line of credit agreement and equipment note with Crestar
Bank. A mortgage note with a balance of $1,228 at September 30, 1997, remains
outstanding with Crestar Bank.
At September 30, 1997 Titan was in compliance with all financial covenants
under its various debt agreements.
YEAR ENDED DECEMBER 31, 1996
During 1996, Titan used $8,696 cash for operating requirements. Significant
cash uses included an increase in inventories of $4,769 principally related to
commercial rural telephony products and to government satellite communications,
funding requirements for certain accrued compensation obligations of $2,599,
funding of $4,099 of restructuring activities, and funding of $8,585 for Titan's
discontinued operation. 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 Titan's revolving lines of credit, of $9,739, the refinancing
of Titan's Denver Scan facility for $1,773, and proceeds from the sale of
Titan's Electronics division of $2,492.
In November 1996, Titan 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 Titan'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 Titan's
$14,000 bank line of credit, and Titan had available cash of $2,052. Titan 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
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date of the line of credit is May 31, 1997. Subsequent to December 31, 1996,
Titan received a commitment from the bank to renew the facility through May 31,
1998.
In connection with Titan's acquisition of Eldyne, Unidyne and DCS in May
1996, Titan's Eldyne and Unidyne subsidiaries assumed and renegotiated a
separate credit agreement with a lender with 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. Titan 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. Titan has guaranteed up to
$2,500 of indebtedness under this line of credit. The maturity date of this line
of credit is May 31, 1997. Titan 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, Titan plans to continue aggressive
sales and marketing efforts. Titan 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 Titan will be successful in obtaining outside funding,
Titan 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, Titan has taken several actions in
early 1997 to reduce operating costs in the Broadband Communications business.
As noted above, in April 1997 Titan's Board of Directors adopted a plan to
divest Titan's 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.
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OWNERSHIP OF TITAN'S SECURITIES
The following table sets forth certain information as to the number of
shares beneficially owned as of January 30, 1998 (a) by each person who is known
to Titan to own beneficially 5% or more of the outstanding shares of any class
of its voting stock, (b) by each present Titan director, and each of the Named
Executive Officers (as defined below), and (c) by all Titan officers and
directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
IDENTITY OF OWNER OR GROUP (1) TITLE OF CLASS OWNERSHIP CLASS
- ------------------------------------------------------------------ ----------------- ----------- -------------
<S> <C> <C> <C>
Charles R. Allen.................................................. Common Stock 31,217(2) *
Joseph F. Caligiuri............................................... Common Stock 27,250(2) *
Daniel J. Fink.................................................... Common Stock 28,600(2) *
Robert E. La Blanc................................................ Common Stock 16,750(2) *
Thomas G. Pownall................................................. Common Stock 29,457(2) *
Gene W. Ray....................................................... Common Stock 519,807(2) 3.11%
J. S. Webb........................................................ Common Stock 111,783(2) *
Louis L. Fowler................................................... Common Stock 29,612(2) *
Ronald B. Gorda................................................... Common Stock 112,055(2) *
Cornelius L. Hensel............................................... Common Stock 53,295 (3) *
Frederick L. Judge................................................ Common Stock 66,244(2) *
All Directors and Officers as a Group (14 Persons)................ Common Stock 1,072,847(2) 6.41%
</TABLE>
- ------------------------
* Less than 1%
(1) The address of each owner is c/o The Titan Corporation, 3033 Science Park
Road, San Diego, California 92121.
(2) Including (A) 16,250; 11,250; 16,250; 8,750; 10,000; 230,000; 40,000;
95,000; 51,250; 50,000, 13,500; and 570,875 shares subject to outstanding
options held by Messrs. Allen, Caligiuri, Fink, La Blanc, Pownall, Ray,
Webb, Gorda, Hensel, Judge, Fowler and all directors and officers as a
group, respectively, which are currently exercisable or may become
exercisable within 60 days after January 30, 1998; (B) 21,428 and 14,285
shares that may be obtained upon conversion of convertible debentures held
by Messrs. Ray and Judge, respectively; and (C) 81,885; 24,886; 14,555;
1,945; 1,957; 15,999; and 153,980 shares held by the trustees of Titan's
401(k) Retirement Plan and Employee Stock Ownership Plan for the accounts of
Messrs. Ray, Webb, Gorda, Hensel, Judge, Fowler and all directors and
officers as a group, respectively.
(3) Mr. Hensel resigned from Titan in January 1998.
Except as otherwise indicated in the above notes, shares shown as
beneficially owned are those as to which the named person possesses sole voting
and investment power. However, under California law, personal property owned by
a married person may be community property that either spouse may manage and
control, and Titan has no information as to whether any shares shown in this
table are subject to California community property law.
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TITAN MANAGEMENT AND EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of Titan and their respective positions
with Titan and ages are set forth in the following table. Biographical
information on each executive officer who is not a director is set forth
following the table. There are no family relationships between any director or
executive officer and other director or executive officer of Titan. Executive
officers serve at the discretion of the Titan Board.
<TABLE>
<CAPTION>
YEAR IN WHICH
HE/SHE BECAME
OFFICER OR
NAME POSITION AGE DIRECTOR
- ---------------------------------- ------------------------------------------------------- --- -----------------
<S> <C> <C> <C>
J. S. Webb........................ Chairman of the Board of Directors 78 1984
Gene W. Ray....................... President and Chief Executive Officer 59 1985
Eric DeMarco...................... Senior Vice President and Chief Financial Officer 34 1997
Louis L. Fowler................... Vice President and Assistant Secretary 59 1989
Ronald B. Gorda................... Senior Vice President 42 1994
Frederick L. Judge................ Senior Vice President 64 1994
Deanna H. Petersen................ Controller 30 1996
Charles R. Allen.................. Director 72 1989
Joseph F. Caligiuri............... Director 70 1984
Daniel J. Fink.................... Director 71 1985
Robert E. La Blanc................ Director 64 1996
Thomas G. Pownall................. Director 76 1992
</TABLE>
The term of office of each executive officer is until his or her respective
successor is elected and has been qualified, or until his or her death,
resignation or removal. Officers are elected by the Titan Board annually at its
first meeting following the Titan Annual Meeting of Stockholders.
Mr. Webb served as Vice Chairman of the Board of TRW, Inc., a diversified
manufacturing company, from June 1978 until December 1981 and President of
TRW-Fujitsu Company, a joint venture formed to market Fujitsu's computer
projects in the United States, from May 1980 until his retirement in December
1981.
Dr. Ray was a co-founder of Titan Systems, Inc., the parent of which merged
into Titan in 1985. He served as a director, Chief Executive Officer and
President of Titan Systems from its inception in 1981 until the merger. He has
been President and Chief Executive Officer of Titan since the merger.
Mr. DeMarco has been Senior Vice President and Chief Financial Officer of
Titan since January 1997. From June 1986 to January 1997 he was employed by
Arthur Andersen LLP, most recently as Senior Manager.
Mr. Fowler has been Vice President since September 1989. From March 1987 to
September 1989 he served as Vice President of Titan Systems, Inc. Prior thereto,
Mr. Fowler was Director of Contracts of Titan Systems, Inc. from March 1985 to
March 1987.
Mr. Gorda has been Senior Vice President since February 1995 and President
of the Linkabit division of Titan since June 1993. From May 1994 to February
1995 he was a Vice President at Titan. From August 1991 to June 1993 he served
as Senior Vice President of the SATCOM Systems business unit of the Linkabit
division. Prior thereto, he was Senior Program Manager of the SATCOM Command and
Control division of Rockwell International from April 1986 to July 1991.
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<PAGE>
Mr. Judge has been Senior Vice President since February 1994. From January
1991 to January 1994, Mr. Judge was Senior Vice President and Chief Operating
Officer of Hughes Communications, Inc., a unit of GM Hughes Electronics Corp.
From January 1988 to January 1991, he served as Senior Vice President of Hughes
Communications, Inc.
Ms. Petersen has been Controller since December 1996. From September 1993 to
December 1996, Ms. Petersen was Corporate Manager of Operations Analysis at
Titan. From January 1990 to September 1993 she was a Senior Auditor at Arthur
Andersen LLP.
Mr. Allen was employed by TRW, Inc., a diversified manufacturing company,
from 1955 to 1986, where he held a number of executive management positions,
including director from 1972 to 1986 and Executive Vice President and Chief
Financial Officer from 1977 to 1986.
Mr. Caligiuri was employed by Litton Industries, Inc., a diversified
manufacturing and services company, from 1969 to 1993, where he held a number of
executive management positions, including Executive Vice President from
September 1981 to April 1993.
Mr. Fink was employed by General Electric Co. from 1967 to 1982, where he
held a number of executive management positions, including Senior Vice President
of Corporate Planning and Development, after which he founded and has been the
President of D. J. Fink Associates, Inc., a management consulting firm.
Mr. La Blanc was a General Partner with Salomon Brothers, an investment
banking firm, from 1969 to 1979. From 1979 to 1981 he was Vice Chairman of
Continental Telecom, Inc., after which he founded and has been the President of
Robert E. La Blanc Associates, Inc., a financial and technical consulting firm.
Mr. Pownall was employed by Martin Marietta Corporation, a diversified
manufacturing and services company, from 1963 to 1992 where he held a number of
executive management positions, including director from September 1971 to April
1992, Chief Executive Officer from April 1982 to April 1988, and Chairman of the
Board of Directors from January 1983 to April 1988.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Titan Board has, among others, a compensation, stock option and pension
committee. The committee is comprised of Messrs. Pownall (Chairman), Allen,
Caligiuri, Fink and La Blanc. No member of the Committee is a former or current
officer or employee of Titan or any of its subsidiaries.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ended December 31, 1997,
1996 and 1995, the cash compensation paid by Titan and its subsidiaries, as well
as certain other compensation paid or accrued for those years, to each of the
most highly compensated executive officers of Titan in 1997 (the "Named
Executive Officers") in all capacities in which they served.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
AWARDS
-------------------- ------------- ALL OTHER
SALARY BONUS OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(A) ($)(B) (#) ($)(D)
- ----------------------------------------------------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Gene W. Ray.......................................... 1997 337,500 (C) 150,000 107,572
President and Chief 1996 337,500 0 150,000 44,311
Executive Officer 1995 328,462 0 50,000 43,886
Louis L. Fowler...................................... 1997 146,000 (C) 25,000 36,284
Vice President 1996 144,519 46,000 25,000 19,364
1995 138,039 0 5,000 17,322
Ronald B. Gorda...................................... 1997 196,490 (C) 60,000 38,845
Senior Vice President 1996 183,111 12,951 60,000 25,748
1995 173,563 176,000 25,000 25,638
Cornelius L. Hensel (E).............................. 1997 197,138 (C) 60,000 34,187
Senior Vice President 1996 189,013 19,667 60,000 25,428
1995 175,219 85,200 55,000 21,918
Frederick L. Judge................................... 1997 204,326 (C) 0 19,181
Senior Vice President 1996 234,001 0 0 31,857
1995 232,271 0 0 32,773
</TABLE>
- ------------------------
(A) Amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred at the election of those
officers.
(B) Amounts shown include bonus cash compensation earned by executive officers
for each fiscal year whether received in the fiscal year in which it was
earned or in the subsequent fiscal year.
(C) Bonus cash compensation for the fiscal year 1997 to be paid in 1998 has not
yet been awarded. Determination by the Compensation Committee of the Titan
Board will take place in February 1998.
(D) Amounts shown consist of (i) Titan's matching contribution to its 401(k)
Retirement Plan; (ii) Titan's matching contribution to its Supplemental
Retirement Plan for Key Executives; (iii) Titan's contribution to its
Employee Stock Ownership Plan and (iv) interest earned in Titan's
Supplemental Retirement Plan for Key Executives that exceeded 120% of the
applicable federal long-term rate with compounding (as prescribed under
Section 1274(d) of the Internal Revenue Code). Amounts shown for fiscal year
1997 for each Named Executive Officer consist of the following elements of
compensation: Dr. Ray: (i) $7,500; (ii) $33,000; (iii) $1,612; and (iv)
$65,460; Mr. Fowler: (i) $7,300; (ii) $14,000;
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(iii) $618; and (iv) $14,366; Mr. Gorda: (i) $7,500; (ii) $18,502; (iii)
$152; and (iv) $12,691; Mr. Hensel: (i) $7,500; (ii) $18,402; (iii) $0; and
(iv) $8,285; Mr. Judge: (i) $7,500; (ii) $0; (iii) $0; and (iv) $11,681.
(E) Mr. Hensel resigned from Titan in January 1998.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options made during fiscal 1997 under Titan's long-term incentive program to the
Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR (A)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION
GRANTED TO FOR
OPTIONS EMPLOYEES EXERCISE OPTION TERM (F)
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (B) YEAR (C) ($/SH)(D) DATE (E) 5% ($) 10% ($)
- ------------------------------------------- --------- ----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gene W. Ray................................ 150,000 25.91% 5.625 7/16/07 530,630 1,344,720
Louis L. Fowler............................ 25,000 4.32% 5.625 7/16/07 88,438 224,120
Ronald B. Gorda............................ 60,000 10.36% 5.625 7/16/07 212,252 537,888
Cornelius L. Hensel........................ 60,000 10.36% 5.625 7/16/07 212,252 537,888
Frederick L. Judge......................... -- -- -- -- -- --
</TABLE>
- ------------------------
(A) No SARs were granted to any of the Named Executive Officers during the last
fiscal year.
(B) Options granted in 1997 are exercisable starting 12 months after grant date,
with 25% of the options becoming exercisable at that time and with an
additional 25% of the options becoming exercisable on each successive
anniversary date, with full vesting occurring on the fourth anniversary
date.
(C) In 1997, employees of Titan received stock options covering a total of
579,000 shares.
(D) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares or by offset of the underlying
shares, subject to certain conditions.
(E) The options were granted for a term of 10 years, subject to earlier
termination in certain events related to termination of employment.
(F) Present value was calculated using an assumed annual compounded growth over
the term of the option of 5% and 10%, respectively. Use of this model should
not be viewed in any way as a forecast of the future performance of Titan's
stock, which will be determined by future events and unknown factors.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of the fiscal year.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR,
AND FY-END OPTION VALUE (A)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES IN-THE-
ACQUIRED NUMBER OF UNEXERCISED MONEY OPTIONS AT FY-END
ON VALUE OPTIONS AT FY-END (#) ($)(C)
EXERCISE REALIZED -------------------------- --------------------------
NAME (#) ($)(B) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gene W. Ray........................... -- -- 230,000 300,000 636,040 520,450
Louis L. Fowler....................... -- -- 13,500 47,500 27,881 85,023
Ronald B. Gorda....................... -- -- 95,000 130,000 233,948 223,653
Cornelius L. Hensel................... -- -- 42,500 132,500 60,798 216,468
Frederick L. Judge.................... -- -- 37,500 12,500 128,925 42,975
</TABLE>
- ------------------------
(A) No SARs were owned or exercised by any of the Named Executive Officers
during the last fiscal year.
(B) Market value of underlying securities on date of exercise, minus the
exercise or base price.
(C) Market value of underlying securities at year-end, minus the exercise or
base price.
AGREEMENTS WITH EXECUTIVE OFFICERS
Titan has entered into agreements with its senior executives (each
hereinafter referred to as the "Executive") to reinforce and encourage their
continued dedication without distraction arising from the possibility of a
change in control of Titan. The terms of the agreements provide that, in the
event of a Change in Control (as defined), and the termination of the
Executive's employment at any time during the two-year period thereafter by
Titan other than for cause or by the Executive for good reason, the Executive
will be paid a lump sum amount equal to two times his base salary plus maximum
annual bonus. Additionally, the Executive will receive a prorated bonus for the
year of termination and continuation of medical and dental benefits covering the
Executive and his dependents for 2 years following the termination. The payments
are limited to ensure deductibility for tax purposes under Section 280G of the
Internal Revenue Code.
Under the agreements, Change in Control is deemed to have occurred in the
event of (i) the acquisition by any person, together with its affiliates, of
beneficial ownership of capital stock of Titan possessing 25% or more of the
combined voting power of Titan's outstanding capital stock, (ii) within any two
year period, the majority of the members of the Titan Board were to be comprised
of individuals other than those who were members at the beginning of such
period, unless the new members elected during such period were approved by
two-thirds of the members of the Titan Board still in office who were members of
the Titan Board at the beginning of such two-year period, (iii) all or
substantially all of Titan's assets are sold as an entirety to any person or
related group of persons, or (iv) Titan is merged with or into another
corporation or another corporation is merged into Titan with the effect that
immediately after such transaction, the stockholders of Titan immediately prior
to such transaction hold less than a majority interest of the total voting power
entitled to vote in the election of directors, managers or trustees of the
entity surviving such transaction.
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DBA BUSINESS
GENERAL DESCRIPTION OF BUSINESS
DBA was founded in 1963 to provide near earth tracking analysis of
spacecraft for NASA. Over the ensuing years, DBA has been predominantly involved
in providing hardware and software systems for applications in the defense
industry. In April 1984, DBA temporarily broadened its base of business into the
commercial graphic arts, remote sensing and medical imaging markets. With the
sale of these commercial businesses during fiscal year 1988, DBA re-focused on
its traditional capabilities and markets. DBA is now principally engaged in the
defense mapping, charting & geodesy and electronics business and has re-entered
the medical imaging and commercial imaging markets. DBA provides specialized
products and services in two major areas of concentration: imaging systems and
electro-optical systems.
The imaging systems' area includes the acquisition of image data, the
processing, manipulation and exploitation of that data, its dissemination in
either electronic or hard copy form, and the development of derivative products
from imagery. There are three company divisions involved in imaging systems:
Proprietary Imagery Exploitation ("PIE"), Tactical Imagery Exploitation ("TIE"),
and Commercial Imagery Exploitation ("CIE"). Applications of DBA's imaging
technologies include development and support of precise mapping and targeting
systems, development and support of imagery intelligence systems, development of
geographic information systems and their data bases, and development of products
to convert images from the hard copy to digital form and output digital images
in hard copy form.
The electro-optical systems area is identified as the Systems Engineering
and Development ("SED") Division. It encompasses DBA's design, development and
manufacture of electronic products and systems. It is not imagery-based, but
uses some of the same core technologies as the imaging systems area. This
equipment is primarily used in the test and evaluation of weapons systems and is
employed in both test and training environments. Specific products include
automatic video trackers for use in precision test range applications and
tactical fire control systems and infrared sources used in the calibration of
infrared images and heat seeking missiles. Systems include range systems for
crew and system training against high fidelity replications of air defense
threats in simulations as well as test range command and control systems for
evaluation of crew and system effectiveness.
Products designed and developed for production are manufactured at the
Melbourne manufacturing facility and include, but are not limited to video
trackers, IR test sets, high resolution image scanners, telemetry systems and
missile simulators.
The following table reflects the revenues recorded by the above areas of
concentration during the prior three fiscal years:
PERCENT OF TOTAL REVENUES
FISCAL YEAR ENDED JUNE 30,
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
TIE, PIE and CIE....................................................................... 73% 62% 68%
Systems Engineering & Development...................................................... 27% 38% 32%
--------- --------- ---------
Total.................................................................................. 100% 100% 100%
--------- --------- ---------
--------- --------- ---------
</TABLE>
IMAGING SYSTEMS
DBA continues to face the challenge of increased competition for declining
defense dollars in its traditional business areas. Consequently, DBA remains
vigilant for opportunities to expand our product and service lines and markets.
DBA's continuing goal of participating in larger programs has caused DBA to
intensify its efforts to develop strategic alliances with major firms that can
utilize DBA's leading-edge
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imaging technology to complement their resources and strengthen their overall
competitive position. Additionally, DBA has continued its research and
development efforts directed toward new digital-imaging technologies, including
the development of low-cost, high resolution digitizers; data compression
techniques, and other technologies targeted to government and commercial
markets.
PROPRIETARY IMAGERY EXPLOITATION
This business area originated in the late 1960's and early 1970's from
research and development efforts of DBA which were associated with the
exploitation of large area photographic imagery. These activities led to several
multi-million dollar contract awards. DBA's expertise resides in the development
of the mathematical techniques, systems design and software used to analyze
imagery in support of creating large area, geometrically-precise data bases.
These programs typically involve one-of-a-kind systems comprised of DBA-
developed scientific applications software and mainframe or super-mini computer
hardware configurations. Development extends over several years with DBA
proceeding through various formal customer design reviews and factory and final
acceptance reviews. Subsequent to delivery, DBA often provides operations and
maintenance support throughout the system life cycle. In April 1997, customer
authority was transitioned to a new entity, as the federal government
reorganized responsibilities in this area. At that time $1.9 million of orders
was booked, with an additional booking of $5-6 million expected in late calendar
year 1997. This longtime program accounted for 25% of DBA's revenues this year.
This past year a study concerning softcopy applications was completed. The
results of this study are expected to lead to a major hardware and software
upgrade over and above current scope on the contract.
TACTICAL IMAGERY EXPLOITATION
DBA continued its longtime support of the Army's Tactical Exploitation of
National CAPabilities ("TENCAP") system during 1997. The three existing
Modernized Imagery Exploitation Systems "MIES" are being migrated toward Common
Imagery Ground/Surface Systems ("CIGSS") compliance as established by the
Defense Airborne Reconnaissance Office and the Central Imagery Office. This work
is being performed on the contract worth $8.8 million received in June 1996.
The MIES to CIGSS migration involves the coordinated integration of several
evolving Government Furnished Equipment ("GFE") architectures as well as the
development of new hardware and software by DBA. The major components being
integrated are: Imagery Exploitation Support System ("IESS"), Image Product
Library ("IPL"), and Digital Imagery Exploitation and Production System
("DIEPS"). DBA is an active participant with the Government agencies and defense
contractors responsible for these products. The DBA development effort includes
the design and fabrication of a new hardware module and its associated software,
to receive National Imagery as well as the design and implementation of the
required Graphical User Interfaces ("GUIs").
An option for $1.5 million awarded in June 1997 will reconfigure MIES to be
housed in 31 foot mobile enclosures. The resultant systems will have greatly
enhanced transportability features. Specifically they will be capable of being
driven on or off of a C-130 transport aircraft. This feature will allow rapid
deployment into areas not able to support the larger air cargo vehicles.
The longtime TIE customer accounted for 43% of DBA's revenues in fiscal
1997. Renewal of the Operations & Maintenance part of the contract is expected
in March 1998 for between $3-4 million.
COMMERCIAL IMAGERY EXPLOITATION
July 1997 marked the successful installation of DBA's first ImagClear-TM-
Model F5000 High Volume Fingerprint Card Scanner in Michigan State Police
Central Records Department in Lansing, Michigan. The scanner, workstation and
QuickScan software were delivered under a contract with NEC Technologies, Inc.
The ImagClear-TM- Model F5000 Scanner is DBA's newest addition to their line of
high- speed, high-resolution scanning systems. Identified last year as an
emerging market, DBA developed the F5000
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under Internal Research and Development and Capital Programs. It was submitted
to the Federal Bureau of Investigation ("FBI") for certification against their
Integrated Automated Fingerprint Identification System ("IAFIS") Image Quality
Specification ("IQS") and was subsequently certified in September 1996 and
January 1997, meeting the Appendix F requirement. Appendix F is the highest
level of image quality certification attainable with the FBI. DBA's
ImagClear-TM- Model F5000 Scanner is currently the only scanner available that
has attained the Appendix F certification that scans cards in a batch fashion.
PROMAM, the computer-aided radiologist prompting system which uses DBA's
ImagClear-TM- medical film scanner to help radiologists detect breast cancer in
mammograms, has continued to make technical progress toward completing
development. A demonstration of feasibility in a preclinical trial of 2,000
cases at the West Scotland Breast Screening Center in Glasgow is scheduled for
completion in September 1997. Findings appear to confirm that PROMAM is able to
increase the sensitivity of a radiologist to detect cancer in the mammograms of
asymptomatic women to about the level normally associated with two radiologists
"double reading" the mammograms, without the negative impacts of increasing
patient recalls or biopsies due to false positive readings. Unfortunately, DBA's
partner in this venture, the UK's Particle Physics Astronomy Research Council,
has failed to date in its responsibility to secure public funding to continue on
with full clinical trials involving 30,000-100,000 cases. Attempts to secure
private funding over the past six months have yielded the serious interest of
several investors, however, negotiations as yet have been unable to produce an
agreeable company structure and work-share arrangement which would enable the
next phase of the program to continue. Meanwhile, DBA is proceeding to implement
plans in December to roll-out an interim product, the Mammogram Review Station.
DBA is one of four contractors to the Jet Propulsion Laboratory ("NASA/JPL")
participating in an eight month study to assess technical, cost and schedule
requirements for a future L-Band Synthetic Aperture Radar ("SAR") satellite and
associated ground processing facilities. The study goal is to validate and/or
modify the LightSAR design to retain mission science objectives as well as to
ensure a high commercial content through future sales of value-added SAR
products. A commercial enterprise, RadarSat of America, has been formed to
develop the market and to offset the mission development and operational costs.
DBA's manufacturing group won two commercial "build-to-print" contracts with
General Electric Medical Systems ("GEMS"). The Optima Transmission Scanner is a
medical device used in the nuclear medicine field. This scanner is part of a
Diagnostic Imaging System developed by GEMS. The other program, Starcam, is a
group of component kits that are ordered, packaged and shipped by DBA.
SYSTEM ENGINEERING AND DEVELOPMENT
System Engineering and Development ("SED") Division has a thirty year record
of technological leadership in the development of electro-optical systems
designed to provide real-time tracking and evaluation of complex military
systems. Revenues accounted for 27% of DBA's 1997 performance. The business area
has evolved and expanded to encompass advanced test, threat simulation and
training instrumentation for air, space, naval and ground test range
environments. These systems provide evaluation of both crew and weapons systems
effectiveness.
Continued interest in DBA's Portable Air Defense Threat Simulators from all
branches of the military remained high during this fiscal year. DBA Systems
completed and delivered five XM18A Threat Simulators and modified the five High
Mobility Multi-purpose Wheeled Vehicles ("HMMWV") which will be used as
deployment vehicles for the XM18A Systems. The XM18A systems were delivered to
the U.S. Army Operational Test and Evaluation Command ("OPTEC") Threat Support
Activity ("OTSA") located at Ft. Bliss, Texas. The XM18A Systems will be used
during Developmental and Operational Test and Evaluation to simulate advanced
foreign manportable surface-to-air infrared missiles.
During the current year DBA was awarded a five year contract to manufacture
threat simulators, training systems and associated spares and support equipment.
This contract, with a ceiling of $10 million,
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will be used by various procuring activities to obtain a variety of equipment
for specialized testing and training purposes.
DBA was also awarded a contract to design and build two threat simulation
systems for the Southern California Offshore Range ("SCORE"). These unique
systems will provide the capability to operate two different advanced missile
threats from a common scoring package.
DBA's ongoing Infrared Target Simulators ("IRTS") programs have been very
successful during this past year. The Target Simulators are used to test the
infrared guidance units of various missiles, such as the Mavericks, GBU-15's,
Slam, Harpoon, and the AGM-130's. DBA has completed three separate contracts
this past year worth $2.3 million. These contracts were to assemble, test and
deliver thirteen Maverick Infrared Target Simulators. This brings the total
quantity of Maverick IRTSs to 260 delivered by DBA to customers around the
world. Thirteen of these units under the USAF contract were marked for Foreign
Military Sales. Orders in FY 98 are expected to be in the $1-2 million range.
DBA has recently been awarded a two-year contract by U.S. Army
Communications/Electronics Command ("CECOM") for depot level repair and overhaul
of CN1314 Vertical Displacement Gyroscopes. DBA has been a primary supplier of
gyroscopes for U.S. Army helicopters for over 17 years. The award of this
contract, valued at just under $1 million (including the option), will position
DBA to pursue other depot level gyro repair contracts that are available, in
part, due to the reduction in defense budgets to procure new helicopters. DBA
believes that the helicopter service life extension programs will provide a
continuing and growing need for DBA, with its proven record of competence and
integrity in this field, to repair and overhaul other gyroscope models for the
U.S. Army Depot system. Also, as a consequence of this contract, DBA will have
opportunities for sales of a small number of new gyros to the U.S. Army as well
as domestic and foreign commercial air frame manufacturers.
DBA was awarded a contract for eight video trackers in support of the Navy's
Optical Director program. The award represents DBA's third contract with the
Kollmorgen Corporation for this program. The tracker is the latest addition to
DBA's broad family of video tracker products and is being customized to ensure
the design supports multi-target tracking allowing target prioritization during
engagements. The tracker architecture also provides the ability to interface the
system with a wide variety of video sensors, including the newer digital output
format sensors. The award is significant in that there is a strong potential to
equip not only Destroyer class vessels, but Cruiser class and other naval
surface ships. There is also a significant market with foreign navies requiring
this type system for coastal defense.
DBA is entering into the final design stage of a new product, the Asset
Monitor. The DBA Asset Monitor will provide the exact location of an item and
have the capability to transmit a variety of sensor data to our customers. The
initial target market for the Asset Monitor will be the trucking industry to
provide location and security for the trailers. The DBA Asset Monitor has the
ability to provide data for up to 12 weeks with a built-in power source. This
device enables the customer to obtain the location of his trailer, the
temperature inside the trailer, the size of the load and when the doors were
opened and shut. If the customer desires to be notified when interrupts (door
openings or out of temperature ranges) occur, the DBA Asset Monitor and sensor
suite has the capability to notify them immediately. As the product matures, its
applications will expand into other areas including rail car location and remote
asset status reporting. DBA is in discussions with a telecommunications firm in
forming a partnership for providing customers with a product and recurring
service.
The Advanced Multi-Mode Video Tracker ("AMMVT") represents the latest
product in DBA's continued evolution of video tracker products, dating back to
the early 70's. The system is designed to provide the user with an inherently
flexible architecture, allowing adaptation to a broad range of target and
tracking requirements. The system design permits easy integration into
laboratory, surveillance, robotics, inspection, test range and tactical
environments.
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DBA successfully continued its goal of transferring military technology into
the commercial/medical marketplace with the completion of a National Institutes
of Health ("NIH") Phase I SBIR for an Eccentric Videorefractometer. The device
provides the ability to rapidly screen large populations of noncooperative
subjects such as infants, young children, and the multi-handicapped for eye
misfocus and related disorders. The device integrates core technologies from
DBA's imaging, photogrammetric and video tracker product areas. The Phase I
research proved the feasibility of the proposed device and developed a
preliminary design. With submittal of the Phase I Final Report, a Phase II grant
request was also submitted. This request, if approved, will allow development of
a prototype device to verify and refine the Phase I design concept.
DBA was awarded a new Phase I SBIR by NIH for the development of an Infant
Binocular Vision Test System. The primary goal of this research is to design a
compact, portable, stereoscopic test system for use in vision testing of infants
and young children for early detection of amblyopia, strabismus and related
disorders. The system uses a state-of-the-art stereoscopic display and the
latest in DBA PC based tracker technology to provide a non-intrusive means of
measuring eye and head movement.
Enterprise Florida has selected DBA to participate in the "Florida Defense
Business Adjustment Small Business Innovation Research Program." This program
provides the opportunity for defense-related companies to apply for co-
investment funding in promising technology or commercialization leading to
introduction of a product into the marketplace. The basis of the award is to
assist DBA with the implementation of a "Manufacturing Methods and Technology
Program" which would enable DBA to develop specialized techniques for the
manufacture of the "Eccentric Video Refractometer." This device is planned to be
developed under a National Institutes of Health ("NIH") Phase II Small Business
Innovation Research Grant. The instrument is designed to provide screening of
vision disorders in non-communicative populations using advanced video tracking
techniques, a leading DBA technology product. The Infant Study Center of
Brooklyn College will be DBA's clinical partner.
CUSTOMERS AND SUPPLIERS
During the fiscal years which ended June 30, 1997, 1996 and 1995,
approximately 95%, 95% and 88% respectively, of DBA's revenues were derived from
contracts with agencies of the U.S. government and from subcontracts with
Government prime contractors. DBA performs work under fixed-price, time and
material and cost-plus-fee contracts. Contracts performed for the Government are
generally terminable at the will of the Government or subject to re-negotiation
at the election of the Government. Future revenues and income of DBA could be
materially affected by changes in Government procurement policies or a reduction
in Government expenditures for services of the type provided by DBA. It is the
goal of DBA to reach a mix of 30% commercial business base by the year 2000.
DBA is not dependent on any one supplier in connection with the development
or manufacture of its products and services. No one sole source supplier is
responsible for more than 4% of DBA's revenues. Sole source suppliers account
for less than 16% of DBA's revenues for fiscal 1997.
RESEARCH AND DEVELOPMENT
DBA's business generally involves the application of existing technology to
solve specific customer problems. As a result, most of DBA's research and
development efforts emphasize applied research rather than pure research into
new technological frontiers. Accordingly, research and development activities
selected by DBA's management are a major factor in securing a continuous flow of
business. It is critical that DBA stays abreast of technology relating to its
products and services. Additionally, a substantial amount of DBA's research and
development activity occurs in connection with specific orders placed by its
Government customers.
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The following table reflects the independent research and development funds
not specifically related to particular contracts expended by DBA over the last
three fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Total Research & Development................................................. $ 637,000 $ 424,000 $ 331,000
---------- ---------- ----------
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</TABLE>
BACKLOG
DBA's backlog of unfilled orders at June 30, 1997 was approximately $16.6
million as compared to $28.4 million at June 30, 1996. TIE is credited with 48%
of the backlog and 34% is attributable to PIE. Approximately $15 million of the
June 30, 1997 backlog is expected to be converted into revenues during the
fiscal year ending June 30, 1998. An order is entered into backlog only when DBA
receives a definite commitment from a customer. DBA plans to grow its backlog by
nearly 30% over the next 12 months. The emerging market for the Asset Monitor
should generate $4-7 million of orders. Over $11 million of orders are expected
from the two longtime customers in the PIE and TIE areas.
DBA's backlog is typically subject to a number of contingencies due to
various factors. Such factors include funding constraints, cancellation or
modification of Government programs and changes in allocation of work between
prime and subcontractors. Therefore, the amount of backlog should not be viewed
as the sole determinant of future contract revenues. Consequently, the dollar
amount of the backlog is not necessarily indicative of the future revenue of
DBA.
COMPETITION
DBA experiences substantial competition in its markets and believes its
principal competitive advantages to be its reputation and experience in its
selected technical areas, creativity in applying existing technology to new
applications, technical assistance to customers, price and adherence to delivery
schedules. DBA's systems address a market of high-end applications in which
there are a limited number of competitors. Much of DBA's business requires
highly skilled and experienced technical personnel with high level U.S.
government security clearances. DBA believes that the technical expertise and
stability of its staff have been a significant factor in the development of
DBA's business and its ability to compete to date. As the Department of Defense
experiences overall budget restraints, DBA expects the competition for its
products and services to significantly intensify. As a result, there is no
assurance DBA can maintain its current revenue volume.
Divisions of certain large industrial concerns with financial resources and
facilities substantially greater than those of DBA, such as Raytheon/E-Systems,
General Dynamics, Intergraph, Lockheed-Martin, TRW, and Contraves, are active in
fields similar to those of DBA. DBA also experiences competition from other
specialized firms, such as Morpho, Autometrics, SAIC, and Metric. As DBA enters
the new commercial market for nationwide wireless data communications systems,
DBA will be competing with QualComm, Highway Master, and AMSC. DBA's future
success will depend upon, among other things, its ability to withstand
competition from larger companies, to obtain and retain competent personnel to
successfully accomplish its obligations under its various contracts and to
productively extend its technological expertise to new applications. All of
these factors are subject to uncertainty.
PATENTS
DBA holds and is also licensed under a number of U.S. and foreign product
and process patents which extend through 2006 and has filed applications for
other such patents that are pending. DBA follows the practice of obtaining
patents on new developments whenever advisable. While DBA considers that in the
aggregate its patents and licenses are valuable, it does not believe that its
business is materially
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dependent on its patents or licenses or any group of them. In DBA's opinion,
engineering, production skills and experience are more important to its market
position than patents or licenses.
EMPLOYEES
As of September 2, 1997, DBA had 209 employees. DBA is not subject to any
collective bargaining agreements with its employees.
DBA'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The forward-looking statements included in Management's Discussion and
Analysis of Financial Condition and Results of Operations, which reflect DBA
management's best judgment based on factors currently known, involve risks and
uncertainties. Actual results could differ materially from those anticipated in
these forward-looking statements as a result of a number of factors.
Forward-looking information provided by DBA pursuant to the safe harbor
established by recent securities legislation should be evaluated in the context
of these factors.
BUSINESS ENVIRONMENT
Over the past year the defense industry experienced further mergers and
consolidations of government contractors. This trend is expected to increase in
pace but decrease in size as the pool of candidate merger companies contracts.
The U.S. general economy is enjoying an unprecedented boom period with record-
low interest rates, unemployment and inflation. On the other hand, the Federal
Government continues to decrease in size and increase the scrutiny of its
spending in the defense area as the country anticipates a "peace dividend"
resulting from the end of the Cold War. Therefore, competition for available
government contracts remains intense, especially as merged firms are able to
muster greater resources in the development and proposal process. In response,
DBA continues its policy of aggressively managing costs while focusing resources
on new business opportunities with the greatest promise of success.
Liabilities remain at very low levels and liquid assets at very high levels
while DBA poises itself to expand by taking advantage of commercial market
opportunities. Indirect costs have been maintained at historically all-time-low
levels to enhance competitiveness in the fierce marketplace. Meanwhile, DBA's
two long-term traditional government customers that make up two-thirds of the
revenue base are projected to continue their current levels of revenues in the
foreseeable future.
Reduction in the Department of Defense budget, continued Congressional and
regulatory oversight of the Government procurement process, increased
competition within the DBA's traditional market niches, and the current
Government procurement policy to award contracts based primarily on price and
not exclusively on technical capabilities are all factors which may have a
material effect on DBA's future operating revenues and profit margins. The
Government's decisions regarding options presently held by DBA under existing
contracts may also have an impact on DBA. These trends may result in delays in
previously anticipated contracts or the loss of anticipated business to
competitors. As a result, the reported financial information may not necessarily
be indicative of DBA's future operating results or financial condition.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1996
During the three-month period ended September 30, 1997, DBA recorded
revenues of $5,665,000, down $628,000 from the $6,293,000 recorded in the
comparable three-month period in the prior fiscal year. While revenues increased
by $720,000 in PIE and $363,000 in CIE, there were offsetting decreases of
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$1,374,000 in SED and $339,000 in TIE. SED revenue decreases were mainly due to
a revenue drop of $634,000 in IRTS, $273,000 in Avenger Tracker, and $229,000 in
Training and Simulation business. Each of these SED programs, however, is
expected to pick up in sales in the coming quarters. TIE revenue decreases were
due to expected lower levels of material procured as the CIGSS contract moved
into its second year of performance. PIE revenue increases were due to recovery
to full DBA program manpower staffing levels as well as increased non-labor
expenses in updating software and hardware capabilities. CIE revenue increases
reflected growth from virtually no sales for the first quarter last year to
sales of $412,000 of software and digitizers for first quarter FY 98.
Operating income was $692,000 during the current three-month period, up
$158,000 from $534,000 in the comparable period in the prior fiscal year. The
current quarter's operating margin was 12.2% as compared to the operating margin
of 8.5% in the previous year's comparable quarter. The increase in operating
profit was attributable primarily to an increase of $100,000 in PIE and $53,000
in SED as compared to FY 97. PIE enhanced performance for first quarter FY 98
reflected an increase in revenues due to greater contract material expenditures
and labor as well as higher award fee. SED's more favorable performance for
first quarter FY 98 reflected successful completion of certain Avenger Tracker
contracts.
During the three-month period ending September 30, 1997, DBA recorded new
business bookings of $2,521,000 as compared to $2,133,000 in the prior year. As
a result, the backlog at September 30, 1997 was approximately $13,300,000, down
$3,300,000 as compared to the June 30, 1997 balance of approximately
$16,600,000. An order is entered into backlog only when DBA receives a definite
commitment from a customer. The decreasing trend in backlog is expected to
reverse itself over the next two quarters as DBA receives extensions to its
contracts in the PIE ($6-7 million) and TIE ($3-4 million). Furthermore, to date
only $840,000 has been booked of the $10.6 million Asset Monitor contract with
Flash Comm which was announced on September 29, 1997. Significant further
bookings are expected to be taken before the year end as this emerging market is
penetrated.
Interest expense during the current period was $0 as compared to $42,000
recorded in the comparable quarter in the prior fiscal year since all remaining
debentures were liquidated in December 1996. DBA has no long term debt. Interest
income increased by $64,000 as the amount of the invested cash averaged $1.4
million more during the first quarter of FY 98.
DBA currently accrues 38% of income before taxes to account for federal and
state income taxes.
As a result of the above factors, net income was $534,000 in the current
period as compared to $323,000 in the same period of the prior fiscal year.
Fully diluted earnings per share were $.12 for the three months ending September
30, 1997 versus $.07 recorded in the comparable quarter in the prior fiscal
year.
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The following table sets forth, for the periods indicated, the percentage
that certain items in DBA's Consolidated Statements of Income bear to revenues
and the annual percentage change of such items for the period indicated:
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
PERCENTAGE OF REVENUES YEAR ENDED JUNE 30,
YEAR ENDED JUNE 30, --------------------
------------------------------- 1996 TO 1995 TO
1997 1996 1995 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues........................................................ 100.0% 100.0% 100.0% 24.6% (31.1)%
Costs and expenses.............................................. 90.8 94.4 94.4 19.8 (31.0)
--------- --------- --------- --------- ---------
Operating income................................................ 9.2 5.6 5.6 106.6 (31.9)
Interest income................................................. 3.0 2.8 1.0 32.9 93.3
Interest expense................................................ (0.4) (0.9) (0.7) (44.0) (12.1)
Other expense - net............................................. (0.6) (1.4) (0.7) (41.3) 27.9
--------- --------- --------- --------- ---------
Total other expense............................................. 2.0 0.5 (0.4) 365.1 (180.9)
Income before taxes............................................. 11.2 6.1 5.2 128.6 (19.3)
Provision for taxes............................................. (4.2) (0.4) (0.1) 1150.6 102.4
--------- --------- --------- --------- ---------
Net income...................................................... 7.0% 5.7% 5.1% 53.7% (22.7)%
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</TABLE>
During the years ended June 30, 1997, 1996 and 1995, approximately 95%, 95%
and 88%, respectively, of DBA's revenues were derived from contracts with
agencies of the U.S. government and from subcontracts with government prime
contractors. Future revenues and income of DBA could be materially affected by
changes in Government procurement policies or a reduction in Government
expenditures for services of the type provided by DBA. DBA's business is
performed under cost reimbursement, fixed price and fixed rate time and material
contracts.
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996
Revenues for the fiscal year ending June 30, 1997 were approximately
$25,508,000, an increase of $5,038,000 or 24.6% when compared to the $20,470,000
recorded in the prior fiscal year. Over $4 million of the increase in revenues
was attributable to increased TIE revenues resulting from the $8.8 million CIGSS
contract awarded in June 1996. DBA recorded approximately $13,500,000 in new
bookings during fiscal 1997 as compared to approximately $32,100,000 during
fiscal 1996. Decreased bookings in fiscal year 1997 were due mainly to the
nature of follow-on procurements of PIE and TIE which occur every two years. In
December 1996, it was announced that DBA was not awarded the subcontract for its
proposal worth $9 million concerning the competition for new business as a
derivative offshoot of its TIE market. However, the Contractor formally agreed
to provide supplanting opportunities over the next five years.
Costs and expenses increased from approximately $19,330,000 for the fiscal
year ending June 30, 1996 to approximately $23,153,000 for the fiscal year
ending June 30, 1997. As a percentage of revenues, expenses dropped from 94.4%
to 90.8%. This relative decrease in costs and expenses was attributable to the
successful completion of the $9.2 million Multi-year Avenger production contract
as well as the fact that several unprofitable production contracts from previous
years no longer were in operation. TIE and PIE programs continued their
cost-effective high levels of performance. Indirect support costs increased by
approximately $2,300,000.
Interest income for fiscal 1997 was $763,000 as compared to $574,000 during
fiscal 1996. This rise of 33% was primarily attributable to a $2.5 million
increase in the cash available for investment as well as a modestly more
aggressive investment policy combined with higher market interest rates which
increased investment returns by over .5%. Management anticipates use of
significant amounts of this available cash in the coming year for acquisition
purposes which should help increase DBA's Return-On-Equity. During the interim,
interest earned will be reinvested.
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<PAGE>
Interest expense for fiscal 1997 was $99,000 as compared to $175,000 during
fiscal 1996. The reduction in interest expense was primarily attributable to the
liquidation of the $1.9 million in 8.25% debentures in December 1996, which was
viewed as a prudent use of available working capital. All long-term debt has now
been eliminated from DBA's balance sheet. There are no current plans to incur
further debt or raise capital from equity due to the current significant levels
of working capital.
In March 1997, other income was significantly increased by a one-time
recognition of a $175,000 settlement of a nine-year old lawsuit filed in Rhode
Island stemming from default on a note payable by purchasers of Graphics
Marketing, formerly a subsidiary of DBA Systems.
Significant state and federal income taxes were incurred this year for the
first time since 1988 due to the consumption of Net Operating Loss (NOL)
carryforwards from previous years.
As a result of the above factors net income of $1,785,000 was earned during
fiscal 1997 as compared to $1,161,000 in the prior fiscal year.
FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995
Revenues for the fiscal year ending June 30, 1996 were approximately
$20,470,000 a decrease of $9,226,000 or 31.1% when compared to the $29,696,000
recorded in the prior fiscal year. The decrease in revenues was attributable to
default of the AMMS production contract and loss of expected competitively bid
government proposals. DBA recorded approximately $32,100,000 in new bookings
during fiscal 1996 as compared to approximately $23,000,000 during fiscal 1995.
Increased bookings in fiscal year 1996 were due mainly to follow-on procurements
of PIE and TIE which occur every two years.
Costs and expenses decreased from approximately $28,021,000 for the fiscal
year ending June 30, 1995 to approximately $19,330,000 for the fiscal year
ending June 30, 1996. The decrease in costs and expenses was attributable to
lower levels of direct contract activity. Indirect support costs were reduced by
approximately $9,000 or 0.1% from fiscal 1995 to fiscal 1996.
Interest expense for fiscal 1996 was $175,000 as compared to $199,000 during
fiscal 1995. The reduction in interest expense was primarily attributable to
advance payment of DBA's Industrial Development Revenue Bonds in 1995.
As a result of the above factors net income of $1,161,000 was earned during
fiscal 1996 as compared to $1,502,000 in the prior fiscal year.
FISCAL YEAR 1995 COMPARED WITH FISCAL YEAR 1994
Revenues for the fiscal year ending June 30, 1995 were approximately
$29,696,000, an increase of $5,380,000 or 22.1% when compared to the $24,316,000
recorded in the prior fiscal year. The increase in revenues was attributable to
favorable bookings during fiscal year 1994 and 1995 as well as increased levels
of government and commercial contract activity throughout the year. DBA recorded
approximately $23,000,000 in new bookings during fiscal 1995 as compared to
approximately $28,300,000 during fiscal 1994. Decreased bookings in fiscal year
1995 were due to rescheduling of certain Government procurements into DBA's 1996
fiscal year.
DBA has entered into certain contracts with The Sokol Group, Inc., whose
President and CEO is a DBA director. Under such contracts, DBA recognized
revenues of approximately $128,000 for the fiscal year ended June 30, 1995.
Costs and expenses increased from approximately $23,085,000 for the fiscal
year ending June 30, 1994 to approximately $28,021,000 for the fiscal year
ending June 30, 1995. The increase in costs and expenses was attributable to
heightened levels of direct contract activity. Indirect support costs were
reduced by approximately $3,030,000 or 24.5% from fiscal 1994 to fiscal 1995.
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<PAGE>
Interest expense for fiscal 1995 was $199,000 as compared to $355,000 during
fiscal 1994. The reduction in interest expense was primarily attributable to
advance payment of DBA's Industrial Development Revenue Bonds. A secondary
factor was the reduction of other interest costs and financing fees as a result
of active management of DBA's treasury function.
As a result of the above factors net income of $1,502,000 was earned during
fiscal 1995 as compared to $837,000 in the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, DBA has working capital of approximately $17,432,000,
down $898,000 or 4.9% when compared to the $18,330,000 as of June 30, 1997.
Accounts receivable-net decreased $1,272,000 from $3,523,000 at June 30, 1997 to
$2,251,000 at September 30, 1997 due to efficient collection of outstanding
trade receivables and aggressive pursuit of "past due" accounts. Costs and
estimated earnings in excess of billings on uncompleted contracts increased from
$2,318,000 at June 30, 1997 to $3,214,000 at September 30, 1997 was mainly due
to timing differences with contract material in PIE.
In September 1997 DBA invested $1.6 million by purchasing convertible
preferred Series B stock in Flash Comm, Inc. (FCI). This investment will result
in 6.2% ownership of FCI or 7.2% if DBA exercises outstanding warrants. DBA is
the manufacturing partner for FCI, a startup company which awarded a $10.6
million contract to DBA for the design, development, and manufacturing of asset
monitors for its truck-trailer location device.
DBA's $4,000,000 unsecured line of credit with a bank expires January 31,
1998 and is expected to be renewed. Amounts drawn on this line of credit accrue
interest at either the bank's prime rate or LIBOR plus 1.75% as selected by DBA
upon the utilization of any portion of the line of credit. DBA has no borrowings
against the line of credit at September 30, 1997.
On February 26, 1997 DBA announced that its Board of Directors authorized a
stock repurchase program whereby DBA may repurchase up to 200,000 shares of its
outstanding stock in the open market or in negotiated transactions through
August 31, 1997 and at such prices as DBA may decide. This action was taken
based on the assessment that DBA's common shares were undervalued. During the
authorized period, DBA repurchased 1,500 shares of common stock on the open
market.
During the quarter ending September 30, 1997, DBA acquired capital equipment
of approximately $91,000.
DBA believes liquidity and capital funding requirements for fiscal 1998 can
be internally satisfied from working capital.
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DBA MANAGEMENT AND EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
COMMON
STOCK
BENEFICIALLY % OF
OWNED AS OF OUTSTANDING
NAME AGE POSITION WITH COMPANY 1-30-98 COMMON STOCK
- ------------------------------------------ --- ------------------------------------- ----------- ---------------
<S> <C> <C> <C> <C>
John L. Slack............................. 59 Chairman of the Board, 260,248(1) 5.74%
President & CEO
Dudley J. Gordon.......................... 61 Divisional Vice President 30,202(2) .67%
for Operations
Charles B. Robertson...................... 51 Vice President of Administration, 29,999(3) .67%
Corporate Secretary
Edward M. Bielski......................... 45 Corporate Controller 7,865(4) .18%
Dr. Richard N. Baney...................... 60 Director 28,400 .64%
Mr. Thomas J. Boyce, Jr................... 65 Director -- --
Amb. Robert F. Ellsworth.................. 71 Director 10,000(5) .22%
Mr. William C. Potter..................... 57 Director 6,633(6) .15%
Mr. James E. Pruitt....................... 62 Director -- --
Dr. Lynn E. Weaver........................ 68 Director 6,000(7) .13%
</TABLE>
- ------------------------
(1) Includes 65,000 shares issuable upon options exercisable within 60 days of
January 30, 1998. Excludes 3,000 shares owned by Mr. Slack's wife as to
which shares he disclaims any beneficial interest.
(2) Includes outstanding options for 19,999 shares exercisable within 60 days of
January 30, 1998.
(3) Includes outstanding options for 39,999 shares exercisable within 60 days of
January 30, 1998.
(4) Includes outstanding options for 6,665 shares exercisable within 60 days of
January 30, 1998.
(5) Includes outstanding options for 5,000 shares exercisable within 60 days of
January 30, 1998.
(6) Includes outstanding options for 5,000 shares exercisable within 60 days of
January 30, 1998.
(7) Includes outstanding options for 5,000 shares exercisable within 60 days of
January 30, 1998.
Mr. Slack was elected as the President and Chief Executive Officer of DBA in
August 1989 succeeding Mr. Howard N. Hebert as Chief Executive Officer and Mr.
Gerald A. Nathe as President. Mr. Slack was elected as Chairman of the Board of
Directors in February 1990. Biographical information about Mr. Slack appears
above under the caption "Directors' Background and Experience--Continuing
Directors".
Mr. Gordon joined DBA in March 1995 as Divisional Vice President for
Operations. Prior to joining DBA, Mr. Gordon held several positions as senior
operations officer in various successful commercial ventures. Preceding his
commercial career, Mr. Gordon served in the United States Army, enlisting in
1954 as a private and rising to the rank of Major General prior to his
retirement in 1986 in the grade of Brigadier General.
Mr. Robertson joined DBA in 1986 as a Program Manager. Prior to joining DBA,
Mr. Robertson was responsible for all Air Launched Missile Systems Subcontracts
for Martin Marietta, Orlando, FL. He has held numerous management positions
during his tenure at DBA including Director of the Military
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<PAGE>
Products Division. In July 1990, Mr. Robertson became Director of Administration
and in January 1994, he became Vice President of Administration and Corporate
Secretary.
Mr. Bielski joined DBA in May 1996 as Director of Finance to replace Mr.
Timothy L. Stull. In August 1996, he became Corporate Controller and in August
1997, he became Corporate Treasurer. Prior to joining DBA, Mr. Bielski was Chief
Financial Officer of the Atlas Door Company in Orlando, Fl. He has 17 years of
aerospace experience having held senior financial management positions with
Martin Marietta, LTV and Litton Industries. Mr. Bielski is a licensed CPA with
the State of Florida. Mr. Bielski holds a Master's degree in Management and a
Bachelor's degree in Aeronautical Engineering from Purdue University.
Dr. Baney is President and CEO of Health First Physicians, Inc., a primary
care medical group based in Melbourne, FL. He is a trustee of Florida Tech and a
director of The Bank Brevard. He was founding director and chairman of Reliance
Bank of Florida from 1985 to 1995. Dr. Baney attended Georgetown University,
Washington, D.C. and the University of Pittsburgh School of Medicine. He served
as a medical officer in the U.S. Navy from 1964 to 1967.
Mr. Boyce served until 1995 as the President of Saugatuck Securities Ltd., a
private investment bank. Prior to that, he was the President of Refco, Inc., an
international financial services firm. Other positions include that of
consultant to Quaker Oats Co., Vice-Chairman and COO of Ward Foods, Inc., and
CFO of The Beatrice Company. He is a former member of the Boards of Directors of
Refco, Inc., Ward Foods, Inc., Honiron--Philippines Inc., Plymouth Rock
Provision Co., Atarraya, S.A., Beatrice Overseas Finance, Ltd., Chamberlain
Manufacturing Co., Cape Canaveral Hospital Foundation and Buena Vida Estates,
Inc. As a director of Chamberlain Manufacturing Co., he worked closely with
management over a ten-year period to diversify the profitable defense contractor
into consumer products. Mr. Boyce holds a BA in Economics from La Salle
University and a MBA in Finance from the Harvard Business School and has
completed post-graduate studies in Strategic Corporate Planning at Stanford
University.
Amb. Ellsworth is Managing Director, The Hamilton Group LLC; President and
Chief Executive Officer of The Sokol Group; and a director of Price
Communications Corporation, New York City; and of Voice Compression Technology,
Inc., Greenwich, CT. He served three terms as a member of Congress from 1961 to
1967. He was U.S. Ambassador to NATO from 1969 to 1971, a general partner with
Lazard Freres & Co. from 1971 to 1974, Assistant Secretary of Defense from 1974
to 1975 and Deputy Secretary of Defense from 1975 to 1977. Mr. Ellsworth is also
a member of various professional societies including the International Institute
for Strategic Studies in London, the Atlantic Council of the U.S. in Washington,
and the Council on Foreign Relations in New York.
Mr. Potter is President of Potter, McClelland, Marks & Healy, P.A., a law
firm, which was founded in November 1986 and is legal counsel to DBA. He is a
graduate of Brown University and the University of Michigan Law School. Mr.
Potter is a member of the Advisory Board of First Union National Bank of
Florida. Mr. Potter also served as Chairman of the Board of Trustees of Florida
Tech and is counsel for the Melbourne Airport Authority. Mr. Potter holds the
rank of Colonel in the U.S. Air Force Reserve.
Mr. Pruitt until recently was Chairman and President of Opto-Mechanik, an
electro-optical manufacturing firm. Prior to that he was Chief Executive Officer
of Quipp, Inc., a graphics machinery company. Previously, he was Chairman and
Chief Executive of Harris Graphics, a $400 million graphics equipment company.
He had been with Harris Corporation for 27 years, where last he was Sector
Executive for Printing Equipment. He currently operates as a business management
consultant from a Melbourne office. Mr. Pruitt has a Masters degree from the
Florida Institute of Technology and a Bachelors degree from Georgia Tech. In
1995 he was named to Georgia Tech's Academy of Distinguished Alumni, and in 1996
received the C.H.I.E.F. Award from the Independent Colleges and Universities of
Florida. He is a member of the Board of Trustees of the Florida Institute of
Technology.
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<PAGE>
Dr. Weaver is President of the Florida Institute of Technology (Florida
Tech), Melbourne, Fl. Prior to his appointment at Florida Tech, Dr. Weaver
served in senior academic administrative positions including Department Head,
University of Arizona; Associate Dean, University of Oklahoma; School Director,
Georgia Institute of Technology; and Dean, Auburn University. He has held
offices in a number of national professional organizations and is a Fellow of
the American Nuclear Society. Dr. Weaver is a Registered Professional Engineer
and received his Bachelor's degree in Electrical Engineering from the University
of Missouri, a Master's degree in Electrical Engineering from Southern Methodist
University and his Ph.D. from Purdue University.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows the total annual and long-term compensation of the
Chief Executive Officer (the only executive officer to receive total salary and
bonus in excess of $100,000 during the fiscal year ended June 30, 1997) for
services rendered during the fiscal years ended June 30, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES ALL OTHER
----------------------------------- UNDERLYING OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(A) (#)(B) ($)(C)
- -------------------------------------------- --------- ---------- ------------ ------------------- -------------
<S> <C> <C> <C> <C> <C>
John L. Slack 1997 $ 217,298 -- 30,000 $ 10,809
President/CEO 1996 $ 216,466 -- 30,000 $ 7,949
1995 $ 204,937 $ 49,992 30,000 $ 7,947
</TABLE>
- ------------------------
(a) The bonus distribution plan was structured whereby the executive received
approximately 41% of the bonus in September 1995, 33% in September 1996 and
26% in September 1997. Distribution of payments may vary slightly from the
plan.
(b) The number of options granted during the covered fiscal year.
(c) Includes DBA contributions of $3,407 to the Employee Retirement Plan, $3,955
to the 401(k) plan and $3,447 in life insurance premiums paid by DBA. Such
contributions to the individual listed totaled $10,809 for fiscal year 1997.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The table below shows information regarding grant of stock options made to
the Chief Executive Officer under DBA's 1992 Employee Incentive Stock Option
Plan during the fiscal year ended June 30, 1997. The potential realizable value
of the option is based solely on arbitrarily assumed rates of appreciation
required by applicable SEC regulations. Actual gains, if any, on option
exercises are dependent on the future performance of the DBA Common Stock and
overall stock market conditions.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED
--------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES STOCK PRICE
UNDERLYING % OF TOTAL APPRECIATION FOR
OPTION OPTIONS GRANTED EXERCISE OR OPTION TERM
GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---------------------------------- ------------- --------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John L. Slack..................... 30,000 32.70% $ 4.88 12/31/99 $ 27,212 $ 59,336
</TABLE>
- ------------------------
(1) Options granted under this Plan have a three-year term and may be exercised
33%, 33% and 34% on or after December 31 of the first, second and third
year, respectively, from the date of grant. Such shares may not be sold from
two years from the date of grant and one year from the date of acquisition.
The option price is equal to the market price of the DBA Common Stock on the
date of grant.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
The following table summarizes for the Chief Executive Officer the number of
stock options exercised during the fiscal year ended June 30, 1997, the
aggregate dollar value realized upon exercise, the total number of unexercised
options held at June 30, 1997, and the aggregate dollar value of in-the-money,
unexercised options, if any, held at June 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED IN-
OPTIONS AT FY- THE-MONEY OPTIONS
END (#) AT FY-END ($)
VALUE --------------- -----------------
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE (A)
- ---------------------------------------------- --------------- ----------- --------------- -----------------
<S> <C> <C> <C> <C>
John L. Slack................................. 27,000 $ 50,490 65,000/30,000 $ 59,800/$12,400
</TABLE>
- ------------------------
(a) Value of unexercised, in-the-money options at fiscal year-end is the
difference between its exercise price and the fair market value of the
underlying stock on June 30, 1997, which was $5.50 per share.
COMPENSATION OF DIRECTORS
The non-employee Directors of DBA receive an annual retainer of $8,000,
payable on a quarterly basis, plus $500 per meeting not to exceed $1,000 per
day. In addition, the Directors participate in the Directors' Stock Option Plan,
under which there were no options issued during fiscal year 1997.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENT
A compensation agreement between DBA and Mr. Slack provides for a
company-furnished automobile. The agreement also provides for the bonus grant of
DBA Common Stock based on the market price of DBA Common Stock achieving the
following levels:
<TABLE>
<CAPTION>
BONUS SHARES DBA COMMON STOCK PRICE(1)
- ----------------------------------------- -----------------------------------------
<S> <C>
2,000 $14.00 per share
2,000 $16.00 per share
2,000 $18.00 per share
2,000 $20.00 per share
</TABLE>
- ------------------------
(1) The agreement stated that the price must be achieved and retained for at
least four consecutive weeks. The agreement also provides that Mr. Slack
will receive all of the bonus shares in the event DBA is sold during his
tenure as President upon terms and price acceptable to the shareholders of
DBA.
Mr. Slack has also received an option for 25,000 shares which will be
exercisable in the event DBA is sold during his tenure as President upon terms
and price acceptable to the shareholders of DBA.
SECURITY OWNERSHIP
Information regarding beneficial ownership of the DBA Common Stock by DBA's
directors and executive officers is set forth elsewhere in this Prospectus/Joint
Proxy Statement. The following shareholders reported that they owned in excess
of 5% of the outstanding DBA Common Stock of DBA as of
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<PAGE>
January 30, 1998. Unless otherwise indicated, each of the shareholders listed
below has sole voting and sole investing power with respect to the shares listed
opposite such shareholder's name.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL PERCENT
NAME AND ADDRESS OWNERSHIP OF CLASS
- ------------------------------------------------------------------------ ------------------- ---------
<S> <C> <C>
Norman J. Wechsler
39 Broadway
New York, NY 10006.................................................... 1,175,921 26.30%
Kathryn A. Eckstein
614 West Front Street
Cassville, WI 53806................................................... 400,000 8.95%
John L. Slack
745 Beach Street
Satellite Beach, FL 32937............................................. 290,248(1) 6.36%
All directors and
executive officers
as a group............................................................ 437,684(2) 9.38%
</TABLE>
- ------------------------
(1) Includes 120,000 shares issuable upon exercise of options. Excludes options
for 3,000 shares owned by Mr. Slack's wife as to which shares, he disclaims
any beneficial interest.
(2) Includes 185,000 shares issuable upon exercise of options.
113
<PAGE>
COMPARISON OF RIGHTS OF TITAN STOCKHOLDERS
AND DBA SHAREHOLDERS
The rights of Titan stockholders are governed by the Restated Titan
Certificate of Incorporation (the "Titan Certificate"), its Bylaws (the "Titan
Bylaws") and the DGCL. The rights of DBA shareholders are currently governed by
DBA's Articles of Incorporation (the "DBA Articles"), its Bylaws (the "DBA
Bylaws") and the FBCA. Upon consummation of the Merger, DBA shareholders will
become stockholders of Titan with their rights as stockholders governed by the
DGCL, the Titan Certificate and the Titan Bylaws.
The following is a summary of certain similarities and differences between
the rights of Titan stockholders and DBA shareholders under the foregoing
governing documents and applicable law. This summary does not purport to be a
complete statement of such similarities and differences. The identification of
specific similarities and differences is not meant to indicate that other
equally or more significant similarities and differences do not exist. Such
similarities and differences can be examined in full by reference to the DGCL,
the FBCA and the respective corporate documents of Titan and DBA.
CAPITAL STOCK. The authorized capital stock of Titan consists of 45,000,000
shares of Titan Common Stock, of which 17,694,045 shares were issued and
outstanding on December 31, 1997, and 2,500,000 shares of Preferred Stock, $1.00
par value, (A) 250,000 shares of which have been designated as Series A Junior
Participating Preferred Stock, none of which has been issued as of the date
hereof, (B) 1,068,102 shares of which have been designated as $1.00 Cumulative
Convertible Preferred Stock, $1.00 par value per share, 694,872 of which have
been issued and are outstanding as of the date hereof, and (C) 500,000 shares of
which have been designated as Series B Cumulative Convertible Redeemable
Preferred Stock (the "Series B Preferred Stock"), all of which have been issued
as of the date hereof. Each outstanding share of $1.00 Cumulative Convertible
Preferred Stock is convertible at any time into two-thirds ( 2/3) of a share of
Titan's common stock. The Series B Preferred Stock is convertible at the
holder's option into shares of Titan Common Stock at a conversion price of $9.00
per share. In addition, Titan issued $34,500,000 of convertible subordinated
debentures in November 1996. The debentures are convertible into common stock at
a conversion price of $3.50 per share. The authorized capital stock of DBA
consists of 10,000,000 shares of DBA Common Stock, $.10 par value, of which
4,471,290 shares were issued and outstanding on January 30, 1998, and 1,149,298
shares of DBA Common Stock were held in treasury by DBA.
AMENDMENT OF BYLAWS. The FBCA permits the board of directors of a Florida
corporation to amend or repeal the bylaws unless the FBCA, the articles of
incorporation or the shareholders, in amending or repealing a bylaw, reserve
that power to the shareholders. The shareholders entitled to vote also have the
power, under the FBCA, to amend or repeal the bylaws by the affirmative vote of
holders of a majority in voting power of the outstanding shares entitled to
vote. The DBA Bylaws state that they may be amended by the affirmative vote of a
majority of the members of the DBA Board.
Under the DGCL and the Titan Bylaws, the Titan Bylaws may be amended or
repealed either by the Titan Board or by the holders of a majority in interest
of the outstanding shares of Titan, except that a change in the authorized
number of directors may only be effected by a vote of the majority of the
outstanding shares entitled to vote.
AMENDMENT OF DBA ARTICLES AND TITAN CERTIFICATE. The DGCL provides that
approval of a majority of the outstanding stock entitled to vote thereon is
required to amend a certificate of incorporation.
The FBCA permits the board of directors to amend the articles of
incorporation in certain minor respects without shareholder action, but
generally amendments must be adopted by the shareholders upon recommendation of
the board of directors. Unless the FBCA, the articles of incorporation or the
board of directors, acting in a particular matter, requires a greater vote,
amendments may be adopted by a majority of the votes cast, a quorum being
present. Under the FBCA, matters presented for a vote which would entitle
shareholders to statutory dissenters appraisal rights require the affirmative
vote of the holders of a
114
<PAGE>
majority of the voting power of the shares outstanding and entitled to vote on
the matter. Pursuant to the DBA Articles, an amendment to Article VII, regarding
directors, requires the affirmative vote of seventy-five percent (75%) of the
votes cast by shareholders voting on such proposal, and an amendment to Article
XIII, which requires a supermajority shareholder vote for certain business
combinations and other actions, requires the affirmative vote of the holders of
seventy-five percent (75%) of the outstanding shares.
SPECIAL MEETINGS OF STOCKHOLDERS AND SHAREHOLDERS. Under the FBCA, a
special meeting of stockholders may be called by (1) the board of directors, (2)
such persons authorized to do so in the articles of incorporation or bylaws or
(3) pursuant to written demand of the holders of shares entitled to cast not
less than 10% of the votes eligible to be cast at such meeting, unless a greater
percentage not to exceed 50% is required by the articles of incorporation. The
DBA Bylaws permit a special meeting to be called for any purpose or purposes by
the Chairman of the DBA Board or the President, and require certain officers to
call such a meeting upon written request of stockholders of record holding
shares of stock constituting a majority of the voting power represented by the
outstanding shares of stock of DBA.
Under the Titan Bylaws, a special meeting of stockholders may be called by
the Titan Board, the Chairman of the Board of Directors, or the President. The
DGCL permits that a special meeting of stockholders may be called by the Board
of Directors of by such persons as may be authorized by the certificate of
incorporation or bylaws.
ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS AND SHAREHOLDERS. The FBCA
provides that, unless otherwise provided in the articles of incorporation, any
action required or permitted by the FBCA to be taken at an annual or special
meeting of shareholders may be taken instead without a meeting by written
consent of the shareholders having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. The DBA Articles do
not alter this provision.
Under the DGCL, stockholders may execute an action by written consent in
lieu of a stockholder meeting. The Titan Bylaws provide that any action which
may be taken at a meeting of stockholders may be taken without a meeting and
without prior notice if written consents setting forth the action so taken are
signed by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
SIZE OF THE BOARD OF DIRECTORS. Under the FBCA, a board of directors must
consist of one or more individuals, and the number of directors must be
specified in or fixed in accordance with the articles of incorporation or
bylaws. The DBA Articles provide that the number of directors shall be such
number, not less than three nor more than fifty, as the shareholders may from
time to time determine. In the absence of any determination by the shareholders,
the number shall be such number as the directors determine and establish by the
DBA Bylaws. In addition, the directors of DBA may increase by three the number
of directors determined by the shareholders. The DBA Bylaws provide that the
directors be chosen by a plurality of the shareholder votes cast at each meeting
held for the election of directors.
The DGCL provides that the board of directors of a Delaware corporation
shall consist of one or more members. The Titan Bylaws currently provide that
the number of directors presently authorized is seven (7).
CLASSIFICATION OF BOARD OF DIRECTORS. The DGCL permits, but does not
require, a classified board of directors, divided into as many as three classes
with staggered terms under which one-half or one-third of the directors are
elected for terms of two or three years, respectively. The Titan Bylaws do not
provide for a classified board. The FBCA permits, but does not require, a
Florida corporation to provide in its articles of incorporation or a bylaw
adopted by a vote of the shareholders for a classified board pursuant to which
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the directors can be divided in up to three classes of directors with staggered
terms of offices. The DBA Articles provide for a classified board divided into
three classes.
CUMULATIVE VOTING. Under the DGCL, cumulative voting in the election of
directors is not available unless specifically provided for in the certificate
of incorporation. There is no provision for cumulative voting in the Titan
Certificate. Similarly, under the FBCA, cumulative voting in the election of
directors is not available unless the articles of incorporation so provide.
There is no provision for cumulative voting in the DBA Articles.
REMOVAL OF DIRECTORS. Under the DGCL, a director of a corporation with a
classified board of directors may be removed only for cause, unless the
certificate of incorporation otherwise provides. A director of a corporation
that does not have a classified board of directors or cumulative voting may be
removed with the approval of a majority of the outstanding shares entitled to
vote with or without cause. The Titan Bylaws provide that the Board of Directors
or any individual director may be removed from office at any time with or
without cause by the affirmative vote of the holders of the majority of the
voting power of all the outstanding stock entitled to vote thereon subject to
the provisions of the Titan Certificate. The Titan Certificate provides that the
removal of a director elected by the holders of Titan's Initial Series Preferred
Stock, or elected by the directors to fill a vacancy, requires the affirmative
vote of the holders of a majority of the initial Series Preferred Stock entitled
to vote thereon.
Under the FBCA, any director or the entire board of directors may be removed
by the shareholders, with or without cause, unless the articles of incorporation
provide otherwise. A director of a corporation that does not have cumulative
voting for directors, and does not provide for election by voting groups, may be
removed if the votes cast for removal exceed those cast not to remove him,
assuming a quorum is present, unless a greater vote is required by the articles
of incorporation. A director may be removed by the shareholders at a meeting of
the shareholders, provided the notice of the meeting states that the purpose, or
one of the purposes, of the meeting is removal of the director. The DBA Articles
provide that no director shall be removed and his or her successor named by a
vote of the shareholders except pursuant to a regular annual meeting of
shareholders called for that purpose, provided however, that the shareholders
may remove and replace any director upon the vote of seventy-five percent (75%)
of the votes cast by the shareholders at a special meeting of shareholders
called for that purpose. The DBA Bylaws require this same supermajority vote for
removal of a director at an annual meeting.
FILLING VACANCIES IN THE BOARD OF DIRECTORS. Under the DGCL, vacancies may
be filled by a majority of the directors then in office (even though less than a
quorum) unless otherwise provided in the certificate of incorporation or bylaws.
The DGCL further provides that if, at the time of filling any vacancy, the
directors then in office constitute less than a majority of the board (as
constituted immediately prior of any such increase), the Delaware Court of
Chancery may, upon application of any holder or holders of at least ten percent
of the total number of the outstanding stock having the right to vote for
directors, summarily order a special election be held to fill any such vacancy
or to replace directors chosen by the board to fill such vacancies. The Titan
Certificate does not alter this provision.
Under the FBCA, any vacancy on the board of directors generally may be
filled by the affirmative vote of a majority of the remaining directors, though
less than a quorum of the board of directors, or by the shareholders, unless the
articles of incorporation provide otherwise. The DBA Articles do not contain a
different provision for filling vacancies. The DBA Bylaws provide that any
vacancy on the board of directors may be filled by the majority of the remaining
directors, though less than a quorum, except that any vacancy created by the
removal of a director by the shareholders first may be filled at such meeting by
the shareholders. If the shareholders do not fill such vacancy at such meeting,
then the vacancy may be filled by the majority of the remaining directors.
PAYMENT OF DIVIDENDS; REDEMPTION OR REPURCHASE OF SHARES. The DGCL permits
a corporation to declare and pay dividends out of statutory surplus or, if there
is no surplus, out of net profits for the fiscal
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year in which the dividend is declared and/or for the preceding fiscal year as
long as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In addition, the DGCL generally
provides that a corporation may redeem or repurchase its shares only if such
redemption or repurchase would not impair the capital of the corporation. The
Titan Bylaws provide for the declaration of dividends in accordance with the
DGCL. The Titan Bylaws also provide that the Titan Board may set aside as a
reserve any funds the Titan Board believes necessary prior to the payment of
dividends.
The FBCA permits a corporation to authorize and make dividends and other
distributions to its shareholders unless, after giving such distribution effect,
the corporation would not be able to pay its debts as they become due in the
ordinary course or if the corporation's assets would be less than its total
liabilities plus any preferential payments required upon dissolution. Subject to
these restrictions, a Florida corporation may acquire its own shares, and,
unless otherwise provided in its articles of incorporation, shares so acquired
constitute authorized but unissued shares of the same class but undesignated as
to series. The DBA Articles contain no additional provisions relating to
distributions.
APPRAISAL RIGHTS. Under the DGCL, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal (or dissenters') rights pursuant to
which such stockholder may receive cash in the amount of the fair market value
of his or her shares in lieu of the consideration he or she would otherwise
receive in the transaction. Such rights are not available (a) with respect to
the sale, lease or exchange of all or substantially all of the assets of a
corporation, (b) with respect to a merger or consolidation by a corporation, the
shares of which are either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or are held of
record by more than 2,000 holders if such stockholders receive only shares of
the surviving corporation or shares of any other corporation which are either
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders, plus
cash in lieu of fractional shares, or (c) to stockholders of a corporation
surviving a merger if no vote of the stockholders of the surviving corporation
is required to approve the merger because the merger agreement does not amend
the existing certificate of incorporation, each share of the surviving
corporation outstanding prior to the merger is an identical outstanding or
treasury share after the merger, and the number of shares to be issued in the
merger does not exceed % of the shares of the surviving corporation
outstanding immediately prior to the merger and if certain other conditions are
met.
Under the FBCA, a shareholder of a Florida corporation has the right to
dissent from, and obtain payment of the fair value of his or her shares in the
event of (1) a merger to which the corporation is a party if the shareholder is
entitled to vote on the merger, (2) a sale or exchange of all or substantially
all of the corporation's assets other than in the usual and regular course of
business, (3) the approval of a "control share acquisition" (as defined in the
statute), (4) the consummation of a plan of share exchange to which the
corporation is a party as the corporation the shares of which will be acquired,
if the shareholder is entitled to vote on the plan, (5) an amendment to the
articles of incorporation if the shareholder is entitled to vote on the
amendment and the amendment would adversely affect the shareholder, and (6)
action on another matter if the articles of incorporation provide for
dissenters' rights with respect to such matter. The FBCA provides, however, that
unless the articles of incorporation provide otherwise, which the DBA Articles
do not, appraisal rights do not apply with respect to a plan of merger, share
exchange or sale or exchange of assets if as of the record date fixed to
determine the shareholders entitled to vote on the transaction, the shares are
either (i) listed on a national securities exchange, (ii) designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (iii) held of record by not
fewer than 2,000 shareholders. As discussed above, because the DBA Common Stock
was quoted on the Nasdaq National Market System on
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the Record Date, DBA stockholders are not entitled to appraisal rights in
connection with the Merger. See "Approval of the Merger and Related
Transactions--No Appraisal Rights of DBA Shareholders."
INSPECTION OF BOOKS AND RECORDS. Under the DGCL, any stockholder may
inspect, for any proper purpose, a company's stock ledger, a list of its
stockholders and any other books and records. Under the FBCA, a shareholder of a
corporation is entitled to inspect and copy the articles of incorporation,
bylaws, certain board and shareholder resolutions, certain written
communications to shareholders, a list of the names and business addresses of
the corporation's directors and officers, and the corporation's most recent
annual report, during regular business hours at the corporation's principal
office if the shareholder gives at least five business days' prior written
notice to the corporation. In addition, a shareholder of a Florida corporation
is entitled to inspect and copy other books and records of the corporation
during regular business hours if the shareholder gives at least five business
days' prior written notice to the corporation and (1) the shareholder's demand
is made in good faith and for a proper purpose, (2) the demand describes with
particularity its purpose and the records to be inspected or copied and (3) the
requested records are directly connected with such purpose. The FBCA also
provides that a corporation may deny any demand for inspection if the demand was
made for an improper purpose or if the demanding shareholder has, within two
years preceding such demand, sold or offered for sale any list of shareholders
of the corporation or any other corporation, has aided or abetted any person in
procuring a list of shareholders for such purpose or has improperly used any
information secured through any prior examination of the records of the
corporation or any other corporation. The DBA Articles authorize the DBA Board
to determine whether, to what extent, when and where shareholders may inspect
the books and records of DBA, in accordance with the FBCA.
The accounting books and records and minutes of proceedings of stockholders
and the Titan Board and committees of the Titan Board are open to inspection
upon the written demand on the corporation of any stockholder or holder of a
voting trust certificate at any reasonable time during usual business hours, for
a purpose reasonably related to such holder's interests as a stockholder or as
the holder of such voting trust certificate.
LIMITATION OF LIABILITY OF DIRECTORS. The DGCL permits corporations to
adopt a provision in their certificate of incorporation eliminating, with
certain exceptions, the personal liability of a director to the corporation or
its stockholders for monetary damages for breach of the director's fiduciary
duty as a director. Under the DGCL, Titan may not eliminate or limit director
monetary liability for (a) breaches of the director's duty of loyalty to the
corporation or its stockholders; (b) acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law; (c) unlawful
dividends, stock repurchases or redemptions; or (d) transactions from which the
director received an improper personal benefit. Such limitation of liability
provision also may not limit a director's liability for violation of, or
otherwise relieve directors from the necessity of complying with federal or
state securities laws, or affect the availability of nonmonetary remedies such
as injunctive relief or rescission. The Titan Certificate eliminates the
liability of the Titan Board to the fullest extent permissible under the DGCL.
The FBCA provides, in general, that no director is personally liable for
monetary damages to the corporation or any other person for any act or omission
regarding corporate management or policy, unless: (i) the director breached or
failed to perform his duties as a director, and (ii) such breach or failure (a)
constitutes a violation of criminal law, unless the director had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful, (b) constitutes a transaction from which the director
derived an improper personal benefit, (c) results in an unlawful distribution
under the FBCA, (d) in a derivative action or an action by a shareholder,
constitutes conscious disregard for the best interest of a corporation or
willful misconduct, or (e) in an action other than a derivative action or an
action by a shareholder, constitutes recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property. This FBCA
provision is self-executing, and does not require an amendment to a
corporation's articles of incorporation.
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INDEMNIFICATION. The DGCL generally permits indemnification in the defense
or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors, by independent legal
counsel or by the stockholders, that the person seeking indemnification acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to a criminal proceeding,
which such person had no reasonable cause to believe his or her conduct was
unlawful. Without court approval, however, no indemnification may be made in
respect of any derivative action in which such person is adjudged liable to the
corporation. The DGCL requires indemnification of expenses when the individual
being indemnified has successfully defended the action on the merits or
otherwise. The Titan Bylaws state Titan shall indemnify the Titan Board to the
fullest extent provided for by the DGCL.
The FBCA generally permits indemnification in the defense or settlement of a
derivative or third-party action, provided there is a determination by a
majority vote of a disinterested quorum of the directors, by a majority vote of
a committee duly designated by the board of directors consisting solely of two
or more directors not at the time parties to the proceeding, by independent
legal counsel or by a majority vote of a quorum of disinterested shareholders,
that the person seeking indemnification acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the corporation, and with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. Without court approval,
however, no indemnification may be made in respect of any derivative action in
which such person is adjudged liable to the corporation. However, the preceding
indemnification provisions are not exclusive, and indemnification may also be
available on a less restrictive basis, by provision in the articles of
incorporation or bylaws, by agreement, by resolution of the board of directors
or shareholders, or otherwise, provided that indemnification may not be made if
a court of competent jurisdiction establishes by final adjudication that the
actions or omissions of the person to be indemnified are material to the cause
of action so adjudicated and constituted: (a) a violation of the criminal law,
unless the person had reasonable cause to believe his or her conduct was lawful
or had no reasonable cause to believe his or her conduct was unlawful; (b) a
transaction from which the person derived an improper personal benefit; (c) in
the case of a director, an unlawful dividend or other distribution under the
terms of the FBCA; or (d) willful misconduct or conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or in the
right of a shareholder. The FBCA requires indemnification of expenses when the
individual being indemnified has been successful on the merits or otherwise in
the defense of any action, suit or proceeding (or any claim, issue or matter
therein). The DBA Articles include provisions which, in general, parallel the
provisions of the FBCA.
STOCKHOLDER AND SHAREHOLDER APPROVAL OF CERTAIN BUSINESS
COMBINATIONS. Section 203 of the DGCL prohibits a corporation from engaging in
a "business combination" with an "interested stockholder" for three years
following the date that such person becomes an interested stockholder. With
certain exceptions, an interested stockholder is a person or entity who or which
owns 15% or more of the corporation's outstanding voting stock (including any
rights to acquire stock pursuant to an option, warrant, agreement, arrangement
or understanding, or upon the exercise of conversion or exchange rights, and
stock with respect to which the person has voting rights only), or is an
affiliate or associate of the corporation and was the owner of 15% or more of
such voting stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers of the corporation or a subsidiary with or caused by
the interested stockholder; sales or other dispositions of the interested
stockholder (except proportionately with the corporation's other stockholders)
of assets of the corporation or a subsidiary equal to ten percent or more of the
aggregate market value of the corporation's consolidated assets or its
outstanding stock; the issuance or transfer by the corporation or a subsidiary
of stock of the corporation or such subsidiary to the interested stockholder
(except for certain transfers in a conversion or exchange or a pro rata
distribution or certain other transactions, none of which increase the
interested stockholder's proportionate ownership of any class or series of the
corporation's or
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such subsidiary's stock); or receipt by the interested stockholder (except
proportionately as a stockholder), directly or indirectly, of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if (i) prior to the date at which such stockholder becomes an
interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder; (ii) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
or her an interested stockholder (excluding from the number of shares
outstanding those shares owned by directors who are also officers of the target
corporation and shares held by employee stock plans which do not permit
employees to decide confidentially whether to accept a tender or exchange
offer); or (iii) on or after the date such person becomes an interested
stockholder, the board approves the business combination and it is also approved
at a stockholder meeting by sixty-six and two-thirds percent (66 2/3%) of the
voting stock not owned by the interested stockholder. Section 203 does not apply
if the business combination is proposed prior to the consummation or abandonment
of and subsequent to the earlier of the public announcement or a 20-day notice
required under Section 203 of the proposed transaction which (i) constitutes
certain (a) mergers or consolidations, (b) sales or other transfers of assets
having an aggregate market value equal to 50% or more of the aggregate market
value of all of the assets of the corporation determined on a consolidated basis
or the aggregate market value of all the outstanding stock of the corporation,
or (c) proposed tender or exchange offer for 50% or more of the corporation's
outstanding voting stock; (ii) is with or by a person who was either not an
interested stockholder during the last three years or who became an interested
stockholder with the approval of the corporation's board of directors; and (iii)
is approved or not opposed by a majority of the board members elected prior to
any person becoming an interested stockholder during the previous three years
(or their chosen successors).
Section 607.0901 of the FBCA requires an "affiliated transaction," which is
defined to include certain business combinations and certain other transactions
with an "interested shareholder" or its affiliate to be approved by a vote of
holders of two-thirds of the voting shares other than shares beneficially owned
by an interested shareholder. An "interested shareholder" is, with certain
exceptions, one who is the beneficial owner of more than 10% of the
corporation's outstanding voting shares. This provision does not apply to a
corporation which has had not more than 300 shareholders of record at any time
within the 3 years preceding the announcement of the transaction, or if, among
other things, (i) the affiliated transaction has been approved by a majority of
the corporation's disinterested directors, (ii) consideration is paid to the
corporation's shareholders which meets certain "fair value" criteria, (iii) the
interested shareholder has been the beneficial owner of at least 80% of the
outstanding voting shares for at least 5 years preceding the announcement date
of the affiliated transaction, or at least 90% of the voting shares, with no
holding period requirement, exclusive of shares acquired from the corporation in
a transaction not approved by disinterested directors, or (iv) the corporation's
original articles of incorporation, or an amendment to the articles or bylaws
approved by the holders of a majority of the outstanding voting power (excluding
interested shareholders, their affiliates and associates) expressly elects not
to be governed by the statute and, in the case of such an amendment, the
amendment was approved at least 18 months prior to the date the interested
shareholder in question is determined to be such.
The FBCA also contains a control share acquisition statute which provides
that a person who acquires shares in an "issuing public corporation" in excess
of certain specified thresholds (which begin at one-fifth of the overall voting
power) will generally not have any voting rights with respect to such shares
unless the voting rights are approved by a majority of the shares entitled to
vote, excluding interested shares. This statute also permits a corporation to
adopt a provision in its articles of incorporation or bylaws providing for the
redemption by the corporation of such acquired shares in certain circumstances.
This statute does not apply to acquisitions of shares of a corporation if, prior
to the pertinent acquisition, the corporation's articles of incorporation or
bylaws provide that the corporation shall not be governed by the statute, or the
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board of directors approved the acquisition, or in certain other circumstances.
Unless otherwise provided in the corporation's articles of incorporation or
bylaws prior to the pertinent acquisition of shares, in the event that such
shares are accorded full voting rights by the shareholders of the corporation
and the acquiring shareholder acquires a majority of the voting power of the
corporation, all shareholders who did not vote in favor of according voting
rights to such acquired shares are entitled to dissenters' appraisal rights.
DBA's Articles and Bylaws do not contain any provisions with respect to this
statute. Delaware does not have any provision comparable to Florida's control
share acquisition statute.
STOCKHOLDER VOTING ON MERGERS AND SIMILAR TRANSACTIONS. The laws of
Delaware generally require that a majority of the stockholders of both acquiring
and target corporations approve statutory mergers. The DGCL does not require a
stockholder vote of the surviving corporation in a merger (unless the
corporation provides otherwise in its certificate of incorporation) if (a) the
merger agreement does not amend the existing certificate of incorporation, (b)
each share of stock of the surviving corporation outstanding before the merger
is an identical outstanding or treasury share after the merger, and (c) the
number of shares to be issued by the surviving corporation in the merger does
not exceed 20% of the shares outstanding immediately prior to the merger. The
laws of Delaware also generally require that a sale of all or substantially all
of the assets of a corporation be approved by a majority of the voting shares of
the corporation transferring such assets. The DGCL generally does not require
class voting, except for amendments to the certificate of incorporation that
change the number of authorized shares or the par value of shares of a specific
class or that adversely affect such class of shares. The FBCA requires class
voting when the terms of the merger or share exchange would require a class vote
if such terms were contained in an amendment to the corporation's articles of
incorporation.
The FBCA provides that statutory mergers and share exchanges, as well as the
sale of substantially all of the property (other than in the ordinary course) of
a Florida corporation, must be approved first by the board of directors, and
then by a majority in voting power of the outstanding shares of the corporation
entitled to vote thereon, unless a greater vote or a class vote is required by
the FBCA, the articles of incorporation, or by the board of directors, which has
the power to condition its submission of such a transaction to the vote of
stockholders on any basis. However, the FBCA also provides that unless otherwise
provided in the articles of incorporation, the shareholders of a corporation
surviving a merger need not approve the transaction if: (a) the articles of
incorporation of the surviving corporation will not differ from its articles
before the merger, and (b) each shareholder of the surviving corporation whose
shares were outstanding immediately prior to the effective date of the merger
will hold the same number of shares with identical designations, preferences,
limitations and relative rights, immediately after the merger. The DBA Articles
provide that any proposed merger or other business combination between DBA and
any other person or business entity, and any proposed sale of any property or
assets essential to the business of DBA, that has not first been approved by the
DBA Board is required to be approved by the affirmative vote of seventy-five
percent (75%) of the votes cast in connection with such transaction.
LOANS TO DIRECTORS, OFFICERS AND EMPLOYEES. The DGCL and the Titan Bylaws
permit Titan to make loans to, guarantee the obligations of, or otherwise
assists its officers or other employees when such action, in the judgment of the
directors, may reasonably be expected to benefit Titan.
The FBCA permits a corporation to lend money to, guarantee any obligations
of, or otherwise assist any officer, director or employee whenever, in the
judgment of the board of directors, such loan, guaranty or assistance may
reasonably be expected to benefit the corporation, provided that no conflict of
interest exists that is not permitted under the FBCA. Such loan, guaranty or
assistance may be with or without interest and may unsecured or secured in such
manner as the board of directors shall approve, including, without limitation, a
pledge of shares of stock of the corporation.
INTERESTED DIRECTOR TRANSACTIONS. Under the laws of Delaware, contracts or
transactions between a corporation and one or more of its directors or between a
corporation and any other entity in which one or more of its directors are
directors or have a financial interest, are not void or voidable because of such
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interest or because such director is present at a meeting of the board which
authorizes or approves the contract or transaction, provided that certain
conditions, such as obtaining the required approval and fulfilling the
requirements of good faith and full disclosure, are met. Under Delaware law,
either (a) the stockholders or the board of directors must approve any such
contract or transaction in good faith after full disclosure of the material
facts or (b) the contract or transaction must have been just and reasonable as
to the corporation at the time it was approved. Under the DGCL, if board
approval is sought, the contract or transaction must be approved by a majority
of the disinterested directors (even though less than a majority of a quorum).
Under Florida law, contracts or transactions between the corporation and one
or more of its directors or officers, or entities in which such person has an
interest, are neither void nor voidable if either the director's or officer's
interest is made known to the disinterested directors or stockholders of the
corporation, who thereafter approve the transaction, or the contract or
transaction is "fair and reasonable" to the corporation as of the time it is
approved or ratified by either the board of directors, a committee of the board,
or the stockholders. Under the FBCA, if board or committee approval is sought,
the contract or transaction must be approved by a majority of the disinterested
directors (even though less than a majority of a quorum), although the approval
of at least two directors is required. The DBA Articles provide that no contract
or other transaction between DBA and any other entity (in the absence of fraud)
shall be affected or invalidated by the fact that one or more of the directors
of DBA is interested in the entity or the transaction. Additionally, the DBA
Articles relieve any person who may become a director from any liability that
might otherwise exist from contracting with DBA for his or her own benefit or
the benefit of any entity in which he or she may in any way be interested.
STOCKHOLDER AND SHAREHOLDER DERIVATIVE SUIT. Under both the FBCA and the
DGCL, a person may only bring a derivative action on behalf of the corporation
if the person was a stockholder of the corporation at the time of the
transaction in question or his or her stock thereafter devolved upon him or her
by operation of law. The FBCA also provides that a complaint in a derivative
proceeding must be verified and must allege with particularity that a demand was
made to obtain action by the board of directors and that the demand was refused
or ignored. Under the FBCA, a derivative proceeding may be settled or
discontinued only with court approval, and the court may dismiss a derivative
proceeding if the court finds that certain independent directors (or a committee
of independent persons appointed by such directors) have determined in good
faith after conducting a reasonable investigation that the maintenance of the
action is not in the best interests of the corporation. The FBCA also provides
that if an action was brought without reasonable cause the court may require the
plaintiff to pay the corporation's reasonable expenses, and if the plaintiff is
successful the court may require the corporation to pay the reasonable expenses
of the plaintiff.
DISSOLUTION. Under the DGCL, if the dissolution is initiated by the board
of directors it may be approved by the holders of a majority of the
corporation's shares. If the board of directors does not approve the proposal to
dissolve, it must be consented to in writing by all stockholders entitled to
vote thereon. Under the FBCA, unless a greater vote is required by the articles
of incorporation or the board of directors (who may condition its submission of
such a proposal to a stockholder vote on any basis), a proposal to dissolve
which is made by the board of directors must be approved by a majority of all
votes entitled to be cast by shareholders on that proposal. The FBCA also
provides that, without any action by the board of directors, stockholders may
approve dissolution of a corporation by written consent.
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EXPERTS
The consolidated financial statements of The Titan Corporation included in
this Prospectus/Joint Proxy Statement and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The consolidated financial statements of DBA as of June 30, 1997 and 1996
and for each of the three years in the period ended June 30, 1997 included in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and the federal
income tax consequences of the Merger will be passed upon for Titan by Cooley
Godward LLP, San Diego, California. Certain legal matters in connection with the
Merger Agreement and the federal income tax consequences of the Merger will be
passed upon for DBA by Arent Fox Kintner Plotkin & Kahn, PLLC, Washington, D.C.
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INDEX TO FINANCIAL STATEMENTS
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THE TITAN CORPORATION
AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants............................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995........................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995
and 1994............................................................................................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994............. F-6
Notes to Consolidated Financial Statements............................................................. F-7
UNAUDITED FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheet as of September 30, 1997.......................................... F-22
Unaudited Consolidated Statements of Operations for the Nine Months Ended September 30, 1997 and
1996.................................................................................................. F-23
Unaudited Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 1997
and 1996.............................................................................................. F-24
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and
1996.................................................................................................. F-25
Notes to Unaudited Consolidated Financial Statements................................................... F-26
DBA SYSTEMS, INC.
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report........................................................................... F-29
Consolidated Balance Sheets as of June 30, 1997 and 1996............................................... F-30
Consolidated Statements of Income for the Years Ended June 30, 1997, 1996 and 1995..................... F-32
Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1997, 1996 and 1995....... F-33
Consolidated Statements of Cash Flows for the Years Ended June 30, 1997, 1996 and 1995................. F-34
Notes to Financial Statements.......................................................................... F-36
UNAUDITED CONDENSED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheet as of September 30, 1997................................ F-46
Unaudited Condensed Consolidated Statements of Income for the Three Months Ended September 30, 1996 and
1997.................................................................................................. F-47
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 1996
and 1997.............................................................................................. F-48
Notes to Unaudited Condensed Consolidated Financial Statements......................................... F-49
</TABLE>
F-1
<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 are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 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.
ARTHUR ANDERSEN LLP
San Diego, California
January 19, 1998
F-2
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARES AND PER SHARE VALUES)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents................................................................. $ 2,052 $ 5,833
Accounts receivable--net.................................................................. 45,720 38,736
Inventories............................................................................... 12,419 10,353
Prepaid expenses and other................................................................ 1,708 2,526
Net assets of discontinued operation...................................................... 1,304 309
Deferred income taxes..................................................................... 6,037 4,809
--------- ---------
Total current assets.................................................................. 69,240 62,566
Property and equipment--net................................................................. 19,984 17,879
Goodwill--net of accumulated amortization of $4,723 and $3,842.............................. 21,348 3,550
Other assets--net........................................................................... 8,438 7,152
Net assets of discontinued operation........................................................ 7,264 3,316
--------- ---------
Total assets................................................................................ $ 126,274 $ 94,463
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................................................... $ 8,018 $ 10,080
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......................................................... 8,061 8,745
Other accrued liabilities................................................................. 10,036 13,647
--------- ---------
Total current liabilities............................................................... 28,125 42,691
--------- ---------
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.................................................. $ 126,274 $ 94,463
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
Revenues..................................................................... $ 135,484 $ 131,535 $ 136,206
Costs and expenses:
Cost of revenues........................................................... 107,885 99,282 99,708
Selling, general and administrative expense................................ 21,086 22,580 21,858
Research and development expense........................................... 3,152 4,782 4,420
Restructuring and other (income) expense, net.............................. -- 6,249 (1,200)
---------- ---------- ----------
Total costs and expenses................................................... 132,123 132,893 124,786
Operating profit (loss)...................................................... 3,361 (1,358) 11,420
Interest expense............................................................. (3,026) (1,154) (923)
Interest income.............................................................. 65 95 291
---------- ---------- ----------
Income (loss) from continuing operations before income taxes................. 400 (2,417) 10,788
Income tax provision (benefit)............................................... 136 (582) 3,657
---------- ---------- ----------
Income (loss) from continuing operations..................................... 264 (1,835) 7,131
Loss from discontinued operation, net of taxes............................... (3,642) (1,972) (1,178)
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
---------- ---------- ----------
---------- ---------- ----------
Per weighted average common shares:
Income (loss) from continuing operations................................... $ (.03) $ (.19) $ .48
Loss from discontinued operation........................................... (.24) (.14) (.08)
---------- ---------- ----------
Net income (loss)............................................................ $ (.27) $ (.33) $ .40
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding................................... 15,278 13,445 13,288
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE
CONVERTIBLE CAPITAL IN
PREFERRED COMMON EXCESS OF RETAINED TEASURY
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
----- ----- ----------- ----------- --------- ---------
----- ----- ----------- ----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss).................................................................... $ 264 $ (1,835) $ 7,131
Adjustments to reconcile income (loss) to net cash provided by (used for)
operating activities:
Depreciation and amortization.................................................... 5,144 3,865 3,388
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.......................................................... 4,618 (2,572) 8,166
Inventories.................................................................. (4,769) (3,316) (485)
Prepaid expenses and other assets............................................ 349 1,148 160
Accounts payable............................................................. (3,768) 2,678 (44)
Income taxes payable......................................................... (653) -- --
Accrued compensation and benefits............................................ (2,599) (1,657) 961
Restructuring activities..................................................... (4,099) (486) (1,200)
Other liabilities............................................................ (1,274) (1,284) (12,339)
--------- --------- ---------
Net cash provided by (used for) continuing operations............................ (8,696) (3,281) 6,419
--------- --------- ---------
Loss from discontinued operation................................................. (3,642) (1,972) (1,178)
Change in net assets of discontinued operation................................... (4,943) (2,894) (731)
--------- --------- ---------
Net cash used for discontinued operation......................................... (8,585) (4,866) (1,909)
--------- --------- ---------
Net cash provided by (used for) operating activities............................. (17,281) (8,147) 4,510
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds, net of transaction costs, from sale of businesses...................... 2,492 1,835 16,766
Capital expenditures............................................................. (5,174) (8,674) (5,943)
Payment for purchase of businesses, net of cash acquired......................... (2,679) -- --
Other............................................................................ 192 48 (211)
--------- --------- ---------
Net cash provided by (used for) investing activities............................. (5,169) (6,791) 10,612
--------- --------- ---------
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
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
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, 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, and medical device
sterilization. Certain investments made in these start-up ventures are reflected
in the balance sheet, primarily within the captions of Inventories, and Property
and Equipment. These capitalized investments aggregate approximately $12,567 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
F-7
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
F-8
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 an agreement with the principal stockholder, providing
for annual payments of $.3 million, payable monthly, for 6 years beginning May
24, 1996. The net present value of this agreement ($1.5 million) was recorded as
additional purchase price at the acquisition date. This obligation was settled
in full 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.............................................................. $ 159,820 $ 182,620
Net loss.............................................................. (1,426) (1,384)
Net loss per share.................................................... (.09) (.09)
</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.
F-9
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
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 were substantially accomplished. 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................................................................... 8,271 13,813
Less allowance for doubtful accounts.................................... (204) (284)
--------- ---------
$ 45,720 $ 38,736
--------- ---------
--------- ---------
</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
F-10
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 4. OTHER FINANCIAL DATA (CONTINUED)
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............................................................... $ 1,998 $ 3,106
Work-in-process......................................................... 9,201 4,159
Finished goods.......................................................... 1,220 3,088
--------- ---------
$ 12,419 $ 10,353
--------- ---------
--------- ---------
Property and Equipment:
Machinery and equipment................................................. $ 28,488 $ 23,002
Furniture and fixtures.................................................. 5,284 3,176
Land, buildings and leasehold improvements.............................. 7,538 3,442
Construction in progress................................................ 938 5,983
--------- ---------
42,248 34,603
Less accumulated depreciation and amortization.......................... (22,264) (17,724)
--------- ---------
$ 19,984 $ 17,879
--------- ---------
--------- ---------
</TABLE>
Deferred income taxes of $4,094 and $5,904 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 develops, manufactures and sells satellite earth
station networks and related subsystems. 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.
F-11
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 5. SEGMENT INFORMATION (CONTINUED)
The following tables summarize industry segment data for 1996, 1995 and
1994.
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Communications Systems................................... $ 3,647 $ 5,058 $ 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
---------- ---------- ----------
$ 135,484 $ 131,535 $ 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........................................ $ (2,323) $ (1,891) $ (6,142)
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
--------- --------- ---------
$ 3,361 $ (1,358) $ 11,420
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Defense Systems segment includes Applications Group revenue of $11,913
and operating profit of $919 in 1994 through the date of sale.
F-12
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 5. SEGMENT INFORMATION (CONTINUED)
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...................................... $ 8,893 $ 3,955 $ 3,363
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.................................... 25,024 22,785 20,713
---------- --------- ---------
$ 126,274 $ 94,463 $ 81,184
---------- --------- ---------
---------- --------- ---------
</TABLE>
General corporate assets are principally cash, prepaid expenses, deferred
income taxes, and other assets, including net assets of discontinued operation.
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Depreciation and Amortization of Property and Equipment,
Goodwill, and Other Assets:
Communications Systems........................................... $ 423 $ 114 $ 351
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
--------- --------- ---------
$ 5,144 $ 3,865 $ 3,388
--------- --------- ---------
--------- --------- ---------
Capital Expenditures:
Communications Systems........................................... $ 832 $ 383 $ 96
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
--------- --------- ---------
$ 5,174 $ 8,674 $ 5,943
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-13
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
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........................................................ $ -- $ (1,663) $ 1,906
State.......................................................... -- (164) 281
-- (1,827) 2,187
Deferred....................................................... 136 1,245 1,470
--------- --------- ---------
$ 136 $ (582) $ 3,657
--------- --------- ---------
--------- --------- ---------
</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)....................... $ 136 $ (822) $ 3,668
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 (51) (139)
--------- --------- ---------
Actual tax provision (benefit)................................. $ 136 $ (582) $ 3,657
--------- --------- ---------
--------- --------- ---------
</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>
F-14
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 6. INCOME TAXES (CONTINUED)
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
F-15
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 7. DEBT (CONTINUED)
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 $7,941 in 1996, $7,484 in 1995 and $7,365
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.
F-16
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
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.
F-17
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
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> <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.
F-18
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 12. STOCK-BASED COMPENSATION PLANS (CONTINUED)
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
- ------------------------------------------- -------------------------------------------------
<C> <C> <S> <C> <C> <C>
WEIGHTED-
AVERAGE
RANGE OF NUMBER REMAINING NUMBER
EXERCISE OUTSTANDING CONTRACTUAL WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
PRICES AT 12/31/96 LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- ------------- ----------- --------------- ----------------- ----------- -----------------
$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.
F-19
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 13. BENEFIT PLANS
The Company has various defined contribution benefit plans covering certain
employees. The Company's contributions to these plans were $2,206, $2,475, and
$2,260 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 $1,280, $2,475, 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>
FIRST SECOND THIRD FOURTH TOTAL
1996 QUARTER QUARTER QUARTER QUARTER YEAR
- ---------------------------------------------------------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................................................. $ 30,895 $ 29,162 $ 34,588 $ 40,839 $ 135,484
Gross profit.............................................. 6,565 7,199 6,397 7,438 27,599
Income (loss) from continuing operations.................. 213 417 (796) 430 264
Net income (loss)......................................... (864) (747) (1,969) 202 (3,378)
Income (loss) from continuing operations per common
share................................................... .00 .02 (.06) .01 (.03)
Net income (loss) per common share........................ (.07) (.06) (.14) .00 (.27)
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
1995 QUARTER QUARTER QUARTER QUARTER(A) YEAR
- -------------------------------------------------------- --------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................................................ $ 29,750 $ 33,655 $ 34,516 $ 33,614 $ 131,535
Gross profit............................................ 8,607 9,429 7,460 6,757 32,253
Income (loss) from continuing operations................ 1,033 1,391 1,093 (5,352) (1,835)
Net income (loss)....................................... 535 719 470 (5,531) (3,807)
Income (loss) from continuing operations per common
share................................................. .06 .09 .06 (.40) (.19)
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.
F-20
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 15. SUBSEQUENT EVENT
On April 11, 1997, the Company's Board of Directors adopted a plan to divest
the Company's broadband communications business. The results of the broadband
communications business have been accounted for as a discontinued operation in
accordance with Accounting Principles Board Opinion No. 30, which among other
provisions, anticipates that the plan of disposal will be carried out within one
year. Management anticipates that the business will be sold by June 30, 1998.
Revenues for the broadband communications business were $2,238, $2,432 and
$0 for the years ended December 31, 1996, 1995 and 1994, respectively. Included
in the loss from discontinued operation is a tax benefit of $1,876, $625 and
$607 for the years ended December 31, 1996, 1995 and 1994, respectively. Net
current assets of discontinued operation consist primarily of accounts
receivable and inventory, net of accounts payable, accrued compensation and
other current liabilities. Net noncurrent assets of discontinued operation
consist of property and equipment and intangible assets, primarily capitalized
software costs. Prior year consolidated financial statements have been restated
to present the broadband communications business as a discontinued operation.
F-21
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES AND PAR VALUES)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
SEPTEMBER 30, ------------
1997 (AUDITED)
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 1,397 $ 2,052
Accounts receivable--net.......................................................... 52,889 45,720
Inventories....................................................................... 13,667 12,419
Prepaid expenses and other........................................................ 1,726 1,708
Net assets of discontinued operation.............................................. 8,896 1,304
Deferred income taxes............................................................. 4,961 6,037
------------- ------------
Total current assets............................................................ 83,536 69,240
Property and equipment--net......................................................... 18,838 19,984
Goodwill--net....................................................................... 20,333 21,348
Other assets........................................................................ 8,388 8,438
Net assets of discontinued operation................................................ 4,186 7,264
------------- ------------
Total assets........................................................................ $ 135,281 $ 126,274
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 9,640 $ 8,018
Line of credit.................................................................... 14,650 --
Note payable to related party..................................................... -- 1,000
Current portion of long-term debt................................................. 1,076 1,010
Accrued compensation and benefits................................................. 5,962 8,061
Other accrued liabilities......................................................... 4,778 10,036
------------- ------------
Total current liabilities....................................................... 36,106 28,125
------------- ------------
Long-term debt...................................................................... 39,218 40,071
Other non-current liabilities....................................................... 7,421 8,433
Series B cumulative convertible redeemable preferred stock, $3,000 liquidation
preference, 6% cumulative annual dividend, 500,000 shares issued and
outstanding....................................................................... 3,000 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 45,000,000 shares; issued and
outstanding: 17,184,476 and 17,133,680.......................................... 172 171
Capital in excess of par value.................................................... 42,936 42,751
Retained earnings................................................................. 8,362 5,988
Treasury stock (985,894 and 1,106,114 shares), at cost............................ (2,629) (2,960)
------------- ------------
Total stockholders' equity...................................................... 49,536 46,645
------------- ------------
Total liabilities and stockholders' equity.......................................... $ 135,281 $ 126,274
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1997 1996 1997 1996
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues............................................................. $ 41,973 $ 34,588 $ 127,212 $ 94,645
Costs and expenses:
Cost of revenues................................................... 31,725 28,191 97,644 74,484
Selling, general and administrative expense........................ 4,806 5,942 15,530 16,405
Research and development expense................................... 1,740 1,055 4,997 2,190
--------- --------- ---------- ---------
Total costs and expenses........................................... 38,271 35,188 118,171 93,079
--------- --------- ---------- ---------
Operating profit (loss).............................................. 3,702 (600) 9,041 1,566
Interest expense..................................................... (1,361) (745) (3,887) (1,902)
Interest income...................................................... 23 46 35 64
--------- --------- ---------- ---------
Income (loss) from continuing operations before income taxes......... 2,364 (1,299) 5,189 (272)
Income tax provision (benefit)....................................... 827 (503) 1,816 (106)
--------- --------- ---------- ---------
Income (loss) from continuing operations............................. 1,537 (796) 3,373 (166)
Loss from discontinued operation, net of taxes....................... -- (1,173) (343) (3,414)
--------- --------- ---------- ---------
Net income (loss).................................................... 1,537 (1,969) 3,030 (3,580)
Dividend requirements on preferred stock............................. 219 219 656 585
--------- --------- ---------- ---------
Net income (loss) applicable to common stock $ 1,318 $ (2,188) $ 2,374 $ (4,165)
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Per weighted average common shares:
Income (loss) from continuing operations........................... $ .08 $ (.06) $ .17 $ (.05)
Loss from discontinued operation................................... -- (.08) (.02) (.23)
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Net income (loss).................................................... $ .08 $ (.14) $ .15 $ (.28)
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Weighted average common shares outstanding........................... 16,676 16,107 16,311 14,981
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE CAPITAL
CONVERTIBLE IN EXCESS
PREFERRED COMMON OF PAR RETAINED TREASURY
STOCK STOCK VALUE EARNINGS STOCK TOTAL
------------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1997
Balances at December 31, 1996.................. $ 695 $ 171 $ 42,751 $ 5,988 $ (2,960) $ 46,645
Exercise of stock options and other............ 1 171 172
Shares contributed to employee benefit plans... 14 331 345
Dividends on preferred stock--
Cumulative convertible, $.75 per share......... (521) (521)
Series B, 6% annual............................ (135) (135)
Net income..................................... 3,030 3,030
----- ----- ----------- ----------- --------- ---------
Balances at September 30, 1997................. $ 695 $ 172 $ 42,936 $ 8,362 $ (2,629) $ 49,536
----- ----- ----------- ----------- --------- ---------
----- ----- ----------- ----------- --------- ---------
NINE MONTHS ENDED SEPTEMBER 30, 1996
Balances at December 31, 1995.................. $ 695 $ 151 $ 31,148 $ 10,169 $ (3,524) $ 38,639
Stock issuance for acquisition................. 19 11,510 11,529
Exercise of stock options...................... 1 405 (62) 344
Shares contributed to employee benefit plans... 466 624 1,090
Dividends on preferred stock--
Cumulative convertible, $.75 per share......... (521) (521)
Series B, 6% annual............................ (64) (64)
Net loss....................................... (3,580) (3,580)
----- ----- ----------- ----------- --------- ---------
Balances at September 30, 1996................. $ 695 $ 171 $ 43,529 $ 6,004 $ (2,962) $ 47,437
----- ----- ----------- ----------- --------- ---------
----- ----- ----------- ----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Cash Flows From Operating Activities:
Income (loss) from continuing operations.................................................. $ 3,373 $ (166)
Adjustments to reconcile income (loss) from continuing operations to net cash used for
continuing operations:
Depreciation and amortization............................................................. 4,224 4,026
Deferred income taxes and other........................................................... 1,775 (1,690)
Changes in operating assets and liabilities, net of businesses sold:
Accounts receivable..................................................................... (7,169) 9,684
Inventories............................................................................. (1,348) (4,521)
Prepaid expenses and other assets....................................................... (975) (338)
Accounts payable........................................................................ 1,622 (2,739)
Accrued compensation and benefits....................................................... (2,099) (3,539)
Restructuring activities................................................................ (815) (3,817)
Other liabilities....................................................................... (5,023) (2,644)
---------- ----------
Net cash used for continuing operations................................................... (6,435) (5,744)
---------- ----------
Loss from discontinued operation.......................................................... (343) (3,414)
Changes in net assets of discontinued operation........................................... (4,514) (1,290)
---------- ----------
Net cash used for discontinued operation.................................................. (4,857) (4,704)
---------- ----------
Net cash used for operating activities.................................................... (11,292) (10,448)
---------- ----------
Cash Flows From Investing Activities:
Capital expenditures...................................................................... (2,056) (3,656)
Payment for purchase of businesses, net of cash acquired.................................. -- (1,000)
Proceeds, net of transaction costs, from sale of businesses............................... 200 2,492
Other..................................................................................... 114 245
---------- ----------
Net cash used for investing activities.................................................... (1,742) (1,919)
---------- ----------
Cash Flows From Financing Activities:
Additions to debt......................................................................... 14,650 13,356
Retirements of debt....................................................................... (1,780) (3,436)
Dividends paid............................................................................ (656) (585)
Proceeds from stock issuances............................................................. 165 344
---------- ----------
Net cash provided by financing activities................................................. 12,379 9,679
---------- ----------
Net decrease in cash...................................................................... (655) (2,688)
Cash at beginning of period............................................................... 2,052 5,833
---------- ----------
Cash at end of period..................................................................... $ 1,397 $ 3,145
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
THE TITAN CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE (1) BASIS OF FINANCIAL STATEMENT PREPARATION
The accompanying consolidated financial information of The Titan Corporation
and its subsidiaries ("the Company" or "Titan") should be read in conjunction
with the Notes to Consolidated Financial Statements contained in the Company's
Annual Report on Form 10-K to the Securities and Exchange Commission for the
year ended December 31, 1996. The accompanying financial information includes
all subsidiaries on a consolidated basis and all normal recurring adjustments
which are considered necessary by the Company's management for a fair
presentation of the financial position and results of operations for the periods
presented. However, these results are not necessarily indicative of results for
a full year. The prior year financial statements have been restated to reflect
the discontinuance of an operation in 1997 (see Note 2). Also, certain prior
year amounts have been reclassified to conform to the 1997 presentation.
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.
NOTE (2) DISCONTINUED OPERATION
On April 11, 1997, the Company's Board of Directors adopted a plan to divest
the Company's broadband communications business in order to focus on the
Company's businesses that are better aligned with its available resources and
offer a greater opportunity for Titan to create value for its shareholders. The
results of the broadband communications business have been accounted for as a
discontinued operation in accordance with Accounting Principles Board Opinion
No. 30, which among other provisions, anticipates that the plan of disposal will
be carried out within one year. Management anticipates that the business will be
sold by June 30, 1998.
Revenues for the broadband communications business were $8 and $266 for the
three months and $537 and $543 for the nine months ended September 30, 1997 and
1996, respectively. Included in the loss from discontinued operation is a tax
benefit of $604 for the three months ended September 30, 1996 and $177 and
$1,759 for the nine months ended September 30, 1997 and 1996, respectively. The
Company deferred losses from the discontinued operation of $3,033 and $6,324 in
the third quarter and nine months ended September 30, 1997, which primarily
represented amortization costs of intangible assets, and to a lesser degree,
operating costs of the business. Included in the deferred losses is interest of
$104 and $244 in the three months and nine months ended September 30, 1997,
respectively, allocated to the discontinued operation based on the ratio of net
assets to be sold to the sum of total net assets of the Company. Net current
assets of discontinued operation consist primarily of accounts receivable,
inventory, and deferred losses from the date of discontinuance net of accounts
payable, accrued compensation and other current liabilities. Net noncurrent
assets of discontinued operation consist of property and equipment and
intangible assets, primarily capitalized software costs. Prior year consolidated
financial statements have been restated to present the broadband communications
business as a discontinued operation.
NOTE (3) DEBT
In May 1997, the Company completed an agreement with Sumitomo Bank of
California and Imperial Bank for a $24,000 line of credit maturing May 31, 1998,
amending and replacing the previous $14,000 line
F-26
<PAGE>
THE TITAN CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE (3) DEBT (CONTINUED)
with Sumitomo Bank, and replacing the existing line of credit with Crestar Bank.
The Company has the option to borrow at a bank prime rate or at LIBOR plus 2%.
The agreement contains, among other financial covenants, provisions which
require the Company to have annual net income, as defined, prohibits two
consecutive quarterly losses in aggregate of greater than $500, and contains
other financial covenants which require the Company to maintain stipulated
levels of net worth and minimum interest coverage, and fixed charge coverage and
quick ratios. Under the agreement, the Company and its wholly owned
subsidiaries, Titan Information Systems Corporation ("TIS"), Eldyne and Unidyne,
granted the banks 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
banks.
At September 30, 1997, borrowings outstanding under this agreement were
$14,650, at a weighted average interest rate of 7.92%. The Company also had
commitments under letters of credit under this agreement of $1,177, which
reduced availability under the line of credit to $8,173. On May 23, 1997, the
Company repaid in full the line of credit agreement and equipment note with
Crestar Bank. A mortgage note with a balance of $1,228 at September 30, 1997,
remains outstanding with Crestar Bank.
At September 30, 1997, the Company was in compliance with all financial
covenants under its various debt agreements.
NOTE (4) RESTRUCTURING
At December 31, 1996, the Company had $815 remaining in other current
liabilities related to a formal plan of restructuring adopted in 1995. Charges
against these restructuring reserves were $815 and $991 in the first nine months
of 1997 and 1996, respectively. The charges to these reserves in 1997, which
were all incurred in the first quarter, were primarily related to costs
associated with the exiting of businesses, as well as the termination of certain
agreements.
NOTE (5) OTHER FINANCIAL DATA
<TABLE>
<CAPTION>
DECEMBER 31,
1996
SEPTEMBER 30, ------------
1997 (AUDITED)
-------------
(UNAUDITED)
<S> <C> <C>
Inventories:
Materials....................................................... $ 1,901 $ 1,998
Work-in-process................................................. 9,850 9,201
Finished goods.................................................. 1,916 1,220
------------- ------------
$ 13,667 $ 12,419
------------- ------------
------------- ------------
</TABLE>
F-27
<PAGE>
THE TITAN CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE (5) OTHER FINANCIAL DATA (CONTINUED)
Supplemental disclosure of cash payments (receipts) is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED)
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest................................................. $ 388 $ 471 $ 2,705 $ 1,475
Income taxes............................................. 51 (926) (9) (1,067)
</TABLE>
During the nine month periods ended September 30, 1997 and 1996, the Company
utilized treasury stock of $345 and $1,090, respectively, for benefit plan
funding and contributions.
The following tables summarize revenues and operating profit (loss) by
industry segment for the three months and nine months ended September 30, 1997
and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED)
-------------------- ------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
--------- --------- ------------- ---------
Revenues:
Communications Systems............................................ $ 3,724 $ 629 $ 11,465 $ 2,193
Software Systems.................................................. 4,310 3,306 12,206 13,986
Defense Systems................................................... 28,291 25,229 84,020 62,169
Emerging Technologies............................................. 5,648 5,424 19,521 16,297
--------- --------- ------------- ---------
$ 41,973 $ 34,588 $ 127,212 $ 94,645
--------- --------- ------------- ---------
--------- --------- ------------- ---------
Operating Profit (Loss):
Communications Systems............................................ $ 38 $ (596) $ (343) $ (1,492)
Software Systems.................................................. 1,192 (478) 2,620 (344)
Defense Systems................................................... 3,504 1,656 9,715 6,383
Emerging Technologies............................................. (58) 211 663 (56)
Segment operating profit before Corporate......................... 4,676 793 12,655 4,491
Corporate......................................................... (974) (1,393) (3,614) (2,925)
--------- --------- ------------- ---------
$ 3,702 $ (600) $ 9,041 $ 1,566
--------- --------- ------------- ---------
--------- --------- ------------- ---------
</TABLE>
NOTE (6) RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). The
statement specifies the computation, presentation, and disclosure requirements
for earnings per share (EPS). The statement is effective for financial
statements for periods ending after December 15, 1997. Earlier application is
not permitted. However, management believes that the proforma earnings per share
amounts computed using SFAS 128 would not be significantly different than the
earnings per share amounts presented in the accompanying financial statements.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of DBA Systems, Inc.:
We have audited the accompanying consolidated balance sheets of DBA Systems,
Inc. and subsidiaries (the Company) as of June 30, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1997. The financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at June 30, 1997
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended June 30, 1997, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Orlando, Florida
August 20, 1997
F-29
<PAGE>
DBA SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues (Note 1)................................................ $ 25,508 $ 20,470 $ 29,696
Costs and expenses (Note 1)...................................... 23,153 19,330 28,021
--------- --------- ---------
Operating income................................................. 2,355 1,140 1,675
--------- --------- ---------
Other income (expense):
Interest income.................................................. 763 574 297
Interest expense (Note 3)........................................ (99) (175) (199)
Other expense--net (Note 9)...................................... (171) (293) (229)
--------- --------- ---------
Total other income (expense)--net................................ 493 106 (131)
--------- --------- ---------
Income before income taxes....................................... 2,848 1,246 1,544
Less provision for income taxes (Notes 1 and 6).................. 1,063 85 42
--------- --------- ---------
Net income....................................................... $ 1,785 $ 1,161 $ 1,502
--------- --------- ---------
--------- --------- ---------
Earnings per common and common equivalent share (Note 7)......... $ .40 $ .26 $ .34
--------- --------- ---------
--------- --------- ---------
Earnings per common share assuming full dilution (Note 7)........ $ .40 $ .26 $ .34
--------- --------- ---------
--------- --------- ---------
Primary weighted shares outstanding.............................. 4,479 4,493 4,460
--------- --------- ---------
--------- --------- ---------
Fully diluted shares outstanding................................. 4,485 4,493 4,480
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-32
<PAGE>
DBA SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
----------- ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1994............................... $ 545 $ 24,129 $ 19,267 $ (19,309) $ 24,632
Stock issued to ESOP:
15 shares........................................... (161) 261 100
Stock issued to employees:
5 shares............................................ (60) 84 24
Stock options exercised:
63 shares........................................... 6 178 (18) 166
Net income............................................ 1,502 1,502
----------- ----------- --------- ---------- ------------
Balance at June 30, 1995.............................. 551 24,307 20,548 (18,982) 26,424
Stock issued to ESOP:
21 shares........................................... (261) 361 100
Stock issued to employees:
1 share............................................. (16) 18 2
Stock options exercised:
27 shares........................................... 3 125 128
Net income............................................ 1,161 1,161
----------- ----------- --------- ---------- ------------
Balance at June 30, 1996.............................. 554 24,432 21,432 (18,603) 27,815
Stock issued to employees:
5 shares............................................ (64) 82 18
Stock options exercised:
107 shares.......................................... 3 107 110
Stock purchased:
1,500 shares........................................ (8) (8)
Stock purchased from ESOP:
92,762 shares....................................... (545) (545)
Net income............................................ 1,785 1,785
----------- ----------- --------- ---------- ------------
Balance at June 30, 1997.............................. $ 557 $ 24,539 $ 23,153 $ (19,074) $ 29,175
----------- ----------- --------- ---------- ------------
----------- ----------- --------- ---------- ------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-33
<PAGE>
DBA SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................... $ 1,785 $ 1,161 $ 1,502
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization..................................... 1,091 1,078 1,179
Loss (gain) on disposal of property............................... (13) (23) 2
Issuance of treasury stock to employees........................... 19 2 24
Contribution of treasury stock to ESOP............................ 100 100
Decrease (increase) in current assets:
Accounts receivable............................................. (937) 2,333 (1,433)
Costs and estimated earnings in excess of billings on
uncompleted contracts......................................... 1,737 109 1,235
Inventory....................................................... 576 (375) 268
Other current assets............................................ 99 (150) 640
Increase (decrease) in current liabilities:
Accounts payable................................................ 82 (588) 1,373
Accrued expenses................................................ 10 34 (5)
Billings in excess of costs and estimated earnings on
uncompleted contracts......................................... (305) 682 571
Estimated losses on uncompleted contracts....................... 1,127 30 196
Other current liabilities....................................... (185) 93 26
Other--net........................................................ (43) 73 (62)
--------- --------- ---------
Net cash provided by operating activities........................... 5,043 4,559 5,616
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................ (454) (333) (427)
Purchase of investments............................................. (9,311) (9,888) (5,000)
Proceeds from sale of investments................................... 9,888 5,000
Proceeds from sale of property...................................... 20 31 1
--------- --------- ---------
Net cash provided by (used in) investing activities................. 143 (5,190) (5,426)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt........................................ (1,926) (15)
Repayments on Industrial Development Revenue Bond................... (790)
Purchase of stock from ESOP......................................... (471)
Proceeds from issuance of common stock.............................. 107 128 166
--------- --------- ---------
Net cash provided by (used in) financing activities................. (2,290) 128 (639)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH FOR THE YEAR........................ 2,896 (503) (449)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...................... 2,699 3,202 3,651
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................ $ 5,595 $ 2,699 $ 3,202
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-34
<PAGE>
DBA SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES (IN
DOLLARS):
For the years ended June 30, 1997 and 1996, DBA transferred assets of
approximately $88,000 and $10,000, respectively, from inventory to property.
During the year ended June 30, 1996, property with a net book value of
$4,436,000 was reclassified as real estate held for sale.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income taxes paid..................................................... $ 867 $ 89 $ 20
--------- --------- ---------
--------- --------- ---------
Interest paid......................................................... $ 99 $ 175 $ 199
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
DESCRIPTION OF BUSINESS AND MAJOR CUSTOMER
DBA Systems, Inc. and subsidiaries ("DBA" or the "Company") operate in a
single line of business. DBA is principally engaged in developing and
manufacturing computerized image processing and electro-optical systems for a
variety of defense electronics applications. Approximately 95%, 95% and 88% of
DBA's fiscal 1997, 1996 and 1995 revenues from continuing operations,
respectively, were derived from contracts with the U.S. government, or agencies
thereof.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of DBA Systems,
Inc. and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
REVENUE AND COST RECOGNITION
Revenues and costs from government fixed-priced and time-and-material
contracts are recognized on the percentage-of-completion method, measured by the
percentage of total costs incurred to date to total estimated costs for each
contract. This method is used because management considers total expended costs
to be the best available measure of progress on these contracts. Revenues from
cost-plus-fee government contracts are recognized on the basis of costs incurred
during the period plus the fee earned measured by the same method. Total
expended costs as used to compute revenues exclude, especially during early
stages of a contract, all or a portion of the costs of such materials or
subcontracts if, in the opinion of management, it appears that such an exclusion
would result in a more accurate measurement of the level of work performed
towards contract completion. Estimates of the effect of changes in total
estimated contract costs are recognized in the period determined. At the time a
loss on a contract becomes known, the entire amount of the estimated loss on the
contract is accrued.
Government contract costs include all direct material and labor costs and
those indirect costs related to contract performance such as indirect labor,
supplies, repairs and depreciation costs. General and administrative expenses
(including bid and proposal expenses and independent research and development
costs) allowable in accordance with U.S. government procurement practices are
included in contract costs because they are identifiable with contract revenue
and are reimbursable under the contracts.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
The Company progress bills its customers monthly as the work is in progress.
USE OF ESTIMATES IN PREPARATION OF THE FINANCIAL STATEMENTS
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.
F-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
PROPERTY
DBA amortizes the cost of depreciable properties over their estimated
service lives. Expenditures for maintenance, repairs and minor renewals are
charged against operations. Interest cost is capitalized for qualifying assets
during the assets' acquisition periods.
The approximate annual rates of depreciation and the methods of application
are as follows:
<TABLE>
<S> <C>
Buildings and improvements........... 2.5%--3% straight-line
Furniture and fixtures............... 10%--33% straight-line and declining
balance
Machinery and equipment.............. 10%--33% straight-line and declining
balance
Leasehold improvements............... 7%--50% straight-line
Leased equipment under capital 14%--33% straight-line
leases.............................
</TABLE>
REAL ESTATE HELD FOR SALE
Real estate held for sale is carried at the lower of cost or fair value less
estimated costs to sell. The value of such real estate is periodically reviewed
and reduced if appropriate.
INCOME TAXES
Deferred income taxes are provided on items which are recognized in
different years for tax and financial reporting purposes. The Company accounts
for income taxes using the liability method of computing deferred income taxes.
Deferred tax assets and liabilities are recognized for the future consequences
attributed to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Differences
between income for financial and tax reporting purposes arise primarily from the
use of accelerated depreciation as required for income tax purposes and
recording of estimated losses on uncompleted contracts for financial reporting
purposes. Also, under the liability method, deferred tax assets and liabilities
are measured using estimated tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or
settled.
INVENTORY
Inventories are valued at the lower of cost (weighted average) or market and
include applicable material, labor and overhead costs. During the years ending
June 30, 1997, 1996 and 1995, approximately $10,000, $274,000 and $110,000,
respectively, in general and administrative costs were charged to inventory. As
of June 30, 1997 and 1996, approximately $174,000 and $403,000, respectively, in
general and administrative costs were included in inventory. The allowance for
obsolete inventory at June 30, 1997 and 1996 was approximately $452,000 and
$450,000, respectively.
F-37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
LEASES
Leases which meet certain criteria are classified as capital leases, and
assets and liabilities are recorded at amounts equal to the lesser of the
present value of the minimum lease payments or the fair value of the leased
properties at the beginning of the respective lease terms. Such assets are
amortized over their economic useful life on a straight-line basis. Leases which
do not meet such criteria are classified as operating leases and related rentals
are charged to expense as incurred.
COST IN EXCESS OF VALUE OF NET ASSETS OF BUSINESSES ACQUIRED
The cost in excess of the value of net assets of businesses acquired is
amortized using the straight-line method over forty years. Management evaluates
the recoverability of such assets quarterly and annually based on current
operating trends in relation to the recorded values of such assets.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs associated with product development programs
are expensed as incurred. Research and development expenditures incurred by the
Company and not expressly reimbursed pursuant to contracts with customers were
approximately $637,000 in fiscal 1997, $424,000 in fiscal 1996 and $331,000 in
fiscal 1995.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of financial instruments which are readily
convertible to cash and mature less than three months after the date of
acquisition.
INVESTMENTS
The Company does not invest in securities as its primary business and does
not maintain a trading account. Occasionally, however, the Company purchases
financial instruments with maturities greater than three months from the date of
acquisition. Such securities are classified as either "available for sale" or
"held to maturity" as required by Statement of Financial Accounting Standards
No. 115 (FAS 115) "Accounting for Certain Investments in Debt and Equity
Securities." As of June 30, 1997 and 1996, all such investment securities owned
by the Company mature in one year or less, were classified as "available for
sale," and were carried at their current market value, which approximates their
cost, as required by FAS 115.
NEW ACCOUNTING STANDARDS
In February 1997, FAS No. 128, "Earnings Per Share," was issued. FAS No.
128, which supersedes Accounting Principles Board ("APB") Opinion No. 15,
requires a dual presentation of basic and diluted earning per share on the face
of the income statement. Basic earnings per share excludes dilution and is
computed by dividing income or loss attributable to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earning of the entity. Diluted earnings per share is computed similarly
to fully diluted earnings per share under APB Opinion No. 15. FAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997.
F-38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
Had FAS No. 128 been adopted, pro forma basic earnings per share and pro
forma diluted earnings per share would have been as follows:
<TABLE>
<CAPTION>
PRO FORMA EARNINGS PER
SHARE
------------------------
<S> <C> <C>
BASIC DILUTED
----- -----------
Years Ended June 30:
1995......................................................................... $ .34 $ .34
1996......................................................................... $ .26 $ .26
1997......................................................................... $ .40 $ .40
</TABLE>
In June 1997, FAS No. 130, "Reporting Comprehensive Income," was issued. FAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gain, and losses) in a full set of
general-purpose financial statements. FAS No. 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. FAS No. 130 requires that a
company (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. FAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The Company has not determined the effects, if any, that FAS No. 130 will have
on its consolidated financial statements.
In June 1997, FAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," was issued. FAS No. 131 establishes standards for the way
that public companies report selected information about operating segments in
annual financial statements and required that those companies report selected
information about segments in interim financial reports issued to the
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. FAS No. 131 which
supersedes FAS No. 14 "Financial Reporting for Segments of a Business
Enterprise," but retains the requirement to report information about major
customers, requires that a public company report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segments performance and deciding how to allocate
resources to segments. FAS No. 131 requires that a public company report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. However, FAS No. 131 does not require the reporting of
information that is not prepared for internal use if reporting it would be
impracticable. FAS No. 131 also requires that a public company report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segments information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period. FAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. The Company has not determined the effects, if any, that FAS No. 131 will
have on the disclosures in its consolidated financial statements.
F-39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
RECLASSIFICATION
Certain amounts have been reclassified in the prior years' financial
statements to conform with the current year presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of the Company's financial instruments: cash and cash
equivalents, investments, receivables, accrued expenses and accounts payable,
approximate their estimated fair values at June 30, 1997.
2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
AS OF JUNE 30,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Costs and estimated earnings on uncompleted contracts..................................... $ 231,560 $ 241,770
Less: billings to date.................................................................... 230,313 239,091
---------- ----------
Total..................................................................................... $ 1,247 $ 2,679
---------- ----------
---------- ----------
Included in accompanying balance sheet under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts............... $ 2,318 $ 4,055
Billings in excess of costs and estimated earnings on uncompleted contracts............... (1,071) (1,376)
---------- ----------
Total..................................................................................... $ 1,247 $ 2,679
---------- ----------
---------- ----------
</TABLE>
As of June 30, 1997 and 1996, the amounts billed but not paid under contract
retainage provisions were approximately $81,000 and $65,000, respectively. Such
retainage amounts are expected to be collected within one year. Amounts included
in Costs and Estimated Earnings on Uncompleted Contracts which are subject to
future negotiation were approximately $574,000 as of June 30, 1997 and 1996.
3. LONG-TERM DEBT
Long-term debt at June 30, 1996 consisted of $1,926,000 of 8.25% Convertible
Subordinated Debentures, $1,000 par value, scheduled to mature on November 1,
2010 which paid interest semi-annually on November 1 and May 1. In December
1996, the Company exercised its option to redeem all remaining debentures at par
value. As of June 30, 1997, there was no long-term debt.
The Company has a $4,000,000 unsecured line of credit with a bank which
expires January 31, 1998. Amounts drawn on this line of credit accrue interest
at either the bank's prime rate or the bank's LIBOR plus 1.75%, as selected by
the Company upon the utilization of any portion of the line of credit. The
Company had no borrowings against the line of credit at June 30, 1997 or 1996.
4. STOCKHOLDERS' EQUITY
The Company has two stock-based compensation plans, which are described
below. The Company applied APB Opinion 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for the plans. Had
F-40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
compensation cost for the Company's two 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 FAS No. 123, "Accounting for Stock-Based
Compensation", the Company's 1997 and 1996 net income and earnings per common
share would have changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Net income
As reported (in thousands)............................................... $ 1,785 $ 1,161
Pro forma (in thousands)................................................. $ 1,573 $ 908
Earnings per common share assuming no dilution:
As reported.............................................................. $ 0.40 $ 0.26
Pro forma................................................................ $ 0.35 $ 0.20
</TABLE>
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: no dividend yield for 1997 or 1996, expected volatility of 57% and
55% for 1997 and 1996, respectively, risk-free interest rate of 6.22% and 6.07%
for 1997 and 1996, respectively, and expected lives of 3.29 years and 3.33 years
for 1997 and 1996, respectively.
The 1992 Employee Incentive Stock Option Plan which will expire on November
12, 2002, provides for the issuance of up to 500,000 shares of the Company's
common stock. Options may be granted only to employees of DBA and its
subsidiaries at an option price not less than the fair market value of DBA
common stock on the date of grant. At June 30, 1997, 304,533 of these shares
were under option.
The 1993 Directors' Stock Option Plan which will expire on November 17,
1998, provides for the issuance of up to 200,000 shares of DBA's common stock.
Options can only be granted to members of the Board of Directors at an option
price not less than the fair market value of DBA's common stock on the date of
grant. At June 30, 1997, 20,000 of these shares were under option.
DBA also grants options not pursuant to a formal plan to officers, directors
and key employees at the discretion of the Board of Directors. Options are
granted at an option price not less than the fair market value of DBA's common
stock on the date of grant. At June 30, 1997, options for 25,000 shares were
outstanding.
F-41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
The following is a summary of the activity in all of DBA's Option Plans for
the three year period ended June 30, 1997:
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
--------- ---------------
<S> <C> <C>
Outstanding June 30, 1994........................................ 304,652
Options Granted Fiscal 1995...................................... 126,100 $ 3.88--$ 8.63
Options Canceled Fiscal 1995..................................... (43,801) $ 2.50--$16.25
Options Exercised Fiscal 1995.................................... (63,481) $ 2.50--$ 4.75
---------
Outstanding June 30, 1995........................................ 323,470
Options Granted Fiscal 1996...................................... 109,600 $ 4.88--$ 6.00
Options Canceled Fiscal 1996..................................... (53,985) $ 3.88--$ 6.75
Options Exercised Fiscal 1996.................................... (27,000) $4.75
---------
Outstanding June 30, 1996........................................ 352,085
Options Granted Fiscal 1997...................................... 91,750 $ 4.75--$ 5.50
Options Canceled Fiscal 1997..................................... (65,966) $ 3.88--$ 6.75
Options Exercised Fiscal 1997.................................... (28,336) $3.88
---------
Outstanding June 30, 1997........................................ 349,533
---------
---------
Shares Exercisable June 30, 1997................................. 190,495
---------
---------
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
DBA leases land, office space, manufacturing facilities and various
equipment under non-cancelable operating leases. The leased facilities are
occupied under leases with escalation clauses and terms ranging from one to
forty years, a majority of which can be terminated or renewed at no longer than
five (5) year intervals at the Company's option.
Total rent expense charged to operations for all operating leases was
approximately $453,000 in 1997, $422,000 in 1996, and $396,000 in 1995.
Future minimum payments under all operating leases having a remaining
non-cancelable term of more than one year are approximately as follows:
<TABLE>
<CAPTION>
(IN
FOR THE YEAR ENDED JUNE 30, THOUSANDS)
- -------------------------------------------------------------------------------
<S> <C>
1998........................................................................... $ 399
1999........................................................................... 124
2000........................................................................... 115
2001........................................................................... 108
2002........................................................................... 54
Thereafter..................................................................... 703
------
Total.......................................................................... $ 1,503
------
------
</TABLE>
In connection with the sale of the Company's commercial operations to an
unrelated entity (the "Buyer") in 1987, the Company was named as a guarantor
under a mortgage assumed by the Buyer. The mortgage was collateralized by a
building which the Buyer sold for less than the mortgage value during
F-42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
October 1994. In exchange for settlement of the mortgage, the Company received a
promissory note from the Buyer in the amount of $250,000, plus interest at the
prime lending rate plus 1.50%. The note was payable in quarterly installments of
$16,666 which began March 31, 1995 and concluded March 31, 1997. On June 30,
1997, the balance outstanding on the promissory note was $0.
As a normal consequence of the Company's business, contract claims against
the U.S. government, or agencies thereof, can arise. Contract claims are
comprised of costs which the Company has incurred and expects to recover from
the U.S. government. The Company had various claims pending against the U.S.
government at June 30, 1997 and 1996.
6. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ----- -----
<S> <C> <C> <C>
(IN THOUSANDS)
Current Federal income tax expense..................................... $ 682 $ 85 $ 42
Current State income tax expense....................................... 136
Deferred Federal and State income tax expense.......................... 245
--------- --- ---
Total.............................................................. $ 1,063 $ 85 $ 42
--------- --- ---
--------- --- ---
</TABLE>
DBA's effective tax rate differs from the statutory federal income tax rate
for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Computed Federal statutory amount.................................... $ 968 $ 423 $ 525
State income taxes, net of federal benefit........................... 136
Change in valuation allowance for deferred tax assets................ (354) (374)
Other................................................................ (41) 16 (109)
--------- --------- ---------
$ 1,063 $ 85 $ 42
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The tax effect of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at June 30, 1997 and 1996 are presented
below:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Deferred Tax Assets:
Net operating loss carryforwards........................................... $ 41
Alternative minimum tax credits............................................ 399
Deferred compensation...................................................... $ 117 137
Reserve for uncompleted contracts.......................................... 510 92
Other individually immaterial items........................................ 216 340
--------- ---------
Total deferred tax assets.................................................. 843 1,009
--------- ---------
Deferred Tax Liabilities:
Depreciation............................................................... 1,020 982
Purchase accounting adjustment............................................. 68 63
--------- ---------
Total deferred tax liabilities............................................. 1,088 1,045
--------- ---------
Total net deferred tax asset (liability)................................... $ (245) $ (36)
--------- ---------
--------- ---------
</TABLE>
7. EARNINGS PER SHARE
Earnings per common share and common equivalent share are computed by
dividing net income by the weighted average number of common shares and common
equivalent shares outstanding during the period. Common equivalent shares
consist of common stock which may be issued upon exercise of outstanding stock
options. Weighted shares used in 1997, 1996 and 1995 were approximately
4,479,000, 4,493,000 and 4,460,000, respectively.
In determining earnings per common share assuming full dilution,
consideration is given to the additional dilutive effect of common stock
equivalents which results from year-end market prices exceeding the average
market price during the period. Weighted shares used in 1997, 1996 and 1995 were
approximately 4,485,000, 4,493,000 and 4,480,000, respectively.
8. EMPLOYEE BENEFIT PLANS
Effective July 1, 1981 and most recently amended August 5, 1995, the Company
adopted a qualified retirement plan (the "Plan") covering all employees who meet
the eligibility requirement of one month of service. The Plan has a
profit-sharing component to which DBA makes contributions equal to amounts
determined by the Board of Directors. Expense for the profit-sharing component
for 1997, 1996 and 1995 was $175,000, $150,000 and $150,000, respectively.
Effective July 1, 1989, the Company adopted a qualified 401(k) component to
which the Company has agreed to contribute an amount equal to 50% of a
participant's contributions up to the lessor of 3% of the employee's aggregate
compensation or $750. On December 7, 1996 the Company rescinded the $750 cap and
modified the Employer Matching Contributions with a sliding scale up to a
maximum of 6% of the employee's compensation. Expense for the 401(k) component
for 1997, 1996 and 1995 was approximately $287,000, $114,000 and $119,000,
respectively. Effective July 1, 1988 and most recently restated May 7, 1995, the
Company adopted an Employee Stock Ownership Plan (the "ESOP"). Contributions to
the ESOP are at the discretion of the Board of Directors. During the fiscal
years 1996 and 1995, accruals towards stock contributions were $100,000 and
$100,000,
F-44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
respectively. The actual contributions of stock are made from Treasury Stock.
Effective December 16, 1996 the Company terminated the ESOP Plan and no
contribution was made in fiscal year 1997.
9. OTHER EXPENSE-NET
The components of other expense-net are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Patent amortization expense......................................... $ (112) $ (112) $ (112)
Other-net........................................................... (59) (181) (117)
--------- --------- ---------
Total............................................................... $ (171) $ (293) $ (229)
--------- --------- ---------
--------- --------- ---------
</TABLE>
10. LITIGATION
From time to time, as is normal with respect to the nature and kind of
business in which DBA is engaged, various claims, charges and litigation are
asserted or commenced against DBA arising from or related to product liability,
patent, breach of warranty, contractual relations or employee relations. The
amounts claimed in such litigation may be substantial but may not bear any
reasonable relationship to the merits of the claim or the extent of any real
risk of court awards. In the opinion of management, final judgments, if any,
which might be rendered against DBA in potential or pending litigation, would
not have a material adverse effect on its assets or business.
The Company maintains officers' and directors' liability insurance which
insures individual officers and directors of the Company against certain claims
as well as attorney's fees and related expenses incurred in connection with the
defense of such claims.
F-45
<PAGE>
DBA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPT. 30, JUNE 30,
1997 1997
----------- -----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash & cash equivalents.......................................... $ 1,259 $ 5,595
Investments...................................................... 12,321 9,311
Accounts receivable--net......................................... 2,251 3,523
Costs and estimated earnings in excess of billings on uncompleted
contracts...................................................... 3,214 2,318
Inventory........................................................ 1,998 1,984
Other current assets............................................. 741 438
----------- -----------
Total Current Assets........................................... 21,784 23,169
----------- -----------
Property:
Cost............................................................. 16,765 16,694
Less accumulated depreciation and amortization................... 10,840 10,667
----------- -----------
Property--net.................................................. 5,925 6,027
----------- -----------
Other Assets:
Cost in excess of value of net assets of businesses acquired..... 222 224
Real estate held for sale........................................ 4,325 4,347
Investment in preferred stock.................................... 1,600 0
Other assets..................................................... 220 247
----------- -----------
Total Other Assets............................................. 6,367 4,818
----------- -----------
Total Assets....................................................... $ 34,076 $ 34,014
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................. $ 845 $ 1,050
Accrued expenses................................................. 985 1,122
Billings in excess of costs and estimated earnings on uncompleted
contracts...................................................... 881 1,071
Income Taxes Payable............................................. 509 183
Estimated losses on uncompleted contracts........................ 1,109 1,398
Other current liabilities........................................ 23 15
----------- -----------
Total Current Liabilities...................................... 4,352 4,839
----------- -----------
Stockholders' Equity:
Common stock..................................................... 557 557
Paid-in capital.................................................. 24,554 24,539
Retained earnings................................................ 23,687 23,153
----------- -----------
Total.......................................................... 48,798 48,249
Treasury stock................................................... (19,074) (19,074)
----------- -----------
Stockholders' Equity--net...................................... 29,724 29,175
----------- -----------
Total Liabilities and Stockholders' Equity......................... $ 34,076 $ 34,014
----------- -----------
----------- -----------
</TABLE>
See Notes to Condensed Consolidated Interim Financial Statements.
F-46
<PAGE>
DBA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenues................................................................. $ 5,665 $ 6,293
Costs and expenses....................................................... 4,973 5,759
--------- ---------
Operating income......................................................... 692 534
Other income (expense):
Interest income........................................................ 238 174
Interest expense....................................................... 0 (42)
Other expense--net..................................................... (70) (154)
--------- ---------
Total other income (expense)--net.................................... 168 (22)
--------- ---------
Income before taxes...................................................... 860 512
Less provision for income taxes.......................................... 326 189
--------- ---------
Net Income............................................................... $ 534 $ 323
--------- ---------
--------- ---------
Net Earnings per common and common equivalent share...................... $ .12 $ .07
--------- ---------
--------- ---------
Net Earnings per common share assuming full dilution..................... $ .12 $ .07
--------- ---------
--------- ---------
Primary weighted shares outstanding...................................... 4,493 4,514
--------- ---------
--------- ---------
Fully diluted shares outstanding......................................... 4,544 4,527
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to Condensed Consolidated Interim Financial Statements.
F-47
<PAGE>
DBA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPT. 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................... $ 534 $ 323
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation & amortization............................................ 244 261
Gain on disposal of property........................................... 0 (13)
Decrease (increase) in current assets:
Accounts receivable.................................................. 1,272 783
Costs and estimated earnings in excess of billings on uncompleted
contracts.......................................................... (896) (462)
Inventory............................................................ (14) 113
Other current assets................................................. (303) (5)
Increase (decrease) in current liabilities:
Accounts payable..................................................... (205) 312
Accrued expenses..................................................... 189 (105)
Billings in excess of costs and estimated earnings on uncompleted
contracts.......................................................... (190) (422)
Estimated losses on uncompleted contracts............................ (289) 389
Other current liabilities............................................ 8 (50)
Other--net............................................................. 0 3
--------- ---------
Net cash provided by operating activities.............................. 350 1,127
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock................................. 15 0
--------- ---------
Net cash provided by financing activities.............................. 15 0
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Investments................................................ (3,010) 0
Investment in preferred stock.......................................... (1,600) 0
Capital expenditures................................................... (91) (119)
Proceeds from sale of property......................................... 0 14
--------- ---------
Net cash provided by (used in) investing activities.................... (4,701) (105)
--------- ---------
Net increase in cash during the period................................... (4,336) 1,022
Cash and cash equivalents at beginning of period......................... 5,595 2,699
--------- ---------
Cash and cash equivalents at end of period............................... $ 1,259 $ 3,721
--------- ---------
--------- ---------
</TABLE>
See Notes to Condensed Consolidated Interim Financial Statements.
F-48
<PAGE>
DBA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(1) The Condensed Consolidated Interim Financial Statements contained herein
reflect all adjustments of a normal recurring nature which are, in the
opinion of management, necessary to a fair statement of the results for the
interim periods presented. The results of operations for the interim periods
contained herein are not necessarily indicative of the results to be
expected for the fiscal year.
(2) Refer to the Company's Annual Consolidated Financial Statements for the Year
Ended June 30, 1997, for a description of accounting policies, which have
been continued without change. Also, refer to the Notes included in those
Consolidated Financial Statements for additional details of the Company's
financial condition, results of operations and changes in financial
position.
(3) Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPT. 30,
1997 JUNE 30, 1997
------------- -------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Finished Goods..................................... $ 1,815 $ 1,815
Work in Progress................................... 125 103
Raw Materials...................................... 58 66
------ ------
TOTAL.............................................. $ 1,998 $ 1,984
------ ------
------ ------
</TABLE>
(4) Net earnings per common and common equivalent share are computed by dividing
net income by the weighted average number of common shares and common
equivalent shares outstanding during the period. Common equivalent shares
consist of common stock, which may be issued upon exercise of outstanding
stock options. For the three-month periods ending September 30, 1997 and
1996, weighted average shares were 4,493,000 and 4,514,000, respectively.
F-49
<PAGE>
APPENDIX A
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- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among:
THE TITAN CORPORATION,
a Delaware corporation;
EAGLE ACQUISITION SUB, INC.,
a Florida corporation; and
DBA SYSTEMS, INC.,
a Florida corporation
------------------------
Dated as of January 5, 1998
------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<C> <S> <C>
SECTION 1 DESCRIPTION OF TRANSACTION...................................................... 1
1.1 Merger of Merger Sub into the Company........................................... 1
1.2 Effect of the Merger............................................................ 1
1.3 Closing; Effective Date......................................................... 1
1.4 Articles of Incorporation and Bylaws; Directors and Officers.................... 1
1.5 Conversion of Shares............................................................ 2
1.6 Closing of the Company's Transfer Books......................................... 3
1.7 Exchange of Company Stock Certificates.......................................... 3
1.8 Fractional Shares............................................................... 4
1.9 No Liability.................................................................... 4
1.10 Tax Consequences................................................................ 4
1.11 Accounting Consequences......................................................... 4
1.12 Further Action.................................................................. 4
SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................... 5
2.1 Due Organization; Subsidiaries; Etc............................................. 5
2.2 Articles of Incorporation and Bylaws; Records................................... 5
2.3 Capitalization.................................................................. 5
2.4 SEC Filings; Financial Statements............................................... 7
2.5 Absence of Certain Changes or Events............................................ 8
2.6 Tax Matters..................................................................... 8
2.7 Contracts....................................................................... 8
2.8 Compliance with Legal Requirements.............................................. 12
2.9 Governmental Authorizations..................................................... 12
2.10 Employee and Labor Matters; Benefit Plans....................................... 12
2.11 Real Property................................................................... 14
2.12 Environmental Matters........................................................... 15
2.13 Transactions with Affiliates.................................................... 16
2.14 Legal Proceedings; Orders....................................................... 16
2.15 Authority; Binding Nature of Agreement.......................................... 16
2.16 Non-Contravention; Consents..................................................... 17
2.17 Disclosure...................................................................... 17
2.18 Financial Advisor............................................................... 18
2.19 Required Vote................................................................... 18
2.20 Company Action.................................................................. 18
2.21 Fairness Opinion................................................................ 18
2.22 No Dissenters' Rights........................................................... 18
2.23 Accounting Matters.............................................................. 18
SECTION 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB....................... 18
3.1 Due Organization, Etc........................................................... 18
3.2 Capitalization, Etc............................................................. 18
3.3 SEC Filings; Financial Statements............................................... 19
3.4 Absence of Certain Changes or Events............................................ 20
3.5 Legal Proceedings; Orders....................................................... 20
3.6 Disclosure...................................................................... 20
3.7 Authority; Binding Nature of Agreement.......................................... 20
3.8 Non-Contravention; Consents..................................................... 21
3.9 Financial Advisor............................................................... 21
3.10 Required Vote................................................................... 21
3.11 Parent and Merger Sub Action.................................................... 21
3.12 Accounting Matters.............................................................. 21
3.13 Government Contracts; Government Bids........................................... 21
3.14 Compliance with Legal Requirements.............................................. 22
3.15 Governmental Authorizations..................................................... 22
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
SECTION 4 CERTAIN COVENANTS OF THE COMPANY................................................ 22
4.1 Access and Investigation........................................................ 22
4.2 Operation of the Company's Business............................................. 23
4.3 Notification; Updates to Company Disclosure Schedule............................ 25
4.4 No Solicitation................................................................. 25
4.5 Company Shareholders' Meeting................................................... 26
4.6 Tax Representation Letter....................................................... 27
4.7 Continuity of Interest Certificates............................................. 27
4.8 Resignation of Officers and Directors........................................... 27
4.9 Comfort Letter.................................................................. 27
4.10 FIRPTA Matters.................................................................. 27
4.11 Affiliate Agreements............................................................ 27
4.12 Pooling of Interests............................................................ 27
4.13 Confidentiality................................................................. 28
SECTION 5 CERTAIN COVENANTS OF PARENT..................................................... 28
5.1 Access and Investigation........................................................ 28
5.2 Notification; Updates to Parent Disclosure Schedule............................. 28
5.3 Parent Stockholders' Meeting.................................................... 28
5.4 Tax Representation Letters...................................................... 29
5.5 Pooling of Interests............................................................ 29
5.6 Confidentiality................................................................. 29
5.7 "Tail" Insurance................................................................ 29
SECTION 6 ADDITIONAL COVENANTS OF THE PARTIES............................................. 30
6.1 Filings and Consents............................................................ 30
6.2 Public Announcements............................................................ 30
6.3 Best Efforts.................................................................... 30
6.4 Registration Statement; Joint Proxy Statement................................... 30
6.5 Regulatory Approvals............................................................ 31
6.6 Parent Plans and Benefit Arrangements........................................... 31
SECTION 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB....................
32
7.1 Accuracy of Representations..................................................... 32
7.2 Performance of Covenants........................................................ 32
7.3 No Material Adverse Effect...................................................... 32
7.4 Compliance Certificate.......................................................... 32
7.5 Stockholder Approval............................................................ 32
7.6 Consents........................................................................ 32
7.7 Legal Opinion................................................................... 32
7.8 Tax Opinion..................................................................... 32
7.9 No Restraints................................................................... 32
7.10 Executive Officer and Director Resignations..................................... 33
7.11 Effectiveness of Registration Statement......................................... 33
7.12 Continuity of Interest Certificates............................................. 33
7.13 Comfort Letter.................................................................. 33
7.14 No Governmental Litigation...................................................... 33
7.15 No Other Litigation............................................................. 33
7.16 HSR Act......................................................................... 33
7.17 Listing......................................................................... 33
7.18 FIRPTA Compliance............................................................... 33
7.19 NMS Listing..................................................................... 33
7.20 Employees....................................................................... 33
7.21 Affiliate Agreements............................................................ 34
7.22 Pooling Letters................................................................. 34
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
SECTION 8 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.............................. 34
8.1 Accuracy of Representations..................................................... 34
8.2 Performance of Covenants........................................................ 34
8.3 No Material Adverse Effect...................................................... 34
8.4 Compliance Certificate.......................................................... 34
8.5 Stockholder Approval............................................................ 34
8.6 Legal Opinion................................................................... 34
8.7 Tax Opinion..................................................................... 34
8.8 No Restraints................................................................... 35
8.9 Effectiveness of Registration Statement......................................... 35
8.10 No Governmental Litigation...................................................... 35
8.11 No Other Litigation............................................................. 35
8.12 HSR Act......................................................................... 35
8.13 Listing......................................................................... 35
SECTION 9 TERMINATION..................................................................... 35
9.1 Termination..................................................................... 35
9.2 Effect of Termination........................................................... 37
9.3 Fees and Expenses............................................................... 37
SECTION 10 MISCELLANEOUS PROVISIONS....................................................... 37
10.1 Further Assurances.............................................................. 37
10.2 Attorneys' Fees................................................................. 37
10.3 Notices......................................................................... 37
10.4 Time of the Essence............................................................. 38
10.5 Governing Law; Venue............................................................ 38
10.6 Successors and Assigns.......................................................... 38
10.7 Remedies Cumulative; Specific Performance....................................... 39
10.8 Waiver.......................................................................... 39
10.9 Amendments...................................................................... 39
10.10 Severability.................................................................... 39
10.11 Disclosure Schedules............................................................ 39
10.12 No Survival of Representations and Warranties................................... 40
10.13 Entire Agreement................................................................ 40
10.14 Construction.................................................................... 40
10.15 Headings........................................................................ 40
10.16 Counterparts.................................................................... 40
</TABLE>
<PAGE>
SCHEDULES
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A -- Certain Definitions
Exhibit B -- Directors and Officers of Surviving Corporation
Exhibit C -- Form of Continuity-of-Interest Certificate
Exhibit D -- Persons Executing Continuity of Interest Certificate
Exhibit E -- Resigning Officers and Directors of the Company
Exhibit F -- Affiliate Agreement
Exhibit G -- Form of Legal Opinion of Arent Fox
Exhibit H -- Form of Legal Opinion of Cooley Godward LLP
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement") is
made and entered into as of January 5, 1998, by and among THE TITAN CORPORATION,
a Delaware Corporation ("Parent"); EAGLE ACQUISITION SUB, INC. ("Merger Sub"), a
Florida corporation and a wholly-owned subsidiary of Parent; and DBA SYSTEMS,
INC., a Florida corporation (the "Company"). Certain capitalized terms used in
this Agreement are defined in Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub into the Company (the "Merger") in accordance with this Agreement and the
Florida Business Corporation Act (the "FBCA"). Upon consummation of the Merger,
Merger Sub will cease to exist, and the Company will become a wholly-owned
subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
C. For accounting purposes, it is intended that the Merger be treated as a
"pooling of interests."
D. This Agreement has been approved by the respective boards of directors of
Parent, Merger Sub and the Company.
E. Concurrent with the execution of this Agreement, all executive officers
and directors of Parent and the Company have executed and delivered to Parent
and/or the Company, as the case may be, Voting Agreements and irrevocable
proxies with respect to the voting of their respective shares of capital stock
of Parent and the Company, as the case may be, in favor of approval of the
Merger and this Agreement.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the FBCA.
1.3 CLOSING; EFFECTIVE DATE. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, 4365 Executive Drive, Suite 1100, San Diego, California
92121 at a time and on a date to be designated by the parties, but in any event
shall be no later than the second business day after the date that all of the
conditions set forth in Sections 7 and 8 have been satisfied or waived (the
"Closing Date"). Contemporaneously with the Closing, properly executed articles
of merger conforming to the requirements of the FBCA (the "Articles of Merger")
shall be filed with the Department of State of the State of Florida. The Merger
shall take effect at the time the Articles of Merger are filed with and accepted
by the Department of State of the State of Florida, or at such time as the
Articles of Merger shall specify (the "Effective Time").
1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. Unless
otherwise agreed to in writing by the Company and Parent prior to the Effective
Time:
(a) the Articles of Incorporation of the Company shall be the Articles of
Incorporation of the Surviving Corporation as of the Effective Time;
(b) the Bylaws of the Company shall be the Bylaws of the Surviving
Corporation as of the Effective Time; and
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(c) the directors and officers of the Surviving Corporation immediately
after the Effective Time shall be the individuals identified on Exhibit B.
1.5 CONVERSION OF SHARES.
(a) Subject to Section 1.8, at the Effective Time, by virtue of the Merger
and without any further action on the part of Parent, Merger Sub or the Company:
(i) subject to Section 1.5(b) (and unless adjusted as provided in
Section 9.1(h)) and except for shares described in subparagraph (iii) or
(iv) below, each share of Company Common Stock outstanding immediately prior
to the Effective Time shall be converted into the right to receive 1.366667
shares of Parent Common Stock;
(ii) each share of Common Stock, $.01 par value per share, of Merger Sub
outstanding immediately prior to the Effective Time shall be converted into
one share of Common Stock of the Surviving Corporation;
(iii) any shares of Company Common Stock then held by the Company or any
other Acquired Corporation (as defined in Section 2.1(a)), or held in the
Company's treasury, shall be canceled and retired and shall cease to exist,
and no consideration shall be delivered in exchange therefor; and
(iv) any shares of Company Common Stock then held by Parent, Merger Sub
or any other subsidiary of Parent shall be canceled and retired and shall
cease to exist, and no consideration shall be delivered in exchange
therefor.
(b) The term "Exchange Ratio" shall mean the number of shares of Parent
Common Stock into which each share of Company Common Stock is to be converted in
the Merger pursuant to Section 1.5(a)(i), as such fraction may be adjusted in
accordance with this Section 1.5(b). If, between the date of this Agreement and
the Effective Time, the shares of Company Common Stock or Parent Common Stock
then outstanding are changed into a different number or class of shares by
reason of any stock dividend, subdivision, reclassification, reorganization,
stock split, reverse stock split or other similar transaction, then the Exchange
Ratio shall be appropriately adjusted.
(c) If any shares of Company Common Stock outstanding immediately prior to
the Effective Time are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with the Company, then (unless such condition
terminates by virtue of the Merger pursuant to the express terms of such
agreement) the shares of Parent Common Stock issued in exchange for such shares
of Company Common Stock will also be unvested and subject to the same repurchase
option, risk of forfeiture or other condition, and the certificates representing
such shares of Parent Common Stock may accordingly be marked with appropriate
legends. The Company shall take all action that may be necessary to ensure that,
from and after the Effective Time, Parent is entitled to exercise any such
repurchase option or other right set forth in any such restricted stock purchase
agreement or other agreement.
(d) At the Effective Time, all rights with respect to Company Common Stock
under Company Options that are then outstanding shall be converted into and
become rights with respect to Parent Common Stock, and Parent shall assume each
Company Option in accordance with the terms (as in effect as of the date hereof)
of the stock option plan or other agreement, as the case may be, under which it
was issued and the stock option agreement, as the case may be, by which it is
evidenced. From and after the Effective Time, (i) each Company Option assumed by
Parent may be exercised solely for shares of Parent Common Stock, (ii) the
number of shares of Parent Common Stock subject to each Company Option shall be
equal to the number of shares of Company Common Stock subject to such Company
Option immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounding down to the nearest whole share (with cash, less the relevant fraction
of the applicable exercise price, being payable upon exercise for any fraction
of a share), (iii) the per share exercise price under each such Company Option
2
<PAGE>
shall be adjusted by dividing the per share exercise price under each such
Company Option by the Exchange Ratio and rounding up to the nearest cent and
(iv) any restriction on the exercise of any Company Option shall continue in
full force and effect and the term, exercisability, vesting schedule and other
provisions of such Company Option shall otherwise remain unchanged; PROVIDED,
HOWEVER, that each such Company Option shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock split, stock
dividend, subdivision, reclassification, reorganization, stock split,
combination or similar transaction subsequent to the Effective Time. The Company
shall take all actions that may be necessary (under the benefits plan or other
agreements pursuant to which Company Options are outstanding) to effectuate the
provisions of this Section 1.5(d) and to ensure that, from and after the
Effective Time, holders of Company Options have no rights with respect thereto
other than those specifically provided herein.
1.6 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time, (a)
all certificates representing shares of Company Common Stock outstanding
immediately prior to the Effective Time shall automatically be canceled and
retired and shall cease to exist, and all holders of certificates representing
shares of Company Common Stock that were outstanding immediately prior to the
Effective Time shall cease to have any rights as shareholders of the Company,
and (b) the stock transfer books of the Company shall be closed with respect to
all shares of such Company Common Stock outstanding immediately prior to the
Effective Time. No further transfer of any such shares of Company Common Stock
shall be made on such stock transfer books after the Effective Time. If, after
the Effective Time, a valid certificate previously representing any of such
shares of Company Common Stock (a "Company Stock Certificate") is presented to
the Surviving Corporation or Parent, such Company Stock Certificate shall be
canceled and shall be exchanged as provided in Section 1.7.
1.7 EXCHANGE OF COMPANY STOCK CERTIFICATES.
(a) Prior to the Closing Date, Parent shall select a reputable bank or trust
company to act as exchange agent in the Merger (the "Exchange Agent"). Promptly
after the Effective Time, Parent shall deposit with the Exchange Agent (i)
certificates representing the shares of Parent Common Stock issuable pursuant to
this Section 1.7, and (ii) cash sufficient to make payments in lieu of
fractional shares in accordance with Section 1.7(b). The shares of Parent Common
Stock and cash amounts so deposited with the Exchange Agent, together with any
dividends or distributions received by the Exchange Agent with respect to such
shares, are referred to collectively as the "Exchange Fund."
(b) As soon as practicable after the Effective Time, the Exchange Agent will
mail to the registered holders of Company Stock Certificates (i) a letter of
transmittal in customary form and containing such provisions as Parent may
reasonably specify (including a provision confirming that delivery of Company
Stock Certificates shall be effected, and risk of loss and title to Company
Stock Certificates shall pass, only upon delivery of such Company Stock
Certificates to the Exchange Agent), and (ii) instructions for use in effecting
the surrender of Company Stock Certificates in exchange for certificates
representing Parent Common Stock. Subject to Section 1.8, upon surrender of a
Company Stock Certificate to the Exchange Agent for exchange, together with a
duly executed letter of transmittal and such other documents as may be
reasonably required by the Exchange Agent or Parent, (1) the holder of such
Company Stock Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of shares of Parent Common Stock that such
holder has the right to receive pursuant to the provisions of Section 1.5(a)(i),
plus cash in lieu of any fractional shares as provided in Section 1.8, and (2)
the Company Stock Certificate so surrendered shall be marked "canceled." Until
surrendered as contemplated by this Section 1.7, each Company Stock Certificate
shall be deemed, from and after the Effective Time, to represent only the right
to receive shares of Parent Common Stock (and cash in lieu of any fractional
share of Parent Common Stock) as contemplated by Section 1.6. If any Company
Stock Certificate shall have been lost, stolen or destroyed, Parent may, in its
discretion and as a condition precedent to the issuance of any certificate
representing Parent Common Stock, require the owner of such lost, stolen or
destroyed Company Stock Certificate to provide an appropriate affidavit and to
deliver a bond (in such sum as Parent
3
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may reasonably direct) as indemnity against any claim that may be made against
the Exchange Agent, Parent or the Surviving Corporation with respect to such
Company Stock Certificate.
(c) No dividends or other distributions declared or made with respect to
Parent Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Company Stock Certificate with respect to the
shares of Parent Common Stock represented thereby, until such holder surrenders
such Company Stock Certificate in accordance with this Section 1.7 (at which
time such holder shall be entitled to receive all such dividends and
distributions, without interest).
(d) Any portion of the Exchange Fund that remains undistributed to holders
of Company Stock Certificates as of the date 180 days after the Effective Time
shall be delivered by the Exchange Agent to Parent upon demand, and any holders
of Company Stock Certificates who have not theretofore surrendered their Company
Stock Certificates in accordance with this Section 1.7 shall thereafter look
only to Parent for satisfaction of their claims for Parent Common Stock, cash in
lieu of fractional shares of Parent Common Stock and any dividends or
distributions with respect to Parent Common Stock.
(e) Each of the Exchange Agent, Parent and the Surviving Corporation shall
be entitled to deduct and withhold from any consideration payable or otherwise
deliverable pursuant to this Agreement to any holder or former holder of Company
Common Stock and/or any holders of Company Options such amounts as may be
required to be deducted or withheld therefrom under the Code or under any
provision of state, local or foreign tax law. To the extent such amounts are so
deducted or withheld, such amounts shall be treated for all purposes under this
Agreement as having been paid to the Person to whom such amounts would otherwise
have been paid.
1.8 FRACTIONAL SHARES. No fractional shares of Parent Common Stock shall
be issued in connection with the Merger, and no certificates for any such
fractional shares shall be issued. In lieu of such fractional shares, any holder
of Company Common Stock who would otherwise be entitled to receive a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock issuable to such holder) shall, upon surrender of such
holder's Company Stock Certificate(s), be paid in cash the dollar amount
(rounded to the nearest whole cent), without interest, determined by multiplying
such fraction by the closing sales price of a share of Parent Common Stock as
reported on the New York Stock Exchange ("NYSE") as of the date hereof (and if
such day is not a trading day, then the last trading day immediately preceding
the date hereof).
1.9 NO LIABILITY. Neither Parent nor the Surviving Corporation shall be
liable to any holder or former holder of Company Common Stock for any shares of
Parent Common Stock (or dividends or distributions with respect thereto), or for
any cash amounts, delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
1.10 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368(a) of
the Code. The parties to this Agreement hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the United States Treasury Regulations.
1.11 ACCOUNTING CONSEQUENCES. For accounting purposes, the Merger is
intended to be treated as a "pooling of interests." Neither the Company nor
Parent shall take any action prior to the Effective Time that could reasonably
be expected to prevent the Merger from being accounted for as a "pooling of
interests."
1.12 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary to carry out the purposes of this
Agreement or to vest the Surviving Corporation or Parent with full right, title
and possession of and to all rights and property of Merger Sub and the Company,
the officers and directors of the Surviving Corporation and Parent shall be
fully authorized (in the name of Merger Sub, in the name of the Company and
otherwise) to take such action.
4
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SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub that, except as
set forth in the Company SEC Documents or in the disclosure schedule prepared by
the Company in accordance with the requirements of Section 10.11 and delivered
by the Company to Parent on the date of this Agreement (the "Company Disclosure
Schedule"):
2.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(a) The Company and each of its direct and indirect majority-owned
subsidiaries (the Company and each of its subsidiaries is individually referred
to herein as an "Acquired Corporation" and collectively as the "Acquired
Corporations") are corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation, each
with full corporate power and authority to (i) conduct its business in the
manner in which such business is now being conducted, (ii) own and use its
assets in the manner in which such assets are now being owned and used and (iii)
perform its obligations under all Material Acquired Corporation Contracts by
which it or its assets are bound. Part 2.1 of the Company Disclosure Schedule
sets forth each majority-owned subsidiary of the Company. Except as set forth on
Part 2.1 of the Company Disclosure Schedule, none of the Acquired Corporations
owns or holds, directly or indirectly, any debt or equity securities of, or has
any other interest in, any Entity, and none of the Acquired Corporations has
entered into any agreement to acquire any such interest. For purposes of this
Agreement, a company's "subsidiaries" shall mean and include all Entities in
which such company, directly or indirectly, owns a majority interest or has the
power to vote a majority of the interests. Other than changes in the conduct of
the Company's business proposed to be made by the Company in connection with the
Merger, none of the Acquired Corporations has any plans to change, in any
material respect, its business.
(b) The Acquired Corporations are qualified to do business as foreign
corporations, and are in good standing, under the laws of the jurisdictions set
forth in Part 2.1(b) of the Company Disclosure Schedule, which are all the
jurisdictions where the nature of each Acquired Corporation's business requires
such qualification and where the failure to be so qualified would have a
Material Adverse Effect on such Acquired Corporation.
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. The Company and each of
the other Acquired Corporations has delivered (as reasonably requested by
Parent) or made available to Parent accurate and complete copies of: (1) the
Company's and such Acquired Corporation's articles of incorporation and bylaws
as currently in effect, including all amendments thereto; (2) the stock records
of the Company and such Acquired Corporation; and (3) the minutes and other
records of the meetings and other proceedings (including any actions taken by
written consent or otherwise without a meeting) of the shareholders of the
Company and of such Acquired Corporation, the Board of Directors of the Company
and such Acquired Corporation and all committees of the Board of Directors of
the Company and such Acquired Corporation. No Acquired Corporation is in
violation of any of the provisions of its articles of incorporation or bylaws.
The books of account, stock records, minute books and other records of each
Acquired Corporation are accurate and complete in all material respects, and
have been maintained in accordance with prudent business practices.
2.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 10,000,000
shares of Company Common Stock, $.10 par value, of which 4,426,562 shares have
been issued and are outstanding as of the date of this Agreement. All of the
outstanding shares of Company Common Stock have been duly authorized and validly
issued, and are fully paid and nonassessable. As of the date of this Agreement,
there are 1,148,488 shares of Company Common Stock held in treasury by the
Company and no shares held by any subsidiary of the Company. Except as set forth
in Part 2.3(a) of the Company Disclosure Schedule: (i) none of the outstanding
shares of Company Common Stock is entitled or subject to any preemptive right,
right of
5
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participation or any similar right; (ii) none of the outstanding shares of
Company Common Stock is subject to any right of first refusal in favor of the
Company or, to the Company's knowledge (defined in Exhibit A), any other Person;
and (iii) there is no Acquired Corporation Contract, or to the Company's
knowledge, any other contract or agreement, relating to the voting or
registration of, or restricting any Person from purchasing, selling, pledging or
otherwise disposing of (or granting any option or similar right with respect
to), any shares of Company Common Stock. Upon consummation of the Merger, (A)
the shares of Parent Common Stock issued in exchange for any shares of Company
Common Stock that are subject to an Acquired Corporation Contract pursuant to
which the Company has the right to repurchase, redeem or otherwise reacquire any
shares of Company Common Stock will, without any further act of Parent, the
Company or any other Person, become subject to the restrictions, conditions and
other provisions contained in such Acquired Corporation Contract, and (B) Parent
will automatically succeed to and become entitled to exercise the Company's
rights and remedies under any such Acquired Corporation Contract. The Company is
under no obligation to repurchase, redeem or otherwise acquire any outstanding
shares of Company Common Stock, Company Options or other securities of the
Company.
(b) Except as set forth in Part 2.3(b) of the Company Disclosure Schedule,
neither the Company nor any other Acquired Corporation has repurchased, redeemed
or otherwise reacquired any shares of capital stock or other securities of the
Company or any other Acquired Corporation. All securities so reacquired by the
Company and any other Acquired Corporation were reacquired in compliance with
the applicable provisions of the laws of the jurisdiction in which the Company
or the Acquired Corporation, as the case may be, is incorporated and all other
applicable Legal Requirements, except where failure to comply has not had and
will not have a Material Adverse Effect on the Company.
(c) As of the date of this Agreement, there were outstanding options to
purchase (i) 336,034 shares of Company Common Stock issuable under the Company's
1992 Employee Incentive Stock Option Plan (the "1992 Plan"), (ii) 20,000 shares
of Company Common Stock issuable under the Company's 1993 Directors' Stock
Option Plan (the "Directors' Plan"), and (iii) 25,000 shares of Company Common
Stock issuable outside of the 1992 Plan and the Directors' Plan (stock options
granted by the Company pursuant to the 1992 Plan, the Directors' Plan and
outside both such plans are collectively referred to in this Agreement as the
"Company Options"). Part 2.3(c) of the Company Disclosure Schedule sets forth
the following information with respect to each Company Option outstanding as of
the date of this Agreement: (i) the particular plan, if any, pursuant to which
such Company Option was granted; (ii) the name of the optionee; (iii) the number
of shares of Company Common Stock subject to such Company Option; (iv) the
exercise price of such Company Option; (v) the date on which such Company Option
was granted; (vi) the applicable vesting schedule(s), and the extent to which
such Company Option is vested as of the date of this Agreement; and (vii) the
date on which such Company Option expires. The Company has delivered to Parent
accurate and complete copies of all stock option plans pursuant to which the
Company has outstanding stock options, and the forms of all stock option
agreements evidencing such options.
(d) Except as set forth in Part 2.3(c) of the Company Disclosure Schedule
there is no: (i) outstanding subscription, option, call, warrant or right
(whether or not currently exercisable) to acquire any shares of the capital
stock or other securities of the Company; (ii) outstanding security, instrument
or obligation that is or may become convertible into or exchangeable for any
shares of the capital stock or other securities of the Company; (iii)
stockholder rights plan (or similar plan commonly referred to as a "poison
pill") or Acquired Corporation Contract under which the Company is or may become
obligated to sell or otherwise issue any shares of its capital stock or any
other securities; or (iv) to the best of the knowledge of the Company, condition
or circumstance that may give rise to or provide a basis for the assertion of a
claim by any Person to the effect that such Person is entitled to acquire or
receive any shares of capital stock or other securities of the Company.
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(e) All outstanding shares of Company Common Stock, all outstanding Company
Options and all other securities of the Company and all outstanding shares of
capital stock and all other securities of each other Acquired Corporation have
been issued and granted in compliance with (i) all applicable securities laws
and other applicable Legal Requirements, and (ii) all requirements set forth in
applicable Acquired Corporation Contracts.
(f) All of the outstanding shares of capital stock of each of the
subsidiaries of the Company are validly issued, fully paid and nonassessable and
are owned beneficially and of record by the Company, free and clear of any
Encumbrance.
2.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent a complete and accurate copy
(excluding copies of exhibits) of each report, schedule, registration statement
and definitive proxy statement filed by the Company with the Securities and
Exchange Commission ("SEC") on or after June 30, 1995 (the "Company SEC
Documents"), which are all the forms, reports and documents required to be filed
by the Company with the SEC since June 30, 1995. The Company SEC Documents (i)
complied with the requirements of the Securities Act or the Exchange Act, as the
case may be, at and as of the times they were filed (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) and (ii) did not at and as of the time they were filed (or, if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(b) Each of the sets of financial statements (including, in each case, any
related notes thereto) contained in the Company SEC Documents and the set of the
Company's unaudited interim financial statements as of and for the three month
period ended September 30, 1997 including the Company's unaudited consolidated
balance sheet as of September 30, 1997 (the "September Balance Sheet") that are
set forth in Part 2.4(a) of the Company Disclosure Schedule (collectively, the
"Past Financial Statements") (i) complied as to form in all material respects
with the published rules and regulations of the SEC applicable thereto; (ii) was
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods covered (except as may be
indicated in the notes thereto and, in the case of unaudited interim financial
statements, as permitted by Form 10-Q of the SEC, and except that unaudited
financial statements may not contain footnotes and are subject to year-end audit
adjustments which are not expected to be material in amount), (iii) fairly
presents the consolidated financial position of the Acquired Corporations as at
the respective dates thereof and the consolidated results of their operations
and cash flows for the periods indicated, and, (iv) with respect to the
unaudited financial statements to be delivered to Parent pursuant to Sections
4.1(b)(i) and 4.1(c) will be prepared in accordance with GAAP applied on a basis
consistent with the basis on which the Past Financial Statements were prepared
and will fairly present the consolidated financial position of the Company and
the other Acquired Corporations as at the respective dates thereof and the
consolidated results of operations and cash flows of the Company and the other
Acquired Corporations for the periods indicated, except that such financial
statements will be subject to normal year-end audit adjustments and will not
contain footnotes. The Company has provided to Parent true and complete copies
of all management letters received from the Company's accountants since 1990.
(c) The Company has previously furnished to Parent a complete and accurate
copy of (i) any amendments or modifications that have not yet been filed with
the SEC to agreements, documents or other instruments that have been filed by
the Company with the SEC pursuant to the Securities Act or the Exchange Act, and
(ii) all agreements, documents or instruments that are required to be filed by
the Company with the SEC pursuant to the Securities Act or the Exchange Act that
have not yet been filed.
(d) The Company and each of the other Acquired Corporations have no
Liabilities, except for (i) any Liability which is accrued or fully reserved
against in the September Balance Sheet or disclosed in the
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notes included in the Past Financial Statements, (ii) any Liabilities incurred
after September 30, 1997 in the ordinary course of business in an aggregate
amount of less than $100,000 or (iii) other Liabilities which, individually or
in the aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect on the Company.
2.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1997, there has
not been (a) any change, or any development or combination of changes or
developments that has had or would reasonably be expected to have a Material
Adverse Effect on the Company, (b) any damage, destruction or loss, whether or
not covered by insurance, that has had or would reasonably be expected to have a
Material Adverse Effect on the Company or (c) any transaction, commitment,
dispute or other event or condition (financial or otherwise) of any character
(whether or not in the ordinary course of business) which would be prohibited by
Section 4.2 if it were to occur or be effected between the date of this
Agreement and the Effective Time.
2.6 TAX MATTERS.
(a) The Company (or, if applicable, one of the other Acquired Corporations)
has filed, within the time (including any extensions of applicable due dates)
and in the manner prescribed by law, all Tax Returns required to be filed under
federal, state, local or any foreign laws by the Company and the other Acquired
Corporations, except where the failure to do so has not had and will not have a
Material Adverse Effect on the Company. The Company has provided to Parent
copies of all correspondence with the Internal Revenue Service relating to the
Company and the other Acquired Corporations since 1990.
(b) The Company (or, if applicable, one of the other Acquired Corporations)
has, within the time (including any extensions of applicable due dates) and in
the manner prescribed by law, paid all Taxes that are due and payable, except
Taxes that, individually and in the aggregate, are not material.
(c) None of the Acquired Corporations has filed (and will not file prior to
the Closing Date) any consent agreement under Section 341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply to any disposition of the
subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code)
owned by the Company.
(d) To the Company's knowledge, the consummation of the Merger and the
transaction contemplated thereby will not result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code, and there is
no agreement, plan or arrangement covering any employee or independent
contractor of the Company that would give rise to any payment that would not be
deductible pursuant to Section 280G or Section 162(m) of the Code.
(e) No outstanding debt obligation of the Company is "corporate acquisition
indebtedness" within the meaning of Section 279(b) of the Code.
2.7 CONTRACTS.
(a) Except as set forth in the Company SEC Documents or on Part 2.7(a) of
the Company Disclosure Schedule, there is no Acquired Corporation Contract that
constitutes a "Material Acquired Corporation Contract." For purposes of this
Agreement, a "Material Acquired Corporation Contract" shall be deemed to be any
Contract:
(i) relating to the employment or engagement of, or the performance of
services by, any employee, consultant or independent contractor which
involves a potential commitment of any Acquired Corporation in excess of
$60,000 per year;
(ii) relating to the acquisition, transfer, use, development, sharing or
license of any technology or any Acquired Corporation Proprietary Asset
(except for any Acquired Corporation Proprietary Asset that is licensed to
an Acquired Corporation under any third party software license agreement
generally available to the public);
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(iii) imposing any restriction on any Acquired Corporation's right or
ability (A) to compete with any other Person, (B) to acquire any product or
other asset or any services from any other Person, to sell any product or
other asset to or perform any services for any other Person or to transact
business or deal in any other manner with any other Person, or (C) to
develop or distribute any technology;
(iv) creating or involving any agency relationship, distribution
arrangement or franchise relationship involving payments or obligations in
excess of $100,000 per year;
(v) relating to the acquisition, issuance or transfer of any securities;
(vi) creating or relating to the creation of any Encumbrance (other than
Permitted Encumbrances) with respect to any asset owned or used by any
Acquired Corporation having a value in excess of $100,000;
(vii) involving or incorporating any liability, obligation, guaranty,
pledge, performance or completion bond, indemnity (other than customary
intellectual property indemnitees for hardware and software sold by any
Acquired Corporation), right of contribution or surety arrangement, any of
which obligations involve or may reasonably be expected to involve an
Acquired Corporation obligation in excess of $100,000 per year;
(viii) creating or relating to any partnership or joint venture or any
sharing of revenues, profits, losses, costs or liabilities;
(ix) relating to the purchase or sale of any product or other asset by
or to, or the performance of any services by or for, any Acquired
Corporation's Affiliate;
(x) entered into outside the ordinary course of business;
(xi) that may not be terminated by the applicable Acquired Corporation
(without penalty) within 60 days after the delivery of a termination notice
by the applicable Acquired Corporation;
(xii) contemplating or involving (A) the payment or delivery of cash or
other consideration in an amount or having a value in excess of $100,000 in
the aggregate, or (B) the performance of services having a value in excess
of $100,000 in the aggregate; or
(xiii) any Government Contract (i) creating or relating to the creation of
any Encumbrance (other than Permitted Encumbrances) with respect to any
asset owned or used by any Acquired Corporation having a value in excess of
$25,000; (ii) involving or incorporating any liability, obligation,
guaranty, pledge, performance or completion bond, indemnity (other than
customary intellectual property indemnitees for hardware and software sold
by any Acquired Corporation), right of contribution or surety arrangement,
any of which obligations involve or may reasonably be expected to involve an
Acquired Corporation obligation in excess of $25,000 per year; or (iii)
contemplating or involving (A) the payment or delivery of cash or other
consideration in an amount or having a value in excess of $25,000 in the
aggregate, or (B) the performance of services having a value in excess of
$25,000 in the aggregate.
(b) The Company has delivered to Parent accurate and complete copies of all
Material Acquired Corporation Contracts identified in Part 2.7(a) of the Company
Disclosure Schedule, including all amendments thereto. Each Contract identified
in Part 2.7(a) of the Company Disclosure Schedule is valid and in full force and
effect, and is enforceable by the applicable Acquired Corporation in accordance
with its terms, subject to (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(c) The Company and each of the other Acquired Corporations:
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(i) have not violated or breached, or committed any material default
under, any Material Acquired Corporation Contract in any material respect;
(ii) have not had any event occur, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could
reasonably be expected to, (A) result in a violation or breach of any of the
provisions of any Material Acquired Corporation Contract, (B) give any
Person the right to declare a default or exercise any remedy under any
Material Acquired Corporation Contract, (C) give any Person the right to
accelerate the maturity or performance of any Material Acquired Corporation
Contract, or (D) give any Person the right to cancel, terminate or modify
any Material Acquired Corporation Contract;
(iii) have not, since June 30, 1995, received any notice or other
communication regarding (i) any actual or possible violation or breach of,
or default under, any Material Acquired Corporation Contract, or (ii) any
actual or possible termination of any Material Acquired Corporation
Contract; and
(iv) have not waived any of its material rights under any Material
Acquired Corporation Contract.
(d) Except as set forth in Part 2.7(d) of the Company Disclosure Schedule:
(i) the Acquired Corporations have not had any determination of
noncompliance, entered into any consent order or undertaken any internal
investigation relating directly or indirectly to any Government Contract or
Government Bid;
(ii) the Acquired Corporations have complied in all material respects
with all Legal Requirements with respect to all Government Contracts and
Government Bids;
(iii) the Acquired Corporations have not, in obtaining or performing any
Government Contract, violated (A) the Truth in Negotiations Act of 1962, as
amended, (B) the Service Contract Act of 1963, as amended, (C) the Contract
Disputes Act of 1978, as amended, (D) the Office of Federal Procurement
Policy Act, as amended, (E) the Federal Acquisition Regulations (the "FAR")
or any applicable agency supplement thereto, (F) the Cost Accounting
Standards, (G) the Defense Industrial Security Manual (DOD 5220.22-M), (H)
the Defense Industrial Security Regulation (DOD 5220.22-R) or any related
security regulations, or (I) any other applicable procurement law or
regulation or other Legal Requirement;
(iv) all facts set forth in or acknowledged by any Acquired Corporation
in any certification, representation or disclosure statement submitted by
any Acquired Corporation with respect to any Government Contract or
Government Bid were current, accurate and complete in all material respects
as of the date of submission;
(v) none of the Acquired Corporations nor any of their respective
employees have been debarred or suspended from doing business with any
Governmental Body, and, to the best knowledge of the Company, no
circumstances exist that would warrant the institution of debarrment or
suspension proceedings against any Acquired Corporation or any employee of
any Acquired Corporation;
(vi) no negative determinations of responsibility, as contemplated in
Part 9 of the FAR (Contractor Qualifications), have been issued against any
Acquired Corporation in connection with any Government Contract or
Government Bid;
(vii) no direct or indirect costs incurred by any Acquired Corporation
have been disallowed as a result of a finding or determination of any kind
by any Governmental Body;
(viii) no Governmental Body, and no prime contractor or high-tier
subcontractor of any Governmental Body, has withheld or set off, or
threatened to withhold or set off, any amount due to any Acquired
Corporation under any Government Contract;
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(ix) there are not and have not been any irregularities, misstatements
or omissions relating to any Government Contract or Government Bid that have
led to or could reasonably be expected to lead to (A) any administrative,
civil, criminal or other investigation, Legal Proceeding or indictment
involving any Acquired Corporation or any of their employees, (B) the
disallowance of any costs submitted for payment by any Acquired Corporation,
(C) the recoupment of any payments previously made to any Acquired
Corporation, (D) a finding or claim of fraud, defective pricing, mischarging
or improper payments on the part of any Acquired Corporation, or (E) the
assessment of any penalties or damages of any kind against any Acquired
Corporation;
(x) there is not any (A) outstanding claim against any Acquired
Corporation by, or dispute involving any Acquired Corporation with, any
prime contractor, subcontractor, vendor or other Person arising under or
relating to the award or performance of any Government Contract, (B) fact
known by any Acquired Corporation upon which any such claim could reasonably
be expected to be based or which may give rise to any such dispute, or (C)
final decision of any Government Body against any Acquired Corporation;
(xi) no Acquired Corporation is undergoing and has not undergone any
audit, and the Company has no knowledge of any basis for any impending
audit, arising under or relating to any Government Contract (other than
normal routine audits conducted in the ordinary course of business); (xii)
no Acquired Corporation is subject to any financing arrangement or
assignment of proceeds with respect to the performance of any Government
Contract;
(xiii) no payment has been made by any Acquired Corporation or by a Person
acting on any Acquired Corporation's behalf to any Person (other than to any
bona fide employee or agent (as defined in subpart 3.4 of the FAR) of any
Acquired Corporation) which is or was contingent upon the award of any
Government Contract or which would otherwise be in violation of any
applicable procurement law or regulation or any other Legal Requirement;
(xiv) each Acquired Corporation's cost accounting system is in compliance
with applicable regulations and other applicable Legal Requirements, and has
not been determined by any Governmental body not to be in compliance with
any Legal Requirement;
(xv) each Acquired Corporation has complied with all applicable
regulations and other Legal Requirements and with all applicable contractual
requirements relating to the placement of legends or restrictive markings on
technical data, computer software and other Acquired Corporation Proprietary
Assets;
(xvi) in each case in which an Acquired Corporation has delivered or
otherwise provided any technical data, computer software or Acquired
Corporation Proprietary Asset to any Governmental Body in connection with
any Government Contract, such Acquired Corporation has marked such technical
data, computer software or Acquired Corporation Proprietary Asset with all
markings and legends (including any "restricted rights" legend and any
"government purpose license rights" legend) necessary (under the FAR or
other applicable Legal Requirements) to ensure that no Governmental Body or
other Person is able to acquire any unlimited rights with respect to such
technical data, computer software or Acquired Corporation Proprietary Asset,
except where failure to do so has not had and will not have a Material
Adverse Effect on any Acquired Corporation;
(xvii) no Acquired Corporation has made any disclosure to any Governmental
Body pursuant to any voluntary disclosure agreement;
(xviii) each Acquired Corporation has reached agreement with the cognizant
government representatives approving and "closing" all indirect costs
charged to Government Contracts for 1993, 1994, 1995 1996 and 1997, and
those years are closed;
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(xix) the responsible government representatives have agreed with the
Company on the "forward pricing rates" that each Acquired Corporation is
charging on cost-type Government Contracts and including in Government Bids;
and
(xx) each Acquired Corporation is not and will not be required to make
any filings with or give notice to, or to obtain any Consent from, any
Governmental Body under or in connection with any Government Contract or
Government Bid as a result of or by virtue of (A) the execution, delivery of
performance of this Agreement or any of the other agreements referred to in
this Agreement, or (B) the consummation of the Merger or any of the other
transactions contemplated by this Agreement.
2.8 COMPLIANCE WITH LEGAL REQUIREMENTS. The Acquired Corporations are, and
have at all times since June 30, 1995 been, in compliance with all applicable
Legal Requirements, except where the failure to comply with such Legal
Requirements has not had and will not have a Material Adverse Effect on any
Acquired Corporation. Since June 30, 1995, the Acquired Corporations have not
received any notice or other communication from any Governmental Body regarding
any actual or possible violation of, or failure to comply with, any Legal
Requirement.
2.9 GOVERNMENTAL AUTHORIZATIONS. Each Acquired Corporation has all
Governmental Authorizations necessary to enable such Acquired Corporation to
conduct its business in the manner in which its business is currently being
conducted, except where any failure to have such Governmental Authorizations has
not had and will not have a Material Adverse Effect on the Company. Each
Acquired Corporation is, and at all times since June 30, 1995 has been, in
compliance with the material terms and requirements of such Governmental
Authorizations. Since June 30, 1995, the Acquired Corporations have not received
any notice or other communication from any Governmental Body regarding (a) any
actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization.
2.10 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.10(a) of the Company Disclosure Schedule identifies each salary,
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, flexible benefit,
dependent care, educational assistance, pre-tax premium, pension or retirement
plan, program or agreement (collectively, the "Company Employee Plans")
sponsored, maintained, contributed to or required to be contributed to by the
Company or any of the Acquired Corporations for the benefit of any current or
former employee of the Company or any of the Acquired Corporations
("Employees").
(b) Except as set forth in Part 2.10(a) of the Company Disclosure Schedule,
neither the Company nor any of the Acquired Corporations maintains, sponsors or
contributes to, and none of the Acquired Corporations has at any time in the
past maintained, sponsored or contributed to any employee pension benefit plan
(as defined in Section 3(2) of ERISA, whether or not excluded from coverage
under specific Titles or Subtitles of ERISA) for the benefit of Employees (a
"Pension Plan").
(c) Except as set forth in Part 2.10(a) of the Company Disclosure Schedule,
neither the Company nor any of the Acquired Corporations maintains, sponsors or
contributes to any: (i) employee welfare benefit plan (as defined in Section
3(1) of ERISA, whether or not excluded from coverage under specific Titles or
Subtitles of ERISA) for the benefit of any Employees (a "Welfare Plan"), or (ii)
self-funded medical, dental or other similar Plan. None of the Plans identified
in the Company Disclosure Schedule is a multiemployer plan (within the meaning
of Section 3(37) of ERISA).
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(d) With respect to each Company Employee Plan, the Company has made
available to Parent: (i) an accurate and complete copy of such Company Employee
Plan (including all amendments thereto); (ii) an accurate and complete copy of
the annual report, if required under ERISA, with respect to such Company
Employee Plan for the last plan two years; (iii) an accurate and complete copy
of the most recent summary plan description, together with each summary of
material modifications, if required under ERISA, with respect to such Company
Employee Plan; (iv) if such Company Employee Plan is funded through a trust or
any third party funding vehicle, an accurate and complete copy of the trust or
other funding agreement (including all amendments thereto) and accurate and
complete copies of the most recent financial statements thereof; (v) accurate
and complete copies of all Contracts relating to such Company Employee Plan,
including service provider agreements, insurance contracts, minimum premium
contracts, stop-loss agreements, investment management agreements, subscription
and participation agreements and recordkeeping agreements; and (vi) an accurate
and complete copy of the most recent determination letter received from the
Internal Revenue Service with respect to such Company Employee Plan (if such
Company Employee Plan is intended to be qualified under Section 401(a) of the
Code).
(e) John Slack has not notified the Company, directly or indirectly, of his
intention to terminate his employment with the Company or to decline to accept
employment with Parent or any subsidiary of Parent.
(f) Neither the Company nor any of the Acquired Corporations is or has ever
been required to be treated as a single employer with any other Person under
Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of the Code other
than an Acquired Corporation. Neither the Company nor any of the Acquired
Corporations has ever been a member of an "affiliated service group" (within the
meaning of Section 414(m) of the Code) other than with another Acquired
Corporation. Neither the Company nor any of the Acquired Corporations has ever
made a complete or partial withdrawal from a multiemployer plan, as such term is
defined in Section 3(37) of ERISA, resulting in "withdrawal liability," as such
term is defined in Section 4201 of ERISA (without regard to subsequent reduction
or waiver of such liability under either Section 4207 or 4208 of ERISA).
(g) Neither the Company nor any of the Acquired Corporations has any plan or
commitment to create any Welfare Plan or any Pension Plan, or to modify or
change any existing Welfare Plan or Pension Plan (other than to comply with
applicable law) in a manner that would affect any Employee.
(h) No Company Employee Plan provides death, medical or health benefits
(whether or not insured) with respect to any Employee after any such Employee's
termination of service (other than (i) benefit coverage mandated by applicable
law, including coverage provided pursuant to Section 4980B of the Code, (ii)
deferred compensation benefits accrued as liabilities on the most recent
financial statements included in the Company SEC Documents, and (iii) benefits
the full costs of which are borne by Employees (or Employees' beneficiaries)).
(i) With respect to any Company Employee Plan constituting a group health
plan within the meaning of Section 4980B(g)(2) of the Code, the provisions of
Section 4980B of the Code ("COBRA") have been complied with in all material
respects. Part 2.10(h) of the Company Disclosure Schedule describes all
obligations of the Company and the Acquired Corporations as of the date of this
Agreement under any of the provisions of COBRA.
(j) Each of the Company Employee Plans has been operated and administered in
all material respects in accordance with applicable Legal Requirements,
including, but not limited to, ERISA and the Code.
(k) Each of the Company Employee Plans intended to be qualified under
Section 401(a) of the Code has received a favorable determination from the
Internal Revenue Service, and the Company is not aware of any reason why any
such determination letter should be revoked.
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(l) Neither the execution, delivery or performance of this Agreement, nor
the consummation of the Merger or any of the other transactions contemplated by
this Agreement will result in any payment (including any bonus, golden parachute
or severance payment) to any current or former employee or director of the
Company or any of the Acquired Corporations (whether or not under any Company
Employee Plan), or materially increase the benefits payable under any Company
Employee Plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(m) The Company and each of the Acquired Corporations are in compliance in
all material respects with all applicable Legal Requirements and Contracts
relating to employment, employment practices, wages, bonuses and terms and
conditions of employment, including employee compensation matters and the
classification of independent contractors and workers.
(n) The Company and each of the Acquired Corporations have good labor
relations, and neither the Company nor any of the Acquired Corporations has any
knowledge of any facts indicating that (i) the consummation of the Merger or any
of the other transactions contemplated by this Agreement will have a material
adverse effect on the labor relations of the Company or any of the Acquired
Corporations, or (ii) any of the Employees intends to terminate his or her
employment with the Company or the Acquired Corporation by which such Employee
is employed.
2.11 REAL PROPERTY.
(a) Except for mortgages, liens, security interests, encumbrances, options,
rights, covenants, easements, leases, licenses, matters affecting title and
other rights in favor of third parties disclosed in Part 2.11(a) of the Company
Disclosure Schedule and except for liens for taxes, assessments and other
governmental charges which are not due and payable or which, if payable, are not
yet delinquent, or are being contested in good faith by appropriate proceedings
and for which adequate reserves have been established in accordance with GAAP,
the Acquired Corporations own good and marketable fee simple title to the real
property listed in Part 2.11(a) of the Company Disclosure Schedule (the "Land"),
together with all improvements and buildings, structures and fixtures located
thereon (collectively, the "Improvements") and together with all rights,
privileges, easements, rights of way and appurtenances benefiting the Land
and/or the Improvements or used or connected with the beneficial use or
enjoyment of the Land and/ or the Improvements (the Land, the Improvements, and
all such rights, privileges, easements, rights of way, and appurtenances are
collectively referred to herein as the "Real Property"). The Real Property
constitutes all of the real property owned by the Acquired Corporations.
(b) There are now in full force and effect (i) all Governmental
Authorizations required by any Governmental Body in connection with the
ownership, operation, use and maintenance of the Real Property, and (ii) all
agreements, easements and other rights which are necessary to permit the full
and lawful use and operation of the buildings and improvements on any of the
Real Property, and (iii) the Company has not received any notice that any
proceedings in eminent domain, for rezoning or otherwise which would affect the
Real Property are pending or threatened with respect to the Real Property or any
portion thereof, except for such failures to have in full force and effect or
such proceedings that would not have a Material Adverse Effect.
(c) All of the Improvements are structurally sound with no known material
defects and are in good condition, order and repair and are not damaged by
waste, fire, earthquake or earth movement or other casualty or other physical
conditions that could, individually or in the aggregate, have a Material Adverse
Effect, and none of the Improvements is in need of maintenance or repairs except
for ordinary, routine maintenance and repairs that are not material in nature or
cost.
(d) The Acquired Corporations maintain fire, flood, windstorm, hurricane and
casualty insurance policies, with extended coverage (subject to reasonable
deductibles), with licensed carriers sufficient to allow them to replace any of
the Real Property that might be damaged or destroyed, and have liability
insurance reasonably adequate to protect them and their financial condition
against the risks involved in
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the business conducted by them. Part 2.11(d) of the Company Disclosure Schedule
lists all such policies. Neither the Company nor any other Acquired Corporation
has done anything by way of action or inaction which might invalidate any of
such policies in whole or in part.
(e) No notices of violation of any Governmental Authorization relating to
the Real Property or the Company have been issued to the Company or entered
against the Company or received by the Company, and no such violations exist,
except where any noncompliance with this requirement (individually or in the
aggregate) has not had and will not have a Material Adverse Effect on the
Company. The Improvements to the Real Property are permitted, conforming
structures under applicable zoning and building laws and ordinances and the
present uses thereof are permitted conforming uses under applicable zoning and
building laws and ordinances. The conveyance of the Real Property to Parent will
include all rights necessary to ensure compliance with all governmental
regulations.
(f) The Company has received all permits necessary to use and operate the
Real Property as it is currently being used and operated by the Company, except
where any noncompliance with this requirement (individually or in the aggregate)
has not had and will not have a Material Adverse Effect on the Company.
(g) The Real Property is connected to and served by water, solid waste and
sewage disposal, drainage, telephone, gas, electricity and other utility
equipment facilities and services required by law and which are adequate for the
present use and operation of the Real Property, or any portion thereof, and
which are installed and connected pursuant to valid permits and are in full
compliance with all statutes, ordinances and regulations. No fact or condition
exists which would result in the termination or impairment in the furnishing of
utility services to the Real Property.
(h) To the best of the Company's knowledge, there are no material physical
or mechanical defects or deficiencies in the condition of the Real Property,
including, but not limited to, the roofs, exterior walls or structural
components of the Real Property and the heating, air conditioning, plumbing,
ventilating, elevator, utility, sprinkler and other mechanical and electrical
systems, apparatus and appliances located on the Real Property or in the Real
Property. To the best of the Company's knowledge, the Real Property is free from
infestation by termites or other pests, insects or animals.
2.12 ENVIRONMENTAL MATTERS.
(a) Each Acquired Corporation is, and at all times prior to the date hereof
has been, in compliance with all applicable Environmental Laws (which compliance
includes, but is not limited to, the possession by each Acquired Corporation of
all Governmental Authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof), except where any
noncompliance with this requirement (individually or in the aggregate) has not
had and will not have a Material Adverse Effect on the Company. No Acquired
Corporation has received any communication (written or oral) from any
Governmental Body or Person that alleges that any Acquired Corporation is not or
has not been in such compliance and there are not past or present actions,
activities, circumstances, conditions, events or incidents that may prevent or
interfere with such compliance in the future.
(b) There is no Environmental Claim pending or threatened against the
Acquired Corporations or any other person or entity whose liability for an
Environmental Claim the Acquired Corporations have or may have retained or
assumed either contractually or by operation of law. No Acquired Corporation has
received in writing any order, notice, communication, warning, citation,
summons, directive or any other document related to Hazardous Materials or any
alleged, actual or potential violation or failure to comply with any
Environmental Law.
(c) There are no past or present actions, activities, circumstances,
conditions, events or incidents (including, without limitation, the Release,
presence or disposal of any Hazardous Material) which could form the basis of
any Environmental Claim against any Acquired Corporation; or to the best
knowledge of
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the Company against any other person or entity whose liability for any
Environmental Claim any Acquired Corporation has or may have retained or
assumed; either contractually or by operation of law.
(d) No Acquired Corporation has nor, to the best knowledge of the Company,
has any other Person, Released, stored, buried or dumped Hazardous Materials or
any other wastes produced by, or resulting from, any business, commercial or
industrial activities, operations or processes, on, beneath or adjacent to the
Real Property or any property formerly owned, operated or leased by an Acquired
Corporation other than general office supplies used in the ordinary course of
business, including without limitation, copier toner, liquid paper, glue, ink,
and household cleaners (which general office supplies and other Hazardous
Materials were and are stored or disposed of in accordance with applicable laws
and regulations and in a manner such that there has been no Release of any such
substances into the indoor or outdoor environment which could have a Material
Adverse Effect on the Company).
(e) The Acquired Corporations have delivered or otherwise made available for
inspection to the Parent true, complete and correct copies of any reports,
studies, analyses, tests or monitoring possessed or initiated by the Acquired
Corporations pertaining to Hazardous Materials in, on, beneath or adjacent to
the Real Property or any property formerly owned, operated or leased by an
Acquired Corporation or regarding the Acquired Corporations' compliance with
applicable Environmental Laws.
(f) No transfers of permits or other Governmental Authorizations under
Environmental Laws, and no additional permits or other Governmental
Authorizations under Environmental Laws, will be required to permit Parent to
conduct the business of the Acquired Corporations in compliance with all
applicable Environmental Laws immediately following the Effective Time, as
conducted by the Acquired Corporations immediately prior to the Effective Time.
(g) The Real Property does not contain any wetlands, as defined in the Clean
Water Act and regulations promulgated thereunder, 33 C.F.R. 328.3, or similar
state or local laws, other especially sensitive or protected areas or species of
flora or fauna, or underground storage tanks.
2.13 TRANSACTIONS WITH AFFILIATES. Except for compensation of employees,
every transaction between Company and any of its "affiliates" or their
"associates" (as such terms are defined in the rules and regulations of the SEC)
which is currently in effect or was consummated since June 30, 1995, and which
involves more than $60,000 is set forth in the Company SEC Documents.
2.14 LEGAL PROCEEDINGS; ORDERS. There is no pending Legal Proceeding, and,
to the best knowledge of the Company, no Person has threatened to commence any
Legal Proceeding that: (i) may have a Material Adverse Effect on the Company or
any of the other Acquired Corporations or their businesses taken individually or
as a whole; or (ii) challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the Merger or any of the
other transactions contemplated by this Agreement. To the best knowledge of the
Company, no event has occurred, and no claim, dispute or other condition or
circumstance exists, that will, or that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
There is no order, writ, injunction, judgment or decree to which any Acquired
Corporation, or any of the assets owned or used by any Acquired Corporation, is
subject, except where any noncompliance with this representation has not had and
will not have (individually or in the aggregate) a Material Adverse Effect on
the Company. To the best knowledge of the Company, no officer or other employee
of any Acquired Corporation is subject to any order, writ, injunction, judgment
or decree that prohibits such officer or other employee from engaging in or
continuing any conduct, activity or practice relating to such Acquired
Corporation's business. There is no action, suit, proceeding or investigation by
any Acquired Corporation currently pending or which any Acquired Corporation
intends to initiate.
2.15 AUTHORITY; BINDING NATURE OF AGREEMENT. Subject to the obtaining of
the approval of the Company's shareholders as contemplated by Section 2.19, the
Company has full corporate power and authority to enter into and to perform its
obligations under this Agreement and the execution, delivery and
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performance by the Company of this Agreement and the other agreements and
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Company's Board of Directors and no other corporate
proceedings on the part of the Company are necessary for the Company to
authorize this Agreement or to consummate the Merger. This Agreement has been
duly executed and delivered by duly authorized officers of the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as enforcement thereof
may be limited by (i) laws of general application relating to bankruptcy,
insolvency, moratorium, reorganization or other similar laws, both state and
federal, affecting the enforcement of creditors' rights or remedies in general,
and (ii) rules of law governing specific performance, injunctive relief and
other equitable remedies.
2.16 NON-CONTRAVENTION; CONSENTS. Neither the execution and delivery of
this Agreement by the Company nor the consummation by the Company of the Merger
will (a) conflict with or result in any breach of any provision of the Articles
of Incorporation or bylaws of the Company, or (b) result in a default by the
Company or any other Acquired Corporation under any Material Acquired
Corporation Contract to which the Company or such other Acquired Corporation is
a party, except for any default which has not had and will not have a Material
Adverse Effect on the Acquired Corporations, or (c) result in a violation by the
Company of any order, writ, injunction, judgment or decree to which the Company
is subject, except for any violation which has not had and will not have a
Material Adverse Effect on the Acquired Corporations. Except (i) as set forth on
Part 2.16 of the Company Disclosure Schedule with respect to Material Acquired
Corporation Contracts, (ii) as provided in Section 1.3 with respect to the
filing of the Articles of Merger with the Department of State of the State of
Florida, (iii) as provided in Section 2.19, and (iv) except as may be required
by the Securities Act, the Exchange Act, state securities or "blue sky" laws,
the HSR Act and the Rules of The Nasdaq Stock Market (the "Nasdaq Rules"), the
Company is not and will not be required to make any filing with or give any
notice to, or to obtain any Consent from, any Person in connection with the
execution and delivery of this Agreement, or the consummation of the Merger.
2.17 DISCLOSURE.
(a) The copies of all documents furnished by the Company pursuant to the
terms of this Agreement are complete and accurate copies of the original.
(b) The Company has timely filed all required forms, reports and documents
required to be filed with the SEC and Nasdaq since January 1, 1993.
(c) None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in the registration statement on Form
S-4 to be filed with the SEC by Parent in connection with the issuance of the
Parent Common Stock in the Merger (the "S-4 Registration Statement") will, at
the time the S-4 Registration Statement is filed with the SEC or at the time the
S-4 Registration Statement becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. None of the information supplied or to be supplied by the Company
for inclusion or incorporation by reference in the Joint Prospectus/Proxy
Statement filed as a part of the S-4 Registration Statement (the "Prospectus/
Proxy Statement"), will, at the time mailed to the shareholders of the Company,
at the time of the Company Shareholders' Meeting or as of the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The information provided by the Company in the Prospectus/Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations promulgated by the SEC
thereunder.
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2.18 FINANCIAL ADVISOR. Except for The Robinson-Humphrey Company, Inc., no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or any of the other
transactions contemplated thereby based upon arrangements made by or on behalf
of any of the Acquired Corporations. The total of all fees, commissions and
other amounts that have been paid or may become payable to The Robinson-Humphrey
Company, Inc. by the Acquired Corporations if the Merger is consummated will not
exceed $190,000 (plus reimbursement of expenses).
2.19 REQUIRED VOTE. The affirmative vote of the holders of a majority of
the shares of Company Common Stock outstanding on the record date for the
Company Shareholders' Meeting (the "Company Required Vote") is the only vote of
the holders of any class or series of the Company's capital stock necessary to
adopt and approve this Agreement, the Merger and the transactions contemplated
thereby.
2.20 COMPANY ACTION. The Board of Directors of the Company (at a meeting
duly called and held) has (a) determined by majority vote that the Merger is
advisable and fair and in the best interests of the Company and its
shareholders, (b) by majority vote approved this Agreement and the Merger in
accordance with the provisions of Sections 607.0824 and 607.1101 of the FBCA and
its Articles of Incorporation and Bylaws, (c) by majority vote recommended the
adoption and approval of this Agreement and the Merger by the holders of Company
Common Stock and directed that the Merger be submitted for consideration by the
Company's shareholders at the Company Shareholders' Meeting, and (d) took any
and all action necessary so that no state takeover law shall be applicable to
the Parent, the Merger or the transactions contemplated thereby.
2.21 FAIRNESS OPINION. The Company's Board of Directors has received the
written opinion of The Robinson-Humphrey Company, Inc., financial advisor to the
Company, dated as of the date of this Agreement, to the effect that the
consideration to be received by the shareholders of the Company in the Merger is
fair to the shareholders of the Company from a financial point of view.
2.22 NO DISSENTERS' RIGHTS. The Company's Common Stock is designated as a
national market system security within the meaning of Section 607.1302 of the
FBCA. The Company's Articles of Incorporation or Bylaws do not provide the
holders of any class or series of capital stock of the Company with dissenters'
rights under Section 607.1302 of the FBCA or any other applicable law.
2.23 ACCOUNTING MATTERS. To the knowledge of the Company, neither the
Company nor any of its affiliates has taken or agreed to, or plans to, take any
action that would prevent Parent from accounting for the business combination to
be effected by the Merger as a "pooling of interests."
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company that, except as
set forth in the Parent SEC Documents or in the disclosure schedule prepared by
Parent in accordance with the requirements of Section 10.11 and that has been
delivered by Parent to the Company on the date of this Agreement (the "Parent
Disclosure Schedule"):
3.1 DUE ORGANIZATION, ETC. Parent and Merger Sub are corporations duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation, each with full corporate power and
authority (i) to conduct its business in the manner in which its business is
currently being conducted, (ii) to own and use its assets in the manner in which
its assets are currently owned and used, and (iii) to perform its obligations
under all Material Parent Contracts by which it or its assets are bound. Each of
Parent, and Merger Sub is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction in which the failure to be so
qualified would have a Material Adverse Effect on Parent, or Merger Sub or on
the ability of Parent, or Merger Sub to consummate the transactions contemplated
hereby.
3.2 CAPITALIZATION, ETC. The authorized capital stock of Parent consists
of: (i) 45,000,000 shares of Common Stock, $.01 par value per share, 17,411,189
shares of which have been issued and are outstanding
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as of December 26, 1997, and (ii) 2,500,000 shares of Preferred Stock, (A)
250,000 shares of which have been designated as Series A Junior Participating
Preferred Stock, none of which has been issued as of the date hereof, (B)
1,068,102 shares of which have been designated as $1.00 Cumulative Convertible
Preferred Stock, $1.00 par value per share, 694,872 of which have been issued
and are outstanding as of the date hereof, and (C) 500,000 shares of which have
been designated as Series B Cumulative Convertible Redeemable Preferred Stock,
all of which have been issued as of the date hereof. All of the outstanding
shares of Parent capital stock have been duly authorized and validly issued, and
are fully paid and nonassessable, and none of such shares is subject to any
repurchase option or restriction on transfer other than restrictions imposed by
federal or state securities laws. All outstanding shares of Parent capital stock
have been issued in compliance with all applicable securities laws and other
applicable Legal Requirements, and all requirements set forth in applicable
Contracts. All of the outstanding shares of capital stock of Merger Sub are
owned beneficially and of record by Parent, free and clear of any Encumbrances
and were issued in compliance with all applicable securities laws and other
applicable Legal Requirements. There are no outstanding subscriptions, options,
calls, warrants or other rights (whether or not currently exercisable) to
acquire any shares of the capital stock or other securities of Parent. The
shares of Parent Common Stock to be issued to the Company's shareholders in the
Merger, when issued by Parent in accordance with the terms of this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable, will be
issued in compliance with applicable federal and state securities laws and,
except for the restrictions imposed by applicable federal and state securities
laws, will be free and clear of any Encumbrances created or imposed, directly or
indirectly, by Parent (subject to the terms of Affiliate Agreements entered into
as contemplated by this Agreement).
3.3 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered to the Company a complete and accurate copy
(excluding copies of exhibits) of each report, schedule, registration statement
and definitive proxy statement filed by Parent with the SEC on or after June 30,
1995 (the "Parent SEC Documents"), which are all the forms, reports and
documents required to be filed by Parent with the SEC since June 30, 1995. The
Parent SEC Documents (i) complied with the requirements of the Securities Act or
the Exchange Act, as the case may be, at and as of the times they were filed
(or, if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing); and (ii) did not at and as of the time they
were filed (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) As of the time they were filed with the SEC, the consolidated financial
statements (including, in each case, any notes related thereto) contained in the
Parent SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered (except as may be indicated in the notes to such financial
statements and, in the case of unaudited interim financial statements, as
permitted by Form 10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to year-end audit
adjustments which are not expected to be material in amount); and (iii) fairly
present the consolidated financial position of Parent and its subsidiaries as of
the respective dates thereof and the consolidated results of operations and cash
flows of Parent and its subsidiaries for the periods covered thereby.
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(c) Parent has furnished to the Company a complete and accurate copy of (i)
any amendments, supplements or modifications that have not yet been filed with
the SEC to agreements, documents or other instruments that have been previously
filed by Parent with the SEC pursuant to the Securities Act or the Exchange Act,
and (ii) all agreements, documents or instruments that are required to be filed
by Parent with the SEC pursuant to the Securities Act or the Exchange Act that
have not yet been filed.
3.4 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1996, there
has not been (a) any change, or any development or combination of developments
of which management of the Parent has knowledge, that has had or would
reasonably be expected to have a Material Adverse Effect on Parent, or (b) any
damage, destruction or loss, whether or not covered by insurance, that has had
or would reasonably be expected to have a Material Adverse Effect on Parent.
3.5 LEGAL PROCEEDINGS; ORDERS. There is no pending Legal Proceeding, and,
to the best knowledge of Parent, no Person has threatened to commence any Legal
Proceeding that: (i) may have a Material Adverse Effect on Parent or its
business; or (ii) challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the Merger or any of the
other transactions contemplated by this Agreement. To the best knowledge of
Parent, no event has occurred, and no claim, dispute or other condition or
circumstance exists, that will, or that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
There is no order, writ, injunction, judgment or decree to which Parent, or any
of the assets owned or used by Parent, is subject which could have a Material
Adverse Effect on Parent or its ability to consummate the Merger.
3.6 DISCLOSURE.
(a) The copies of all documents furnished by Parent pursuant to the terms of
this Agreement are complete and accurate copies of the original.
(b) Parent has timely filed all required forms, reports and documents
required to be filed with the SEC and the NYSE.
(c) None of the information supplied or to be supplied by Parent for
inclusion or incorporation by reference in the S-4 Registration Statement will,
at the time the S-4 Registration Statement is filed with the SEC or at the time
the S-4 Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. None of the information supplied or to be supplied by Parent for
inclusion or incorporation by reference in the Prospectus/Proxy Statement will,
at the dates mailed to the shareholders of the Company, at the time of the
Company Shareholders' Meeting to be held in accordance with this Agreement as of
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The information provided by Parent and Merger Sub in the
Prospectus/Proxy Statement will comply as to form in all material respects with
the provisions of the Exchange Act and the rules and regulations promulgated by
the SEC thereunder.
3.7 AUTHORITY; BINDING NATURE OF AGREEMENT. Each of Merger Sub and,
subject to obtaining approval of the Parent's stockholders as contemplated by
Section 3.10, Parent has full corporate power and authority to enter into and to
perform its obligations under this Agreement and the execution, delivery and
performance by Parent and Merger Sub of this Agreement and the other agreements
and transactions contemplated hereby have been duly authorized by all necessary
action on the part of Parent's and Merger Sub's Boards of Directors and no other
corporate proceedings on the part of Parent or Merger Sub are necessary for
Parent or Merger Sub to authorize this Agreement or to consummate the Merger.
This Agreement has been duly executed and delivered by duly authorized officers
of Parent and Merger Sub and constitutes the legal, valid and binding obligation
of Parent and Merger Sub, enforceable against Parent and Merger Sub in
accordance with its terms, except as enforcement thereof may be limited by
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(i) laws of general application relating to bankruptcy, insolvency, moratorium,
reorganization or other similar laws, both state and federal, affecting the
enforcement of creditors' rights or remedies in general, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
3.8 NON-CONTRAVENTION; CONSENTS. Neither the execution and delivery of
this Agreement by Parent nor the consummation by Parent or Merger Sub of the
Merger will (a) conflict with or result in any breach of any provision of the
Certificate of Incorporation or bylaws of Parent or the Articles of
Incorporation or Bylaws of Merger Sub, or (b) result in a default by Parent or
any other Acquiring Corporation (as defined in Section 3.13) under any Contract
material to Parent to which Parent or such other Acquiring Corporation is a
party, except for any default which has not had and will not have a Material
Adverse Effect on Parent, or (c) result in a violation by Parent or Merger Sub
of any order, writ, injunction, judgment or decree to which Parent or Merger Sub
is subject, except for any violation which has not had and will not have a
Material Adverse Effect on Parent. Except (i) as provided in Section 1.3 with
respect to the filing of Articles of Merger, (ii) as provided in Section 3.10,
and (iii) as may be required by the Securities Act, the Exchange Act, state
securities or "blue sky" laws, the HSR Act and the NYSE Bylaws, Parent is not
and will not be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with the execution and
delivery of this Agreement, or the consummation of the Merger.
3.9 FINANCIAL ADVISOR. Except for A.G. Edwards & Sons, Inc., no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or any of the other transactions
contemplated thereby based upon arrangements made by or on behalf of Parent.
3.10 REQUIRED VOTE. The affirmative vote of the holders of a majority of
the voting power represented by the outstanding shares of Parent Common Stock,
$1.00 Cumulative Convertible Preferred Stock and Series B Cumulative Convertible
Redeemable Preferred Stock, voting as a single class, on the record date for the
Parent Stockholders' Meeting (the "Parent Required Vote") approving and adopting
the Merger Agreement and approving the Merger is the only vote of the holders of
any class or series of the Parent's capital stock necessary to adopt and approve
this Agreement, the Merger and the transactions contemplated thereby.
3.11 PARENT AND MERGER SUB ACTION. The Board of Directors of each of
Parent and Merger Sub (at a meeting duly called and held or by unanimous written
consent) has (a) unanimously determined that the Merger is advisable and fair
and in the best interests of Parent or Merger Sub, as the case may be, and their
respective stockholders, (b) unanimously approved this Agreement and the Merger
in accordance with the provisions of the laws of their respective states of
Incorporation, and, in the case of Parent, unanimously recommended the adoption
and approval of this Agreement and the Merger by the holders of Parent Common
Stock and directed that the Merger be submitted for consideration by the
Parent's stockholders at the Parent Stockholders' Meeting.
3.12 ACCOUNTING MATTERS. To the knowledge of Parent, Parent has not taken
and has not agreed, and does not plan, to take any action that would prevent
Parent from accounting for the business combination to be effected by the Merger
as a "pooling of interests."
3.13 GOVERNMENT CONTRACTS; GOVERNMENT BIDS. Except as set forth in Part
3.13 of the Parent Disclosure Schedule:
(i) None of Parent and any of its majority-owned subsidiaries (including
Parent, the "Acquiring Corporations") has had any determination of
noncompliance, entered into any consent order or undertaken any internal
investigation relating directly or indirectly to any Government Contract or
Government Bid;
(ii) the Acquiring Corporations have complied in all material respects
with all Legal Requirements with respect to all Government Contracts and
Government Bids;
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(iii) the Acquiring Corporations have not, in obtaining or performing any
Government Contract, violated (A) the Truth in Negotiations Act of 1962, as
amended, (B) the Service Contract Act of 1963, as amended, (C) the Contract
Disputes Act of 1978, as amended, (D) the Office of Federal Procurement
Policy Act, as amended, (E) the FAR or any applicable agency supplement
thereto, (F) the Cost Accounting Standards, (G) the Defense Industrial
Security Manual (DOD 5220.22-M), (H) the Defense Industrial Security
Regulation (DOD 5220.22-R) or any related security regulations, or (I) any
other applicable procurement law or regulation or other Legal Requirement;
(iv) none of the Acquiring Corporations nor any of their respective
employees have been debarred or suspended from doing business with any
Governmental Body, and, to the best knowledge of Parent, no circumstances
exist that would warrant the institution of debarrment or suspension
proceedings against any Acquiring Corporation or any employee of any
Acquiring Corporation; and
(v) there are not and have not been any irregularities, misstatements or
omissions relating to any Government Contract or Government Bid that have
led to or could reasonably be expected to lead to (A) any administrative,
civil, criminal or other investigation, Legal Proceeding or indictment
involving any Acquiring Corporation or any of their employees, (B) the
disallowance of any costs submitted for payment by any Acquiring
Corporation, (C) the recoupment of any payments previously made to any
Acquiring Corporation, (D) a finding or claim of fraud, defective pricing,
mischarging or improper payments on the part of any Acquiring Corporation,
or (E) the assessment of any penalties or damages of any kind against any
Acquiring Corporation.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS. The Acquiring Corporations are,
and have at all times since June 30, 1995 been, in compliance with all
applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and will not have a Material Adverse Effect on
any Acquiring Corporation. Since June 30, 1995, the Acquiring Corporations have
not received any notice or other communication from any Governmental Body
regarding any actual or possible violation of, or failure to comply with, any
Legal Requirement.
3.15 GOVERNMENTAL AUTHORIZATIONS. Each Acquiring Corporation has all
Governmental Authorizations necessary to enable such Acquiring Corporation to
conduct its business in the manner in which its business is currently being
conducted, except where any failure to have such Governmental Authorizations has
not had and will not have a Material Adverse Effect on Parent. Each Acquiring
Corporation is, and at all times since June 30, 1995 has been, in compliance
with the material terms and requirements of such Governmental Authorizations.
Since June 30, 1995, the Acquiring Corporations have not received any notice or
other communication from any Governmental Body regarding (a) any actual or
possible violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Authorization.
SECTION 4. CERTAIN COVENANTS OF THE COMPANY
4.1 ACCESS AND INVESTIGATION.
(a) During the period from the date of this Agreement through the Effective
Time (the "Pre-Closing Period"):
(i) the Company and each of the other Acquired Corporations afford, and
shall cause the independent auditors, counsel and other advisors and
representatives (collectively, "Representatives") of the Company and each of
the other Acquired Corporations to afford, to Parent and to Parent's
Representatives, reasonable access to the properties, books, records
(including filed Tax Returns, Tax Returns in preparation and the audit work
papers, management letters and other records of the independent auditors of
the Company and each of the other Acquired Corporations) and personnel of
the Company and each of the other Acquired Corporations in order that Parent
and Parent's
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Representatives may have a full opportunity to make such investigation as
Parent reasonably desires to make of the Company and each of the other
Acquired Corporations;
(ii) the Company shall permit Parent and Parent's Representatives to
make such reasonable inspections of the Company and each of the other
Acquired Corporations and their respective operations as Parent may
reasonably require from time to time;
(iii) the Company shall furnish Parent and Parent's Representatives with,
and shall cause the Company's Representatives and the Representatives of the
Company's Subsidiaries to furnish Parent with, such financial and operating
data and other information with respect to the business and properties of
the Company and each of the other Acquired Corporations as Parent may
reasonably request from time to time; and
(iv) to the extent any transfers of permits or other Governmental
Authorizations under Environmental Laws will be required to permit Parent to
conduct the business of the Acquired Corporations in full compliance with
all applicable Environmental Laws, the Company agrees, and shall cause each
of the Acquired Corporations, to cooperate with Parent to effect such
transfers and use commercially reasonable efforts to obtain such transfers
of permits and other Governmental Authorizations prior to the Effective
Time.
(b) Without limiting the generality of Section 4.1(a), during the
Pre-Closing Period, the Company shall promptly provide Parent with copies of:
(i) all material operating and financial reports prepared by the Company
for its senior management, including copies of the unaudited monthly
consolidated balance sheets of the Company and each of the other Acquired
Corporations and the related unaudited monthly consolidated statements of
operations, changes in cash flows and changes in shareholders' equity (with
copies of such monthly financial statements to be delivered to Parent no
later than the 20th day after the last day of the month to which they
relate);
(ii) any written materials or communications sent by the Company to its
shareholders generally;
(iii) any notice, report or other document filed with or sent to any
Governmental Body in connection with the Merger or the transactions
contemplated thereby; and
(iv) any notices or other documents received by the Company relating to
any service of process or Legal Proceeding involving the Company or any
other Acquired Corporation, or any of their respective officers or
directors.
(c) No investigation by Parent or any of its Representatives pursuant to
this Section 4.1 shall limit or otherwise affect any representations or
warranties of the Company or any condition to any obligation of Parent.
4.2 OPERATION OF THE COMPANY'S BUSINESS. During the Pre-Closing Period,
except as contemplated by this Agreement or consented to by Parent in writing,
the Company and each of the other Acquired Corporations shall:
(a) conduct its business and operations in the ordinary course and in
substantially the same manner as such business and operations have been
conducted prior to the date of this Agreement;
(b) use reasonable efforts to preserve intact its current business
organization, keep available the services of its current officers and employees
and maintain its relations and goodwill with all suppliers, customers,
landlords, creditors, employees and other Persons having business relationships
with such Acquired Corporation in each case, in all material respects;
(c) use reasonable efforts to keep in full force all insurance policies in
effect as of the date of this Agreement;
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(d) not declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities;
(e) not sell, issue or authorize the issuance of (i) any capital stock or
other security, (ii) any option, call, warrant or right to acquire, or relating
to, any capital stock or other security, or (iii) any instrument convertible
into or exchangeable for any capital stock or other security (except that the
Company shall be permitted to issue Company Common Stock upon the exercise of
outstanding Company Options);
(f) not amend or waive any of its rights under, or authorize the
acceleration of vesting under (i) any provision of its Company Stock Plans, (ii)
any provision of any agreement evidencing any outstanding Company Option or
(iii) any provision of any restricted stock purchase agreement;
(g) not amend or permit the adoption of any amendment to any Acquired
Corporation's articles of incorporation, or other charter documents or bylaws,
or effect or permit any Acquired Corporation to become a party to any
Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(h) not form any subsidiary or acquire any equity interest or other interest
in any other Entity;
(i) not make any capital expenditure other than in accordance with the
capital budget set forth in the Company Disclosure Schedule, except for capital
expenditures that, when added to all other capital expenditures made on behalf
of the Acquired Corporations during the Pre-Closing Period, do not exceed
$100,000 in the aggregate;
(j) not (i) except in the ordinary course of business and consistent with
past practices (provided in such cases disclosure is made to Parent as required
hereunder), enter into or become bound by, or permit any of the assets owned or
used by it to become bound by, any Material Acquired Corporation Contract, or
(ii) amend or prematurely terminate, or waive any material right or remedy
under, any Material Acquired Corporation Contract;
(k) not (i) acquire, lease or license any material right or other material
asset from any other Person, (ii) sell or otherwise dispose of, or lease or
license, any material right or other material asset to any other Person except
that the Acquired Corporations may sell inventory in the ordinary course of
business, or (iii) waive or relinquish any right, except for immaterial assets
acquired, leased, licensed, sold or disposed of, or the waiver or relinquishment
of immaterial rights, by the Acquired Corporations pursuant to Contracts that
are not Material Acquired Corporation Contracts;
(l) not (i) lend money to any Person (other than ordinary advances for
travel and entertainment), or (ii) incur or guarantee any indebtedness (whether
under the Company's existing credit lines or otherwise), other than trade
payables not exceeding $200,000, individually or in the aggregate, incurred in
the ordinary course of business and consistent with past practice;
(m) not (i) establish, adopt or amend any Company Employee Plan, (ii) make
or pay any contribution or similar payment to any Company Employee Plan, whether
in the form of cash, securities or other consideration, except those
contributions or payments described in Part 4.2(m) of the Company Disclosure
Schedule; (iii) pay any bonus or make any profit-sharing or similar payment to,
or increase the amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to, any of its directors, officers or
employees except pursuant to agreements in effect on the date hereof or in
accordance with the Company's past practices, or (iv) hire any new employee
whose aggregate annual compensation is expected to exceed $100,000;
(n) not change any of its methods of accounting or accounting practices in
any respect (except as otherwise required by generally accepted accounting
principles or any change therein);
(o) not make any Tax election;
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(p) not commence or settle any Legal Proceeding;
(q) except as contemplated by this Agreement, not enter into any material
transaction or take any other material action outside the ordinary course of
business or inconsistent with its past practices; and
(r) not agree or commit to take any of the actions described in clauses
"(d)" through "(q)" of this Section 4.2.
4.3 NOTIFICATION; UPDATES TO COMPANY DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, the Company shall promptly notify Parent
in writing of:
(i) the discovery by the Company of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by the Company or any other Acquired
Corporation in this Agreement, the Proxy Statement/Prospectus or the Company
SEC Documents;
(ii) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement and that would cause or constitute
an inaccuracy in or breach of any representation or warranty made by the
Company in this Agreement if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any breach of any covenant or obligation of the Company or any
other Acquired Corporation contained in this Agreement; and (iv) any event,
condition, fact or circumstance that would make the timely satisfaction of
any of the conditions set forth in Section 7 or Section 8 impossible or
unlikely.
(b) If any event, condition, fact or circumstance that is required to be
disclosed pursuant to Section 4.3(a) requires any change in the Company
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Company Disclosure Schedule were dated as of
the date of the occurrence, existence or discovery of such event, condition,
fact or circumstance, then the Company shall promptly deliver to Parent an
update to the Company Disclosure Schedule specifying such change. No such update
shall be deemed to supplement or amend the Company Disclosure Schedule for the
purpose of (i) determining the accuracy of any of the representations and
warranties made by the Company or any other Acquired Corporation in this
Agreement, or (ii) determining whether any of the conditions set forth in
Section 7 has been satisfied.
4.4 NO SOLICITATION.
(a) The Company shall not directly or indirectly, and shall not authorize or
permit any other Acquired Corporation or any Representative of any of the
Acquired Corporations directly or indirectly to, (i) solicit, initiate,
encourage or induce the making, submission or announcement of any Acquisition
Proposal or take any action that could reasonably be expected to lead to an
Acquisition Proposal, (ii) furnish any information regarding any of the Acquired
Corporations to any Person in connection with or in response to an Acquisition
Proposal, (iii) continue or engage in discussions or negotiations with any
Person with respect to any Acquisition Proposal, (iv) approve, endorse or
recommend any Acquisition Proposal or (v) enter into any letter of intent or
similar document or any Contract contemplating or otherwise relating to any
Acquisition Transaction; PROVIDED, HOWEVER, that this Section 4.4(a) shall not
prohibit the Company from furnishing information regarding the Company or any
other Acquired Corporation to, or entering into discussions with, any Person in
response to an unsolicited bona fide written proposed Acquisition Proposal
submitted by such Person if (1) the Board of Directors of the Company concludes
in good faith, based upon the written advice of its financial advisor, that such
Acquisition Proposal could reasonably be expected to result in a transaction
that is more favorable to the
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Company's shareholders than the Merger (any such more favorable unsolicited bona
fide written Acquisition Proposal being referred to in this Agreement as a
"Superior Proposal"); PROVIDED, HOWEVER, that if any financing is required to
consummate the transaction contemplated by such proposal, then such proposal
shall not be deemed to be a "Superior Proposal" unless the Company's Board of
Directors reasonably determines that the required financing is reasonably
capable of being obtained by such third party, (2) the Board of Directors of the
Company concludes in good faith, based upon the written advice of its outside
legal counsel, that such action is required in order for the Board of Directors
of the Company to comply with its fiduciary obligations to the Company's
shareholders under applicable law, (3) prior to furnishing any such information
to, or entering into discussions with, such Person, the Company gives the Parent
written notice of the identity of such Person and of the Company's intention to
furnish information to, or enter into discussions with, such Person, and the
Company receives from such Person an executed confidentiality agreement
containing customary limitations on the use and disclosure of all written and
oral information furnished to such Person by or on behalf of the Company, and
(4) prior to furnishing any such information to such Person, the Company
furnishes such information to the Parent (to the extent such information has not
been previously furnished by the Company to the Parent). Without limiting the
generality of the foregoing, the Company acknowledges and agrees that any
violation of any of the restrictions set forth in the preceding sentence by any
Representative of any of the Acquired Corporations, whether or not such
Representative is purporting to act on behalf of the Acquired Corporations,
shall be deemed to constitute a breach of this Section 4.4 by the Company.
(b) The Company shall promptly advise the Parent orally and in writing of
any Acquisition Proposal (including the identity of the Person making or
submitting such Acquisition Proposal and the terms thereof) that is made or
submitted by any Person during the Pre-Closing Period.
(c) The Company shall immediately cease and cause to be terminated any
discussions or negotiations existing as of the date of this Agreement with any
Person that relate to any Acquisition Proposal.
4.5 COMPANY SHAREHOLDERS' MEETING.
(a) Company shall take all action necessary in accordance with its Articles
of Incorporation, Bylaws and under all applicable Legal Requirements to call,
give notice of, convene and hold a special meeting of the holders of Company
Common Stock (the "Company Shareholders' Meeting") to consider, act and vote
upon the adoption and approval of this Agreement, the Merger and the
transactions contemplated thereby. The Company Shareholders' Meeting will be
held as promptly as practicable and in any event within 45 days after the Proxy
Statement/Prospectus has been cleared by the SEC or, if the SEC has not taken
formal action to clear the Proxy Statement/Prospectus, within 45 days of filing
the definitive Proxy Statement/Prospectus with the SEC. The Company
Shareholders' Meeting shall be called, convened, held and conducted, and all
proxies solicited in connection with the Company Stockholders' Meeting shall be
solicited in all material respects in compliance with all applicable Legal
Requirements. The Company's obligation to call, give notice of, convene and hold
the Company Stockholders' Meeting in accordance with this Section 4.5(a) shall
not be limited or otherwise affected by the commencement, disclosure,
announcement or submission to Company of any Acquisition Proposal, or by
withdrawal, amendment or modification of the recommendation of the Board of
Directors of Company with respect to this Agreement or the Merger.
(b) The Board of Directors of Company has by majority vote recommended (and
the Proxy Statement/Prospectus shall include a statement to the effect that the
Board of Directors of Company has by majority vote recommended) that the holders
of Company Common Stock vote in favor and adopt and approve this Agreement, the
Merger and the transactions contemplated thereby at the Company Shareholders'
Meeting.
(c) Notwithstanding the foregoing, nothing in Section 6.4 or in this Section
4.5 shall prevent the Board of Directors of the Company from withdrawing,
amending or modifying its recommendation (by a 5 to 2 majority vote) in favor of
this Agreement and the Merger or approval and adoption of this Agreement
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(and the Proxy Statement/Prospectus may reflect such withdrawal, amendment or
modification) if (i) a Superior Proposal is made to the Company and is not
withdrawn, and (ii) the Board of Directors of the Company shall conclude in good
faith, based upon the written advice of its outside legal counsel, that such
withdrawal, amendment or modification is required in order for the Board of
Directors of the Company to act in a manner that is consistent with its
fiduciary obligations to the Company's shareholders under applicable law.
Nothing contained in this Section 4.5(c) shall limit the Company's obligation to
convene the Company Shareholders' Meeting (regardless of whether the
recommendation of the Board of Directors of the Company shall have been
withdrawn, amended or modified).
(d) The Company shall use commercially reasonable best efforts to obtain
from each of its officers and directors executed Voting Agreements and
irrevocable proxies with respect to the voting of shares of the Company's
capital stock in favor of approval of the Merger and this Agreement, and to
deliver such executed documents to Parent within three (3) business days
following the date of this Agreement.
4.6 TAX REPRESENTATION LETTER. As soon as practicable after the execution
of this Agreement, the Company shall deliver to Cooley Godward LLP and Arent Fox
Kintner Plotkin & Kahn ("Arent Fox") tax representation letters in customary
form (which will be used and relied upon in connection with the legal opinions
contemplated by Section 7.8 and Section 8.7).
4.7 CONTINUITY OF INTEREST CERTIFICATES. The Company shall use all
commercially reasonable efforts to obtain and deliver to Parent prior to the
filing of the S-4 Registration Statement with the SEC a Continuity of Interest
Certificate in the form attached hereto as Exhibit C signed by each person
identified on Exhibit D.
4.8 RESIGNATION OF OFFICERS AND DIRECTORS. The Company shall use all
commercially reasonable efforts to obtain and deliver to Parent prior to the
Closing, effective as of the Closing, the resignation of each officer and
director of the Company and each of the other Acquired Corporations as set forth
on Exhibit E.
4.9 COMFORT LETTER. The Company shall cause to be delivered to Parent a
comfort letter, dated a date not more than two (2) business days before the date
on which the S-4 Registration Statement becomes effective, from Deloitte &
Touche LLP, the Company's independent auditors, in form and substance reasonably
satisfactory to Parent and Parent's counsel and accountants, covering such
matters as are normally covered in a comfort letter delivered in connection with
an S-4 Registration Statement covering transactions of the type contemplated by
this Agreement.
4.10 FIRPTA MATTERS. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the
United States Treasury Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Section 1.897 - 2(h)(2)
of the United States Treasury Regulations.
4.11 AFFILIATE AGREEMENTS. The Company shall deliver to Parent, within ten
days after the date of this Agreement, a letter from the Company identifying all
persons who may be "affiliates" of the Company as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act ("Company
Affiliates"). The Company shall use all commercially reasonable efforts to cause
each person who is or becomes a Company Affiliate to execute and deliver to
Parent, on or prior to the earlier of (a) the date of the mailing of the Proxy
Statement/Prospectus and (b) the thirtieth day prior to the Effective Time, an
Affiliate Agreement in the form attached hereto as Exhibit F.
4.12 POOLING OF INTERESTS. The Company agrees (a) not to take any action
during the Pre-Closing Period that would adversely affect the ability of Parent
to account for the Merger as a "pooling of interests," and (b) to use all
reasonable efforts to attempt to ensure that none of its "affiliates" (as that
term is used in Rule 145 under the Securities Act) takes any action that could
adversely affect the ability of Parent to account for the Merger as a "pooling
of interests."
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4.13 CONFIDENTIALITY. The Company shall hold in strict confidence, and
shall cause each of its Representatives to hold in strict confidence, all
documents and information obtained pursuant to the provisions hereof during the
Pre-Closing Period with respect to Parent, Parent's stockholders, and Parent's
Representatives, to the same extent the Company does with its own documents and
information. The Company shall not permit any of such documents or information
to be improperly utilized or to be disclosed or conveyed to any other Person.
SECTION 5. CERTAIN COVENANTS OF PARENT
5.1 ACCESS AND INVESTIGATION. During the Pre-Closing Period, Parent shall,
and shall cause its Representatives to: (a) provide the Company and the
Company's Representatives with reasonable access to Parent's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to Parent and each Parent
Subsidiary; and (b) provide the Company and the Company's Representatives with
such copies of the existing books, records, Tax Returns, work papers and other
documents and information relating to Parent and each Parent Subsidiary, and
with such additional financial, operating and other data and information
regarding Parent and each Parent Subsidiary, as the Company or its
Representatives may reasonably request. No investigation by the Company or any
of its Representatives pursuant to this Section 5.1 shall limit or otherwise
affect any representations or warranties of Parent or any condition to any
obligation of the Company.
5.2 NOTIFICATION; UPDATES TO PARENT DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, Parent shall promptly notify the Company
in writing of:
(i) the discovery by Parent of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by Parent in this Agreement or an inaccuracy
in the Prospectus/ Proxy Statement or any Parent SEC Documents;
(ii) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement and that would cause or constitute
an inaccuracy in or breach of any representation or warranty made by Parent
in this Agreement; if (A) such representation or warranty had been made as
of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any breach of any covenant or obligation of Parent; and
(iv) any event, condition, fact or circumstance that would make the
timely satisfaction of any of the conditions set forth in Section 7 or
Section 8 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to be
disclosed pursuant to Section 5.2(a) requires any change in the Parent
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Parent Disclosure Schedule were dated as of
the date of the occurrence, existence or discovery of such event, condition,
fact or circumstance, then Parent shall promptly deliver to the Company an
update to the Parent Disclosure Schedule specifying such change. No such update
shall be deemed to supplement or amend the Parent Disclosure Schedule for the
purpose of (i) determining the accuracy of any of the representations and
warranties made by Parent in this Agreement, or (ii) determining whether any of
the conditions set forth in Section 8 has been satisfied.
5.3 PARENT STOCKHOLDERS' MEETING.
(a) Parent shall take all action necessary in accordance with its
Certificate of Incorporation, Bylaws and under all applicable Legal Requirements
to call, give notice of, convene and hold a special meeting of the holders of
Parent Common Stock, $1.00 Cumulative Convertible Preferred Stock and Series B
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Cumulative Convertible Redeemable Preferred Stock (the "Parent Stockholders'
Meeting") to consider, act and vote (as a single class) upon the adoption and
approval of this Agreement, the Merger and the transactions contemplated
thereby. The Parent Stockholders' Meeting will be held as promptly as
practicable and in any event within 45 days after the Proxy Statement/Prospectus
has been cleared by the SEC or, if the SEC has not taken formal action to clear
the Proxy Statement/Prospectus, within 45 days of filing the definitive Proxy
Statement/Prospectus with the SEC. The Parent Stockholders' Meeting shall be
called, convened, held and conducted, and all proxies solicited in connection
with the Parent Stockholders' Meeting shall be solicited in all material
respects in compliance with all applicable Legal Requirements.
(b) The Board of Directors of Parent has unanimously recommended (and the
Proxy Statement/ Prospectus shall include a statement to the effect that the
Board of Directors of Parent has unanimously recommended) that the stockholders
entitled to vote do vote in favor and adopt and approve this Agreement, the
Merger and the transactions contemplated thereby at the Parent Stockholders'
Meeting, which unanimous recommendation shall not be withdrawn, amended or
modified in a manner adverse to the Company. For purposes of this Agreement, it
shall constitute a modification adverse to the Company if such recommendation
shall no longer be unanimous.
(c) Nothing contained in this Section 5.3 shall limit Parent's obligation to
convene the Parent Stockholders' Meeting (regardless of whether the unanimous
recommendation of the Board of Directors of Parent shall have been withdrawn,
amended or modified). Nothing in this Section 5.3 shall prevent the Board of
Directors of Parent from withdrawing, amending or modifying its unanimous
recommendation that the holders of Parent Common Stock vote in favor of this
Agreement, the Merger and the transactions contemplated thereby if the Board of
Directors of Parent concludes in good faith, based upon the written advice of
its outside legal counsel, that the withdrawal, amendment or modification of
such recommendation is required in order for the Board of Directors of Parent to
comply with its fiduciary obligations to Parent's stockholders under applicable
law.
(d) Parent shall use commercially reasonable best efforts to obtain from
each of its officers and directors executed Voting Agreements and irrevocable
proxies with respect to the voting of shares of Parent's capital stock in favor
of approval of the Merger and this Agreement, and to deliver such executed
documents to the Company within three (3) business days following the date of
this Agreement.
5.4 TAX REPRESENTATION LETTERS. As soon as practicable after the execution
of this Agreement, Parent and Merger Sub shall deliver to Cooley Godward LLP and
Arent Fox, tax representation letters in customary form (which will be used and
relied upon in connection with the legal opinions contemplated by Section 7.8
and Section 8.7).
5.5 POOLING OF INTERESTS. Parent agrees (a) not to take any action during
the Pre-Closing Period that would adversely affect the ability of Parent to
account for the Merger as a "pooling of interests," and (b) to use all
reasonable efforts to attempt to ensure that none of its "affiliates" (as that
term is used in Rule 145 under the Securities Act) takes any action that could
adversely affect the ability of Parent to account for the Merger as a "pooling
of interests."
5.6 CONFIDENTIALITY. Parent shall hold in strict confidence, and shall
cause each of its Representatives to hold in strict confidence, all documents
and information obtained pursuant to the provisions hereof during the
Pre-Closing Period with respect to the Company, the Company's shareholders, and
the Company's Representatives, to the same extent Parent does with its own
documents and information. Parent shall not permit any of such documents or
information to be improperly utilized or to be disclosed or conveyed to any
other Person.
5.7 "TAIL" INSURANCE. At or prior to the Effective Time, either the Merger
Sub or the Company will purchase a one (1) year "tail" on the Company's existing
directors and officers liability insurance coverage (up to $5 million limit) at
a cost of no more than $135,000, with respect to actions occurring prior to or
at the Effective Time.
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SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES
6.1 FILINGS AND CONSENTS. As promptly as practicable after the execution
of this Agreement, each of the Company and Parent (a) shall make all filings (if
any) and give all notices (if any) required to be made and given by such party
in connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use its commercially reasonable efforts to obtain each
Consent (if any) required to be obtained (pursuant to any applicable Legal
Requirement or Contract, or otherwise) by such party in connection with the
Merger or any of the other transactions contemplated by this Agreement. Each
party shall promptly deliver to the other party a copy of each such filing made,
each such notice given and each such Consent obtained by such parties during the
Pre-Closing Period.
6.2 PUBLIC ANNOUNCEMENTS. The Company and Parent shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to the Merger and the transactions contemplated thereby. Without
limiting the generality of the foregoing, neither party shall (and neither party
shall permit any of its Representatives to) issue any press release or make any
public statement regarding this Agreement, the Merger or regarding any of the
other transactions contemplated thereby, without the other party's prior
consent, except that either party shall be permitted, without the consent of the
other party, to make such disclosures if it shall have been advised in writing
by its outside legal counsel that such disclosure is required to be made under
applicable law.
6.3 BEST EFFORTS. During the Pre-Closing Period, (a) the Company shall use
its best efforts to cause the conditions set forth in Section 7 to be satisfied
on a timely basis, and (b) Parent and Merger Sub shall use their best efforts to
cause the conditions set forth in Section 8 to be satisfied on a timely basis.
6.4 REGISTRATION STATEMENT; JOINT PROXY STATEMENT.
(a) As promptly as practicable after the date of this Agreement, Parent and
the Company shall prepare and cause to be filed with the SEC a registration
statement on Form S-4 covering the Parent Common Stock to be issued to the
Company shareholders in the Merger (the "S-4 Registration Statement"), in which
the Proxy Statement/Prospectus will be included as a prospectus, and any other
documents required by the Securities Act or the Exchange Act in connection with
the Merger. Each of Parent and the Company shall use all reasonable efforts to
cause the S-4 Registration Statement (including the Proxy Statement/Prospectus)
to comply with the rules and regulations promulgated by the SEC, to respond
promptly to any comments of the SEC or its staff and to have the S-4
Registration Statement declared effective under the Securities Act as promptly
as practicable after it is filed with the SEC. Parent will use all reasonable
efforts to cause the Proxy Statement/Prospectus to be mailed to Parent's
stockholders, and the Company will use all reasonable efforts to cause the Proxy
Statement/Prospectus to be mailed to the Company's shareholders, as promptly as
practicable after the S-4 Registration Statement is declared effective under the
Securities Act. The Company shall promptly furnish to Parent all information
concerning the Acquired Corporations and the Company's shareholders that may be
required or reasonably requested in connection with any action contemplated by
this Section 6.4. If any event relating to any of the Acquired Corporations
occurs, or if the Company becomes aware of any information, that should be set
forth in an amendment or supplement to the S-4 Registration Statement or the
Proxy Statement/ Prospectus, then the Company shall promptly inform Parent
thereof and shall cooperate with Parent in filing such amendment or supplement
with the SEC and, if appropriate, in mailing such amendment or supplement to the
shareholders of the Company.
(b) Prior to the Effective Time, Parent shall use reasonable efforts to
obtain all regulatory approvals needed to ensure that the Parent Common Stock to
be issued in the Merger will be registered or qualified under the securities law
of every jurisdiction of the United States in which any registered holder of
Company Common Stock has an address of record on the record date for determining
the shareholders entitled to notice of and to vote at the Company Shareholders'
Meeting; PROVIDED, HOWEVER, that Parent shall not be required (i) to qualify to
do business as a foreign corporation in any jurisdiction in which it is not now
qualified or (ii) to file a general consent to service of process in any
jurisdiction.
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6.5 REGULATORY APPROVALS. Without limiting the generality of Section 6.1,
the Company and Parent shall use all reasonable efforts to file, as soon as
practicable after the date of this Agreement, all notices, reports and other
documents required to be filed with any Governmental Body with respect to the
Merger and the other transactions contemplated by this Agreement, and to submit
promptly any additional information requested by any such Governmental Body.
Without limiting the generality of the foregoing, the Company and Parent shall,
promptly after the date of this Agreement, prepare and file the notifications,
if any, required under the HSR Act in connection with the Merger. The Company
and Parent shall respond as promptly as practicable to (i) any inquiries or
requests received from the Federal Trade Commission or the Department of Justice
for additional information or documentation and (ii) any inquiries or requests
received from any state attorney general or other Governmental Body in
connection with antitrust or related matters. Each of the Company and Parent
shall (1) give the other party prompt notice of the commencement of any Legal
Proceeding by or before any Governmental Body with respect to the Merger or any
of the other transactions contemplated by this Agreement, (2) keep the other
party informed as to the status of any Legal Proceeding, and (3) promptly inform
the other party of any communication to or from the Federal Trade Commission,
the Department of Justice or any other Governmental Body regarding the Merger.
The Company and Parent will consult and cooperate with one another, and will
consider in good faith the views of one another, in connection with any
analysis, appearance, presentation, memorandum, brief, argument, opinion or
proposal made or submitted in connection with any Legal Proceeding under or
relating to the HSR Act or any other federal or state antitrust or fair trade
law. In addition, except as may be prohibited by any Governmental Body or by any
Legal Requirement, in connection with any Legal Proceeding under or relating to
the HSR Act or any other federal or state antitrust or fair trade law or any
other similar Legal Proceeding, each of the Company and Parent agrees to permit
authorized Representatives of the other party to be present at each meeting or
conference relating to any such Legal Proceeding and to have access to and be
consulted in connection with any document, opinion or proposal made or submitted
to any Governmental Body in connection with any such Legal Proceeding.
6.6 PARENT PLANS AND BENEFIT ARRANGEMENTS. The employee benefit plans and
benefit arrangements maintained by the Company (each, a "Plan") that provide
non-discretionary, non-cash benefits to employees of the Company and that are
substantially similar to benefit plans and benefit arrangements currently
maintained by Parent shall, to the extent practicable, be maintained in effect
by the Surviving Corporation until the Continuing Employees are allowed to
participate in such similar benefit plans or benefit arrangements maintained by
Parent. Parent shall use reasonable efforts to attempt to ensure that: (a) as
soon as practicable after the Effective Time, Parent's benefit plans and benefit
arrangements will provide benefits to the Continuing Employees that are
comparable to the non-discretionary, non-cash benefits provided to similarly
situated employees of Parent; (b) to the extent practicable, any pre-existing
condition limitations contained in Parent's health plans and health benefit
arrangements for any Continuing Employee who would be deemed under Parent's
health plans and health benefit arrangements to have a disqualifying
pre-existing condition are waived, to the extent such condition was covered by a
Plan immediately prior to the Effective Time (provided that, in the case of
Parent's disability and life insurance plans, such Continuing Employee is
actively at work and is not hospitalized or on disability leave as of the
Effective Time); and (c) to the extent practicable, Parent's benefit plans and
benefit arrangements give full credit to each Continuing Employee for such
Continuing Employee's period of service with the Company prior to the Effective
Time for all purposes for which such service was recognized under the Plans
prior to the Effective Time.
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SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS. The representations and warranties
(considered individually and collectively) made by the Company in this Agreement
and in each of the other agreements and instruments delivered to Parent in
connection with the transactions contemplated by this Agreement shall have been
accurate in all material respects as of the date of this Agreement (without
giving double effect to any "Material Adverse Effect" or other materiality
qualifications contained in such representations and warranties), and shall be
accurate in all material respects as of the Closing Date as if made at the
Closing Date (without giving effect to any update or modification to the Company
Disclosure Schedule except as to matters previously approved by Parent in
writing and without giving double effect to any "Material Adverse Effect" or
other materiality qualifications contained in such representations and
warranties).
7.2 PERFORMANCE OF COVENANTS. Each and every covenant or obligation that
the Company is required to comply with or to perform at or prior to the Closing,
considered individually and collectively, shall have been complied with and
performed in all material respects on or prior to the Closing Date.
7.3 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall have been no Material Adverse Effect on the Acquired Corporations and
there shall not have occurred any change or development, or any combination of
changes or developments, that would reasonably be expected to have a Material
Adverse Effect on the Acquired Corporations.
7.4 COMPLIANCE CERTIFICATE. The Company shall have delivered to Parent a
certificate of the chief executive officer of the Company evidencing compliance
with the conditions set forth in Sections 7.1, 7.2 and 7.3.
7.5 STOCKHOLDER APPROVAL. This Agreement, the Merger and the transactions
contemplated hereby shall have been adopted and approved in accordance with the
Parent Required Vote and the Company Required Vote and each such required vote
shall be continuing and remain in full force and effect.
7.6 CONSENTS. All Consents required to be obtained in connection with the
Merger and the other transactions contemplated by this Agreement (including the
Consents identified on Part 2.16 of the Company Disclosure Schedule and the
Governmental Authorizations referenced in Section 4.1(a)(iv)) shall have been
obtained and shall be in full force and effect.
7.7 LEGAL OPINION. Parent shall have received a legal opinion of Arent
Fox, counsel to the Company, in the form of Exhibit G, dated as of the Closing
Date;
7.8 TAX OPINION. Parent shall have received (i) the tax representation
letters set forth in Sections 4.6 and 5.4, (ii) the Continuity of Interest
Certificates referred to in Section 7.12, and (iii) a legal opinion of Cooley
Godward LLP, counsel to Parent, addressed to the Parent, dated as of the Closing
Date, to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code and no gain or loss will be recognized by
Parent or the Company as a result of the issuance of Parent Common Stock
pursuant to this Agreement (it being understood that, in rendering such opinion,
Cooley Godward LLP may rely upon the tax representation letters referred to in
Section 4.6 and Section 5.4 and the Continuity of Interest Certificates referred
to in Section 7.12);
7.9 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
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7.10 EXECUTIVE OFFICER AND DIRECTOR RESIGNATIONS. The Company shall have
delivered to Parent the written resignations of the executive officers and
directors of the Company and the other Acquired Corporations as set forth in
Exhibit E.
7.11 EFFECTIVENESS OF REGISTRATION STATEMENT. The S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued or threatened by the
SEC with respect to the S-4 Registration Statement.
7.12 CONTINUITY OF INTEREST CERTIFICATES. Each person identified on
Exhibit D shall have executed and delivered to Parent a Continuity of Interest
Certificate in the form of Exhibit C.
7.13 COMFORT LETTER. Parent shall have received the comfort letter
required under Section 4.9 and, in addition a bring-down comfort letter, in form
and substance reasonably satisfactory to Parent, dated the Closing Date;
7.14 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Legal Proceeding in which a Governmental Body is threatened to become a
party: (a) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the transactions contemplated thereby; (b) relating to the
Merger and seeking to obtain from Parent or the Company or any of their
respective subsidiaries any damages that may be material to Parent or the
Company and its respective subsidiaries taken as a whole; (c) seeking to
prohibit or limit in any material respect Parent's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with respect to
the stock of the Surviving Corporation; or (d) which would materially and
adversely affect the right of Parent, the Surviving Corporation or any
subsidiary of Parent to own the assets or operate the business of the Company.
7.15 NO OTHER LITIGATION. There shall not be pending any Legal Proceeding
in which there is a reasonable possibility of an outcome that would have a
Material Adverse Effect on Parent or the Acquired Corporations: (a) challenging
or seeking to restrain or prohibit the consummation of the Merger or any of the
transactions contemplated thereby or by this Agreement; (b) relating to the
Merger and seeking to obtain from Parent or its respective subsidiaries or the
Acquired Corporations or any of their respective officers or directors any
damages that may be material to Parent and its subsidiaries taken as a whole or
the Acquired Corporations; (c) seeking to prohibit or limit in any material
respect Parent's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Surviving
Corporation; or (d) which would affect adversely the right of Parent, the
Surviving Corporation or any subsidiary of Parent to own the assets or operate
the business of the Acquired Corporations.
7.16 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
7.17 LISTING. The shares of Parent Common Stock issuable to the Company
shareholders in the Merger shall have been approved for listing (subject to
notice of issuance) on the NYSE.
7.18 FIRPTA COMPLIANCE. The Company shall have filed with the Internal
Revenue Service the notification required by Section 4.10 and shall have
delivered to Parent the statement required by Section 4.10.
7.19 NMS LISTING. The Company Common Stock shall be listed on the Nasdaq
National Market System and no delisting or other notice of suspension shall have
been received by or communicated to the Company.
7.20 EMPLOYEES. John L. Slack shall not have ceased to be employed by the
Company, or expressed an intention to terminate his employment with the Company
or to decline to accept employment with Parent or any subsidiary of Parent.
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7.21 AFFILIATE AGREEMENTS. Parent shall have received from each Person
identified as a Company Affiliate pursuant to Section 4.11 or who becomes a
Company Affiliate a duly executed Affiliate Agreement in the form of Exhibit F.
7.22 POOLING LETTERS. Arthur Andersen LLP, Parent's independent auditors,
shall have received from Deloitte & Touche LLP, the Company's independent
auditors, a letter dated as of the Closing Date, in form and substance
reasonably satisfactory to Arthur Andersen LLP, to the effect that Deloitte &
Touche LLP is not aware of any fact concerning the Company that would preclude
Parent from accounting for the Merger using the pooling of interests method of
accounting in accordance with GAAP and all published rules, regulations and
policies of the SEC, and Parent shall have received from Arthur Andersen LLP a
letter dated as of the Closing Date to the effect that the Merger will be
eligible for the pooling of interests method of accounting in accordance with
GAAP and all published rules, regulations and policies of the SEC.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise consummate
the transactions contemplated by this Agreement are subject to the satisfaction,
at or prior to the Closing, of each of the following conditions:
8.1 OCCURACY OF REPRESENTATIONS. The representations and warranties
(considered individually and collectively) made by Parent and Merger Sub in this
Agreement and in each of the other agreements and instruments delivered to the
Company in connection with the transactions contemplated by this Agreement shall
have been accurate in all material respects as of the date of this Agreement
(without giving double effect to any "Material Adverse Effect" or other
materiality qualifications contained in such representations and warranties),
and shall be accurate in all material respects as of the Closing Date as if made
at the Closing Date (without giving effect to any update or modification to the
Parent Disclosure Schedule except as to matters previously approved by the
Company in writing and without giving double effect to any "Material Adverse
Effect" or other materiality qualifications contained in such representations
and warranties).
8.2 PERFORMANCE OF COVENANTS. Each and every covenant or obligation that
Parent and/or Merger Sub is required to comply with or to perform at or prior to
the Closing, considered individually and collectively, shall have been complied
with and performed in all material respects on or prior to the Closing Date.
8.3 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall have been no Material Adverse Effect on Parent and there shall not have
occurred any change or development, or any combination of changes or
developments, that would reasonably be expected to have a Material Adverse
Effect on Parent.
8.4 COMPLIANCE CERTIFICATE. Parent shall have delivered to the Company a
certificate of the chief executive officer of Parent evidencing compliance with
the conditions set forth in Sections 8.1, 8.2 and 8.3.
8.5 STOCKHOLDER APPROVAL. This Agreement, the Merger and the transactions
contemplated thereby shall have been adopted and approved in accordance with the
Parent Required Vote and the Company Required Vote and each such required vote
shall be continuing and remain in full force and effect.
8.6 LEGAL OPINION. The Company shall have received a legal opinion of
Cooley Godward LLP, counsel to Parent, in the form of Exhibit H dated as of the
Closing Date;
8.7 TAX OPINION. The Company shall have received (i) the tax
representation letters set forth in Sections 4.6 and 5.4 and the Continuity of
Interest Certificates referred to in Section 7.12, and (ii) a legal opinion of
Arent Fox, dated as of the Closing Date, addressed to the Company, to the effect
that the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code and no gain or
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loss will be recognized by the Company or its shareholders as a result of the
transactions contemplated by this Agreement (it being understood that, in
rendering such opinion, Arent Fox may rely upon the tax representation letters
referred to in Section 4.6 and Section 5.4 and the Continuity of Interest
Certificates referred to in Section 7.12); PROVIDED, HOWEVER, that if such
counsel does not render such opinion, this condition shall nonetheless be deemed
to be satisfied with respect to the Company if Cooley Godward LLP renders such
opinion to the Company.
8.8 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
8.9 EFFECTIVENESS OF REGISTRATION STATEMENT. The S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the S-4 Registration Statement.
8.10 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Legal Proceeding in which a Governmental Body is or is threatened to become
a party: (a) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the transactions contemplated thereby or; (b) relating to
the Merger and seeking to obtain from Parent or its subsidiaries or the Acquired
Corporations any damages that may be material to Parent and the its subsidiaries
taken as a whole or the Acquired Corporations taken as a whole.
8.11 NO OTHER LITIGATION. There shall not be pending any Legal Proceeding
in which there is a reasonable possibility of an outcome that would have a
Material Adverse Effect on Parent and its subsidiaries taken as a whole or the
Acquired Corporations: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the transactions contemplated thereby or by
this Agreement or; (b) relating to the Merger and seeking to obtain from Parent
or its subsidiaries or the Acquired Corporations or any of their respective
officers or directors any damages that may be material to Parent and its
subsidiaries taken as a whole or the Acquired Corporations taken as a whole.
8.12 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
8.13 LISTING. The shares of Parent Common Stock issuable to the Company
shareholders in the Merger shall have been approved for listing (subject to
notice of issuance) on the NYSE.
SECTION 9. TERMINATION
9.1 TERMINATION. This Agreement may be terminated prior to the Effective
Date:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the Merger shall not have been
consummated by May 31, 1998 (unless the failure to consummate the Merger is
attributable to a failure on the part of the party seeking to terminate this
Agreement to perform any material obligation required to be performed by such
party at or prior to the Effective Date);
(c) by either Parent or the Company if a court of competent jurisdiction or
other Governmental Body shall have issued a final and nonappealable order,
decree or ruling, or shall have taken any other action, having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger;
(d) by the Company if a Parent Triggering Event shall have occurred;
PROVIDED, HOWEVER, that if this Agreement is terminated pursuant to this Section
9.1(d), Parent shall pay to the Company a nonrefundable fee of $500,000 in cash
concurrently with the effectiveness of such termination;
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(e) by Parent if a Company Triggering Event shall have occurred; PROVIDED,
HOWEVER, that if this Agreement is terminated pursuant to this Section 9.1(e),
the Company shall pay to Parent a nonrefundable fee of $500,000 in cash
concurrently with the effectiveness of such termination;
(f) by either party if any of the other party's representations and
warranties contained in this Agreement shall be or shall have become materially
inaccurate, or if any of the other party's covenants contained in this Agreement
shall have been breached in any material respect; PROVIDED, HOWEVER, that if an
inaccuracy in a party's representations and warranties or a breach of a covenant
by a party is curable by such party and such party is continuing to exercise all
reasonable efforts to cure such inaccuracy or breach, then the breaching party
shall have thirty (30) days from the time of receipt of written notice from the
nonbreaching party of such breach or inaccuracy to cure such breach and if it is
not cured within such thirty (30) day period, the nonbreaching party may
terminate this Agreement under this Section 9.1(f) on account of such inaccuracy
or breach; PROVIDED FURTHER that if this Agreement is terminated pursuant to
this Section 9.1(f), then the breaching party shall have to pay the
non-breaching party a nonrefundable fee of $500,000 in cash concurrently with
the effectiveness of such termination;
(g) by the Company (at any time prior to the adoption and approval of this
Agreement, the Merger and the transactions contemplated hereby) if, pursuant to
and in compliance with Section 4.4, the Company and its Board of Directors elect
to accept a Superior Proposal; PROVIDED, HOWEVER, that if this Agreement is
terminated pursuant to this Section 9.1(g), the Company shall pay to Parent a
nonrefundable fee of $500,000 in cash upon the Company's (or its Board of
Directors') election to accept such Superior Proposal;
(h) by the Company on the date mutually agreed to between Parent and the
Company as the date the S-4 Registration Statement is to be declared effective
by the SEC (which date shall be the earliest practicable date on which the S-4
Registration Statement can be declared effective by the SEC) (the "Determination
Date"), if the average NYSE closing price per share of Parent Common Stock over
the twenty (20) trading days prior to such date ("Updated Average Price") is
more than $8.00, or by Parent on the Determination Date if the Updated Average
Price is less than $6.00; PROVIDED, HOWEVER, that if this Agreement is
terminated by the Company pursuant to this Section 9.1(h), the Company shall pay
to Parent a nonrefundable fee of $500,000 in cash concurrently with the
effectiveness of such termination; PROVIDED, FURTHER, that if this Agreement is
terminated by Parent pursuant to this Section 9.1(h), Parent shall pay to the
Company a nonrefundable fee of $500,000 in cash concurrently with the
effectiveness of such termination; PROVIDED, FURTHER, however, that neither
party shall have the right to exercise its right of termination under this
Section 9(h) if such party is not in compliance in all material respects with
its covenants and obligations relating to the S-4 Registration Statement under
this Agreement. If the Updated Average Price is less than $6.00 or more than
$8.00 and this Agreement is not terminated pursuant to this Section 9.1(h) by
either party (as applicable), the Exchange Ratio shall be adjusted to equal the
number (rounded at six decimal places) that results from dividing $9.50 by such
Updated Average Price;
(i) by Parent if the Board of Directors of Parent shall not have received
the written opinion of A.G. Edwards & Sons, Inc., financial advisor to Parent,
dated on or about the Determination Date (or a written addendum, or "bring-down"
to an earlier opinion, reasonably satisfactory to Parent), to the effect that
the consideration to be received by the Company shareholders in the Merger is
fair to the stockholders of Parent from a financial point of view, which
fairness opinion shall be in customary form, without any unusual limitations or
qualifications; and
(j) by the Company if the Board of Directors of the Company shall not have
received the written opinion of Robinson-Humphrey Company, Inc., financial
advisor to Company, dated on or about the Determination Date (or a written
addendum, or "bring-down" to an earlier opinion, reasonably satisfactory to the
Company), to the effect that the consideration to be received by the Company
shareholders in the Merger is fair to the shareholders of the Company from a
financial point of view, which fairness opinion shall be in customary form,
without any unusual limitations or qualifications.
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9.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 9.1, this Agreement shall be of no further
force or effect; PROVIDED, HOWEVER, that (i) this Section 9.2, Section 9.3 and
Section 10.2 shall survive the termination of this Agreement and shall remain in
full force and effect, and (ii) the termination of this Agreement shall not
relieve any party from any liability for any breach of this Agreement or from
any obligation to pay any fees pursuant to Section 9.1.
9.3 FEES AND EXPENSES. Except as set forth in this Section 9, each party
to this Agreement shall bear and pay all fees, costs and expenses (including
legal fees and accounting fees) that have been incurred or that are incurred in
the future by such party in connection with the transactions contemplated by
this Agreement, including all fees, costs and expenses incurred by such party in
connection with or by virtue of (a) the investigation and review conducted by
such party (or its Representatives) with respect to the other party's business
(and the furnishing of information to the other party and its Representatives in
connection with such investigation and review), (b) the negotiation, preparation
and review of this Agreement and all agreements, certificates, opinions and
other instruments and documents delivered or to be delivered in connection with
the transactions contemplated by this Agreement, (c) the preparation and
submission of any filing or notice required to be made or given in connection
with any of the transactions contemplated by this Agreement, and the obtaining
of all Consents and Governmental Authorizations required to be obtained in
connection with any of such transactions, and (d) the consummation of the
Merger; PROVIDED, HOWEVER, that the parties shall bear equally all fees and
expenses (other than attorney's fees) associated with the printing and filing of
the S-4 Registration Statement and forms and notifications required to be filed
by the Company or Parent under the HSR Act; PROVIDED, FURTHER, that any fees
associated with the filing of any notifications required to be filed by any
Company shareholder under the HSR Act shall be borne exclusively by the Company.
SECTION 10. MISCELLANEOUS PROVISIONS
10.1 FURTHER ASSURANCES. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
10.2 ATTORNEYS' FEES. Notwithstanding Section 9.3, if any action at law or
suit in equity to enforce this Agreement or the rights of any of the parties
hereunder is brought against any party hereto, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements (in
addition to any other relief to which the prevailing party may be entitled).
10.3 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be made in writing and
delivered to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone number
as such party shall have specified in a written notice given to the other
parties hereto):
if to Parent or Merger Sub:
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121-1199
Attn: General Counsel
Facsimile: (619) 552-9759
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with a copy to (which shall not constitute notice):
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Attention: Jeremy D. Glaser, Esq.
Facsimile: (619) 453-3555
if to the Company:
DBA Systems, Inc.
1200 S. Woody Burke Road
Melbourne, FL 32902-0550
Attn: General Counsel
Facsimile: (407) 727-1689
with a copy to (which shall not constitute notice):
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Attention: Jeffrey E. Jordan, Esq.
Facsimile: (202) 857-6395
All such notices and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of a telecopy, when the party receiving such telecopy shall have
confirmed receipt of the communication, (c) in the case of delivery by
nationally-recognized, overnight courier, on the business day following dispatch
and (d) in the case of mailing, if mailed by first class mail, postage prepaid,
certified or registered on the fifth business day following such mailing.
10.4 TIME OF THE ESSENCE. Time is of the essence for this Agreement.
10.5 GOVERNING LAW; VENUE.
(a) This Agreement shall be construed in accordance with, and governed in
all respects by, the internal laws of the State of California (without giving
effect to principles of conflicts of laws); PROVIDED, that the effectiveness and
effect of the Merger shall be governed by the laws of the State of Florida.
(b) Any legal action or other legal proceeding relating to this Agreement or
the enforcement of any provision of this Agreement may be brought or otherwise
commenced in any state or federal court located in San Diego, California. Each
party to this Agreement:
(i) expressly and irrevocably consents and submits to the jurisdiction
of each state and federal court located in San Diego, California (and each
appellate court located in the State of California) in connection with any
such legal proceeding;
(ii) agrees that each state and federal court located in California
shall be deemed to be a convenient forum; and
(iii) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal
court located in California, any claim that such party is not subject
personally to the jurisdiction of such court, that such legal proceeding has
been brought in an inconvenient forum, that the venue of such proceeding is
improper or that this Agreement or the subject matter of this Agreement may
not be enforced in or by such court.
10.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall be enforceable by and inure solely to the benefit of, the parties hereto
and their successors and permitted assigns; PROVIDED,
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HOWEVER, that this Agreement may not be assigned by any party without the
written consent of the other parties, and any attempted assignment without such
consent shall be void and of no effect. None of the provisions of this Agreement
are intended to provide any rights or remedies to any Person other than the
parties hereto and their respective successors and assigns (if any).
10.7 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies of
the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction restraining such breach or threatened breach.
10.8 WAIVER.
(a) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) No Person shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such
Person; and no waiver shall be deemed to be a continuing waiver or waiver of any
other provision, whether or not similar, of this Agreement.
10.9 AMENDMENTS. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto, whether executed before or
after adoption and approval of this Agreement, the Merger and the transactions
contemplated thereby by the shareholders of the Company in accordance with the
Company Required Vote and the stockholders of Parent in accordance with the
Parent Required Vote; PROVIDED, HOWEVER, that (i) after any such adoption and
approval of this Agreement, the Merger and the transactions contemplated thereby
by the Company's shareholders, no amendment shall be made which by law or NASD
regulation requires further approval of the shareholders of the Company without
the further approval of such shareholders, and (ii) after any such approval of
this Agreement, the Merger and the transactions contemplated thereby by Parent's
stockholders, no amendment shall be made which by law or NYSE regulation
requires further approval of Parent's stockholders without the further approval
of such stockholders.
10.10 SEVERABILITY. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.11 DISCLOSURE SCHEDULES. The disclosure schedules shall be arranged in
separate parts corresponding to the numbered and lettered sections contained in
Section 2 or in Section 3, as the case may be. The Company Disclosure Schedule
shall be certified as to its accuracy and completeness by the chief executive
officer of the Company and the Parent Disclosure Schedule shall be certified as
to its accuracy and completeness by the chief executive officer of Parent.
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10.12 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Agreement or in any
certificate, document or other instrument delivered pursuant to this Agreement
shall survive the Merger.
10.13 ENTIRE AGREEMENT. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and, supersede all prior and contemporaneous
agreements and understandings among or between any of the parties relating to
the subject matter hereof.
10.14 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include the
masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including," and
variations thereof, shall not be deemed to be terms of limitation, but rather
shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
10.15 HEADINGS. The bold-faced section headings contained in this
Agreement are for convenience of reference only, shall not be deemed to be a
part of this Agreement and shall not be referred to in connection with the
construction or interpretation of this Agreement. 10.16 Counterparts. This
Agreement may be executed in several counterparts, each of which shall
constitute an original and all of which, when taken together, shall constitute
one and the same instrument.
10.16 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first set forth above.
<TABLE>
<S> <C> <C>
THE TITAN CORPORATION,
a Delaware corporation
By: /s/ GENE W. RAY
-----------------------------------------
Name: Gene W. Ray
Title: President and CEO
EAGLE ACQUISITION SUB, INC.,
a Florida corporation
By: /s/ ERIC M. DEMARCO
-----------------------------------------
Name: Eric M. Demarco
Title: President, Secretary and Treasurer
DBA SYSTEMS, INC.,
a Florida corporation
By: /s/ JOHN L. SLACK
-----------------------------------------
Name: John L. Slack
Title: President and CEO
</TABLE>
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EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUIRED CORPORATION. "Acquired Corporation" and "Acquired Corporations"
shall have the meanings set forth in Section 2.1.
ACQUIRED CORPORATION CONTRACT. "Acquired Corporation Contract" shall mean
any Contract: (a) to which any Acquired Corporation is a party; (b) by which any
Acquired Corporation or any of its assets is or may become bound or under which
any Acquired Corporation has, or may become subject to, any obligation; or (c)
under which any Acquired Corporation has or may acquire any right or interest.
ACQUIRED CORPORATION PROPRIETARY ASSETS. "Acquired Corporation Proprietary
Assets" shall mean any Proprietary Asset owned by or licensed to or otherwise
used by the Company or any other Acquired Corporation.
ACQUIRING CORPORATIONS. "Acquiring Corporations" shall have the meaning set
forth in Section 3.13.
ACQUISITION PROPOSAL. "Acquisition Proposal" shall mean any offer or
proposal (other than an offer or proposal by Parent) contemplating or otherwise
relating to any Acquisition Transaction.
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction not contemplated by this Agreement involving:
(A) any sale, lease, license, exchange, transfer or other disposition of
the assets of the Company constituting more than 20% of the assets of the
Company or accounting for more than 20% of the revenues of the Company in
any one transaction or in a series of related transactions;
(B) any offer to purchase, tender offer, exchange offer or any similar
transaction or series of related transactions made by any Person or group of
Persons within the meaning of Section 13(d)(3) of the Exchange Act,
involving more than 20% of the outstanding shares of the capital stock of
the Company; or
(C) any merger, consolidation, business combination, share exchange,
reorganization or similar transaction or series of related transactions
involving the Company.
AFFILIATES. "Affiliates" shall mean any Person that, directly or indirectly,
through one or more intermediaries, controls or is controlled by or is under
common control with, a specified Person.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including the Company
Disclosure Schedule and Parent Disclosure Schedule), as it may be amended from
time to time.
CERTIFICATE OF MERGER. "Certificate of Merger" shall have the meaning set
forth in Section 1.3.
CLEANUP. "Cleanup" means all actions required to: (1) cleanup, remove,
respond to, treat or remediate Hazardous Materials in the indoor or outdoor
environment; (2) prevent the Release of Hazardous Materials so that they do not
migrate, endanger or threaten to endanger public health or welfare of the indoor
or outdoor environment; (3) perform pre-remedial studies and investigations and
post-remedial monitoring and care; (4) respond to any government requests for
information or documents in any way relating to cleanup, removal, response,
treatment or remediation or potential cleanup, removal, treatment or remediation
of Hazardous Materials in the indoor or outdoor environment, or (5) restore
natural resources affected by the Release of Hazardous Materials.
CLOSING. "Closing" shall have the meaning set forth in Section 1.3.
CLOSING DATE. "Closing Date" shall have the meaning set forth in Section
1.3.
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CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
COMPANY. "Company" shall mean DBA Systems, Inc., a Florida corporation.
COMPANY AFFILIATES. "Company Affiliates" shall have the meaning set forth in
Section 4.12.
COMPANY COMMON STOCK. "Company Common Stock" shall mean the Company's common
stock, $.10 par value.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall have the
meaning set forth in the Preamble to Section 2.
COMPANY EMPLOYEE PLANS. "Company Employee Plans" shall have the meaning set
forth in Section 2.10(a).
COMPANY OPTION. "Company Option" shall mean any option to purchase capital
stock of the Company held by any director, officer or employee of, or consultant
to, the Company.
COMPANY REQUIRED VOTE. "Company Required Vote" shall have the meaning set
forth in Section 2.19.
COMPANY SEC DOCUMENTS. "Company SEC Documents" shall have the meaning set
forth in Section 2.4(a).
COMPANY SHAREHOLDERS' MEETING. "Company Shareholders' Meeting" shall have
the meaning set forth in Section 4.5.
COMPANY STOCK CERTIFICATE. "Company Stock Certificate" shall have the
meaning set forth in Section 1.6.
COMPANY TRIGGERING EVENT. A "Company Triggering Event" shall be deemed to
have occurred if: (i) the Board of Directors of the Company shall have failed to
recommend that the Company's stockholders vote in favor of, or shall for any
reason have withdrawn or shall have amended or modified in a manner adverse to
Parent its recommendation (by 5 to 2 majority vote) that the Company's
stockholders vote in favor of, the Merger or approval or adoption of this
Agreement; (ii) the Company shall have failed to include in the Proxy
Statement/Prospectus the recommendation of the Board of Directors of the Company
that the Company's stockholders vote in favor of approval and adoption of this
Agreement and the Merger; (iii) the Board of Directors of the Company shall have
approved, endorsed or recommended any Acquisition Proposal; (iv) the Company
shall have entered into any letter of intent or similar document or any Contract
relating to any Acquisition Proposal; (v) the Company shall have failed to hold
the Company Shareholders' Meeting as promptly as practicable and in any event
within 45 days after the definitive Proxy Statement/Prospectus was filed with
the SEC; (vi) a tender or exchange offer relating to securities of the Company
shall have been commenced and the Company shall not have published, sent or
given to its securityholders, within ten (10) business days after the
commencement of such tender or exchange offer, a statement disclosing that the
Company recommends rejection of such tender or exchange offer; or (vii) an
Acquisition Proposal is publicly announced, and the Company (A) fails to issue a
press release announcing its opposition to such Acquisition Proposal within ten
(10) business days after such Acquisition Proposal is announced or (B) otherwise
fails to actively oppose such Acquisition Proposal.
TITAN DEFENSE. "Titan Defense" shall mean Titan Defense Systems Corporation,
a Delaware corporation and wholly-owned subsidiary of Parent.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTINUING EMPLOYEE. "Continuing Employee" shall mean any employee of the
Company who continues as an employee of the Surviving Corporation or Parent
after the Effective Time.
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CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan, or legally binding commitment or undertaking of
any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, liability, claim,
demand, settlement, judgment, award, fine, penalty, Tax, fee (including
reasonable attorneys' fees), charge, cost (including costs of investigation) or
expense of any nature. Damages shall not include lost profits, lost savings, or
other indirect, special, incidental or consequential damages whether such
damages are based on tort, contract, or any other legal theory, and even if the
Indemnitee has been advised of the possibility of such damages.
EFFECTIVE TIME. "Effective Time" shall have the meaning set forth in Section
1.3.
EMPLOYEES. "Employees" shall have the meaning set forth in Section 2.10(a).
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company, limited liability company,
joint stock company, firm or other enterprise, association, organization or
entity.
ENVIRONMENTAL CLAIM. "Environmental Claim" means any claim, demand, action,
cause of action, investigation or notice (written or oral) by any person or
entity alleging potential liability (including, without limitation, potential
liability for investigatory costs, Cleanup costs, governmental response costs,
natural resources damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from (A) the presence, or Release into the
indoor or outdoor environment, of any Hazardous Materials at any location,
whether or not owned or operated by any Acquired Corporation, or (B)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law.
ENVIRONMENTAL LAWS. "Environmental Laws" means all federal, state, local and
foreign laws and regulations relating to pollution or protection of human health
or the environment, including without limitation, laws relating to Releases or
threatened Releases of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, Release,
disposal, transport or handling of Hazardous Materials and all laws and
regulations with regard to record keeping, notification, disclosure and
reporting requirements respecting Hazardous Materials.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
EXCHANGE RATIO. "Exchange Ratio" shall have the meaning set forth in Section
1.5(b).
FAR. "FAR" shall have the meaning set forth in Section 2.7(d)(iii).
FBCA. "FBCA" shall mean the Florida Business Corporation Act.
GAAP. "GAAP" shall have the meaning set forth in Section 2.4(b).
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GOVERNMENT BID. "Government Bid" shall mean any quotation, bid or proposal
submitted to any Governmental Body or any proposed prime contractor or
higher-tier subcontractor of any Governmental Body.
GOVERNMENT CONTRACT. "Government Contract" shall mean any prime contract,
subcontract, letter contract, purchase order or delivery order executed or
submitted to or on behalf of any Governmental Body or any prime contractor or
higher-tier subcontractor, or under which any Governmental Body or any such
prime contractor otherwise has or may acquire any right or interest.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any: (a)
permit, license, consent, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, city, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
board, instrumentality, official, organization, unit, body or Entity and any
court or other tribunal).
HAZARDOUS MATERIALS. "Hazardous Materials" means all substances defined as
Hazardous Substances, Oils, Pollutants or Contaminants in the National Oil and
Hazardous Substances Pollution Contingency Plan, 40 C.F.R. Section300.5, or
defined as such by, or regulated as such under, any Environmental Law.
HSR ACT. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
IMPROVEMENTS. "Improvements" shall have the meaning set forth in Section
2.11(a).
KNOWLEDGE. An individual will be deemed to have "knowledge" of a particular
fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such fact
or other matter.
A Person (other than an individual) will be deemed to have "knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, knowledge of such
fact or other matter.
LAND. "Land" shall have the meaning set forth in Section 2.11(a).
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state, local,
municipal, foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.
LIABILITIES. "Liabilities" shall mean any liability or obligation of any
kind or nature, secured or unsecured (whether absolute, accrued, contingent or
otherwise, and whether due or to become due).
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MATERIAL ADVERSE EFFECT. A violation of a representation or warranty or any
other matter will be deemed to have a "Material Adverse Effect" on the Company
or Parent, as the case may be, if such violation or other matter (considered
together with all other matters that would constitute exceptions to such
representations and warranties set forth in the Agreement but for the presence
of "Material Adverse Effect" or other materiality qualifications, or any similar
qualifications, in such representations and warranties) would have a material
adverse effect on the Company's and the other Acquired Corporations', taken as a
whole, or Parent's and Parent's subsidiaries, taken as a whole, as the case may
be, business, condition, assets, liabilities, operations, financial performance
or prospects.
MATERIAL ACQUIRED CORPORATION CONTRACT. "Material Acquired Corporation
Contract" shall have the meaning set forth in Section 2.7(a).
MERGER SUB. "Merger Sub" shall mean Eagle Acquisition Sub, Inc., a Florida
corporation.
NASDAQ. "Nasdaq" shall mean the National Association of Securities Dealers,
Inc. Automated Quotation System.
NYSE. "NYSE" shall mean the New York Stock Exchange.
PARENT. "Parent" shall mean The Titan Corporation, a Delaware corporation.
PARENT COMMON STOCK. "Parent Common Stock" shall mean Parent's Common Stock,
$0.01 par value per share.
PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" shall have the
meaning set forth in the Preamble to Section 3.
PARENT REQUIRED VOTE. "Parent Required Vote" shall have the meaning set
forth in Section 3.10.
PARENT SEC DOCUMENTS. "Parent SEC Documents" shall have the meaning set
forth in Section 3.3.
PARENT STOCKHOLDERS' MEETING. "Parent Stockholders' Meeting" shall have the
meaning set forth in Section 5.3(a).
PARENT TRIGGERING EVENT. A "Parent Triggering Event" shall be deemed to have
occurred if: (i) the Board of Directors of Parent shall have failed to recommend
that Parent's stockholders vote in favor of, or shall for any reason have
withdrawn or shall have amended or modified in a manner adverse to the Company
its unanimous recommendation that Parent's stockholders vote in favor of the
Merger or approval or adoption of this Agreement; (ii) Parent shall have failed
to include in the Proxy Statement/ Prospectus the unanimous recommendation of
Parent's Board of Directors that Parent's stockholders vote in favor of approval
and adoption of this Agreement and the Merger; or (iii) Parent shall have failed
to hold the Parent Stockholders' Meeting as promptly as practicable and in any
event within 45 days after the definitive Proxy Statement/Prospectus was filed
with the SEC.
PAST FINANCIAL STATEMENTS. "Past Financial Statements" shall mean those
financial statements of the Company (including footnotes thereto) set forth in
Section 2.4(b).
PENSION PLAN. "Pension Plan" shall have the meaning set forth in Section
2.10(b).
PERMITTED ENCUMBRANCES. "Permitted Encumbrances" shall mean (i) any lien for
current taxes not yet due and payable; (ii) liens imposed by law, such as
mechanics' liens, incurred in good faith in the ordinary course of business;
(iii) zoning restrictions, easements, or other restrictions on real property or
irregularities in title that have not and will not (individually or in the
aggregate) materially detract from the value of or impair the use of real
property, or otherwise have a Material Adverse Effect on the Company; and (iv)
minor liens that have arisen in the ordinary course of business and that have
not and will not (individually or in the aggregate) materially detract from the
value of the assets subject thereto, materially impair the operations of the
Company, or otherwise have a Material Adverse Effect on the Company.
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PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PLAN. "Plan" shall have the meaning set forth in Section 6.6.
PRE-CLOSING PERIOD. "Pre-Closing Period" shall have the meaning set forth in
Section 4.1.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, source code, computer program, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset; or (b) right to use or exploit
any of the foregoing.
REAL PROPERTY. "Real Property" shall have the meaning set forth in Section
2.11(a).
RELEASE. "Release" means any release, spill, emission, discharge, leaking,
pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the indoor or outdoor environment
(including, without limitation, ambient air, surface water, groundwater and
surface or subsurface strata) or into or out of any property, including the
movement of Hazardous Materials through or in the air, soil, surface water,
groundwater or property.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
S-4 REGISTRATION STATEMENT. "S-4 Registration Statement" shall have the
meaning set forth in Section 6.4(a).
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
SEPTEMBER BALANCE SHEET. "September Balance Sheet" shall have the meaning
set forth in Section 2.4(b).
SUPERIOR PROPOSAL. "Superior Proposal" shall have the meaning set forth in
Section 4.4(a).
SURVIVING CORPORATION. "Surviving Corporation" shall have the meaning set
forth in Section 1.1.
TAXES. "Taxes" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax,
environmental tax, business tax, withholding tax or payroll tax), levy,
assessment, tariff, duty (including any customs duty), deficiency or fee, and
any related charge or amount (including any fine, penalty or interest), imposed,
assessed or collected by or under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
WELFARE PLAN. "Welfare Plan" shall have the meaning set forth in Section
2.10(c).
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EXHIBIT B
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
OFFICERS*
Except to the extent otherwise agreed in writing by Parent and the Company,
the officers of the Company following the Closing will be the same persons that
are officers of the Company immediately prior to the Closing, and such persons
will hold the same positions as immediately prior to the Closing.
DIRECTORS
Gene W. Ray
Eric M. DeMarco
Cheryl Barr
- ------------------------
*Parent intends that following the Closing, John L. Slack will become President
and Chief Executive Officer of Titan Defense, and Eric M. DeMarco will be Chief
Financial Officer of Titan Defense.
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EXHIBIT C
FORM OF CONTINUITY-OF-INTEREST CERTIFICATE
("Shareholder") is aware that, pursuant to that certain
Agreement and Plan of Merger and Reorganization (the "Reorganization Agreement")
dated as of January 5, 1998 among The Titan Corporation, a Delaware corporation
("Parent"); Eagle Acquisition Sub, Inc., a Florida corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"); and DBA Systems, Inc., a
Florida corporation (the "Company"); it is contemplated that Merger Sub will be
merged into the Company (the contemplated merger of Merger Sub into the Company
being referred to in this Certificate as the "Merger"). As a result of the
Merger, it is contemplated that holders of the common stock of the Company
("Company Common Stock") will receive shares of common stock of Parent ("Parent
Common Stock") in exchange for their shares of Company Common Stock, and that
the Company will become a wholly-owned subsidiary of Parent.
1. Shareholder represents, warrants and certifies to Parent, Merger Sub and
the Company as follows:
(a) Shareholder currently is the holder of the number of shares of
Company Common Stock set forth beneath Shareholder's signature on the
signature page hereof (the "Shares"), and did not acquire any of the Shares
in contemplation of the Merger.
(b) Shareholder has not engaged in a Sale (as defined below) of any
shares of Company Common Stock in contemplation of the Merger.
(c) Shareholder has no plan or intention to engage in a sale, exchange,
transfer, distribution, redemption or reduction in any way of Shareholder's
risk of ownership (by short sale or otherwise), or other disposition,
directly or indirectly (such actions being collectively referred to herein
as a "Sale") of more than fifty percent (50%) of the shares of Parent Common
Stock to be received by Shareholder in the Merger. (For purposes of the
preceding sentence, shares of Company Common Stock (or the portion thereof)
(i) with respect to which Shareholder will receive consideration in the
Merger other than shares of Parent Common Stock (including cash to be
received in lieu of any fractional share of Parent Common Stock) and/or (ii)
with respect to which a Sale (A) occurred in contemplation of the Merger or
(B) will occur prior to the Merger, shall be considered shares of Company
Common Stock exchanged for shares of Parent Common Stock in the Merger and
then disposed of pursuant to a plan.)
(d) Shareholder is not aware of, or participating in, any plan or
intention on the part of the shareholders of the Company to engage in a Sale
or Sales of more than fifty percent (50%) of the shares of Parent Common
Stock to be received in the Merger. (For purposes of the preceding sentence,
shares of Company Common Stock (or the portion thereof) (i) with respect to
which a shareholder of the Company receives consideration in the Merger
other than shares of Parent Common Stock (including, without limitation,
cash received in lieu of a fractional share of Parent Common Stock) or (ii)
with respect to which a Sale occurs prior to and in contemplation of the
Merger, shall be considered shares of outstanding Company Common Stock
exchanged for shares of Parent Common Stock in the Merger and then disposed
of pursuant to a plan.)
(e) Except to the extent written notification to the contrary is
received by Parent and the Company from Shareholder prior to the
consummation of the Merger, the representations, warranties and
certifications contained herein shall be accurate at all times from the date
hereof through the date on which the Merger is consummated.
(f) Shareholder has consulted with such legal counsel and financial
advisors as Shareholder has deemed appropriate in connection with the
execution of this Certificate.
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2. Shareholder understands that Parent, Merger Sub, the Company, and the
Company's shareholders, as well as legal counsel to Parent, Merger Sub and the
Company (in connection with rendering their opinions that the Merger will be a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended) will be relying on the accuracy of the
representations, warranties and certifications contained herein.
Shareholder has executed this Certificate on ___________, 1998
Signature: __________
Number of shares of Company
Common Stock owned: __________
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EXHIBIT D
PERSONS EXECUTING CONTINUITY OF INTEREST CERTIFICATE
John L. Slack
Charles B. Robertson
Edward M. Bielski
Dudley J. Gordon
Dr. Richard N. Baney
Ambassador Robert F. Ellsworth
William C. Potter
Dr. Lynn E. Weaver
Thomas J. Boyce, Jr.
Norman J. Wechsler
Kathryn A. Eckstein
James E. Pruitt
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EXHIBIT E
RESIGNING OFFICERS AND DIRECTORS OF THE COMPANY AND THE
OTHER ACQUIRED CORPORATIONS
All officers and directors of the Company and the other Acquired
Corporations (subject to the appointments set forth on Exhibit B of this
Agreement), except as may otherwise be determined by Parent in its sole
discretion prior to Closing.
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EXHIBIT F
AFFILIATE AGREEMENT
This Affiliate Agreement (this "Agreement") is entered into as of January 5,
1998, by and between THE TITAN CORPORATION, a Delaware corporation ("Parent"),
and the undersigned affiliate ("Affiliate") of DBA SYSTEMS, INC., a Florida
corporation (the "Company").
RECITALS
A. Pursuant to that certain Agreement and Plan of Merger and Reorganization
(the "Merger Agreement"), dated as of January 5, 1998, by and among Parent;
Eagle Acquisition Sub, Inc. ("Merger Sub"), a Florida corporation and a
wholly-owned subsidiary of Parent; and the Company; Merger Sub will merge with
and into the Company (the "Merger").
B. As a result of the Merger and certain related transactions, the
stockholders of the Company will receive shares (the "Shares") of Parent Common
Stock (as defined in the Merger Agreement). Affiliate understands that he may be
deemed an "affiliate" of the Company as such term is defined in paragraphs (c)
and (d) of Rule 145 ("Rule 145") under the Securities Act of 1933, as amended
(the "Act"), and the Securities and Exchange Commission Accounting Series
Release Nos. 130 and 135 (the "Pooling Rules"), as amended, and as such
Affiliate may only transfer, sell or dispose of Shares in accordance with Rule
145, this Agreement and the Pooling Rules.
C. Affiliate understands that the representations, warranties and covenants
set forth herein will be relied upon by Parent, Merger Sub and the Company, and
their respective counsel and accounting firms.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. Capitalized terms used in this Agreement and not otherwise defined shall
have the meanings given them in the Merger Agreement.
2. Affiliate represents, warrants, understands and agrees that:
(a) Affiliate has full power and capacity to execute and deliver this
Agreement and to make the representations, warranties and agreements herein
and to perform his obligations hereunder.
(b) Affiliate has carefully read this Agreement and has discussed with
counsel, to the extent Affiliate felt necessary, the requirements,
limitations and restrictions on his ability to sell, transfer or otherwise
dispose of the Shares he may receive and fully understands the requirements,
limitations and restrictions this Agreement places upon Affiliate's ability
to transfer, sell or otherwise dispose of such Shares.
(c) If Affiliate has executed a Continuity of Interest Certificate
and/or any other agreement in connection herewith (the "Other Agreements"),
he understands and agrees to abide by all restrictions contained therein.
(d) Affiliate will not, publicly or privately, sell, transfer or
otherwise dispose of, or reduce Affiliate's interest in or risk relating to,
any Shares held by Affiliate until such time as the financial results
covering at least 30 days of post-Closing combined operations of the Company
and Parent have been published by Parent (within the meaning of the Pooling
Rules).
(e) Until the earlier of (i) the Closing Date or (ii) the termination of
the Merger Agreement, Affiliate will not sell, transfer or otherwise dispose
of, or reduce Affiliate's interest in or risk relating to, any Company
Common Stock held by Affiliate.
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(f) Subject to Section 2(d) above, Affiliate will not sell, pledge,
transfer or otherwise dispose of any of the Shares held by Affiliate unless
at such time either (i) such transfer shall be in conformity with the
provisions of Rule 145(d) (or any successor rule then in effect), (ii)
Affiliate shall have furnished to Parent an opinion of counsel reasonably
satisfactory to Parent, to the effect that no registration under the Act
would be required in connection with the proposed offer, sale, pledge,
transfer or other disposition or (iii) a registration statement under the
Act covering the proposed offer, sale, pledge, or other disposition shall be
effective under the Act.
3. Affiliate understands and agrees that, except as set forth in the Merger
Agreement, Parent is under no obligation to register the sale, transfer or other
disposition of the Shares or to take any other action necessary in order to make
compliance with an exemption from registration available.
4. Affiliate further represents that he is the beneficial owner of the
Company Common Stock set forth below, or, if not set forth below, that he is not
the beneficial owner of any Company Common Stock.
5. Each party hereto acknowledges that (i) it will be impossible to measure
in money the damage to Parent if Affiliate fails to comply with any of the
obligations imposed by this Agreement, (ii) every such obligation is material
and (iii) in the event of any such failure, Parent will not have an adequate
remedy at law or damages and, accordingly, each party hereto agrees that
injunctive relief or other equitable remedy, in addition to remedies at law or
damages, is an appropriate remedy for any such failure.
6. This Agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the laws of the State of
California.
7. This Agreement shall be binding upon, enforceable by and inure to the
benefit of the parties named herein and their respective successors; this
Agreement may not be assigned by any party without the prior written consent of
Parent. Any attempted assignment not in compliance with this Section 7 shall be
void and have no effect.
8. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
THE TITAN CORPORATION
By:
-----------------------------------
--------------------------------------
[Print Name and Title]
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AFFILIATE
--------------------------------------
--------------------------------------
[Print Name, and Title (if
applicable)]
Address:
-------------------------------
--------------------------------------
--------------------------------------
Shares of Company Common Stock
Beneficially Owned:
---------------------------------------------------------------------
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EXHIBIT G
SUBSTANTIVE PROVISIONS OF THE OPINION OF
ARENT FOX
[Capitalized terms defined as in the Merger Agreement]
1. Each of the Acquired Corporations is a corporation duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation. Each of the Acquired Corporations has the
corporate power and authority to own, lease and operate its properties and to
carry on its business as now conducted. To the best of our knowledge, each of
the Acquired Corporations is qualified as a foreign corporation to do business
and is in good standing in each jurisdiction in the United States in which the
ownership of its property or the conduct of its business requires such
qualification except for such jurisdictions where the failure to be so qualified
would not have a Material Adverse Effect on the Acquired Corporations.
2. The authorized capital stock of the Company consists of 10,000,000
shares of Company Common Stock, $.10 par value, of which 4,426,562 shares have
been issued and are outstanding as of the date of this Agreement. All of the
outstanding shares of Company Common Stock have been duly authorized and validly
issued, and are fully paid and nonassessable. As of the date of this Agreement,
there are 1,148,488 shares of Company Common Stock held in treasury by the
Company and no shares held by any subsidiary of the Company. All of the
outstanding shares of capital stock or other securities of the Acquired
Corporations other than the Company have been duly authorized and validly
issued, are fully paid and nonassessable and are owned by the Company.
3. To the best of our knowledge, there are no options, warrants, calls,
rights, commitments, conversion rights or agreements of any character to which
the Company or any Acquired Corporation is a party or by which the Company or
any Acquired Corporation is bound obligating the Company or any Acquired
Corporation to issue, deliver or sell, or cause to be issued, delivered or sold,
any shares of capital stock of the Company or any Acquired Corporation or
securities convertible into or exchangeable for shares of capital stock of the
Company or any Acquired Corporation, or obligating the Company or any Acquired
Corporation to grant, extend or enter into any such option, warrant, call,
right, commitment, conversion right or agreement, other than as described in the
Merger Agreement or the Company Disclosure Schedule.
4. All corporate action, including approval by the Company's Board of
Directors and its shareholders, required to be taken on the part of the Company
to authorize the Company to execute, deliver and perform its obligations under
the Agreements [which shall be defined as the Merger Agreement and documents
executed by the Company in connection therewith] and to consummate the
transactions provided for therein has been duly and validly taken. The
Agreements have been duly authorized, executed and delivered by the Company and
are the valid and binding obligation of the Company enforceable against the
Company in accordance with their terms, except that such enforcement may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other laws, now or hereafter in effect, relating to or limiting
creditor's rights generally and (ii) equitable principles (whether considered at
law or in equity).
5. Neither the execution and delivery of the Agreements by the Company nor
the consummation by the Company of the transactions provided for therein
(including, without limitation, the Merger) nor the performance by the Company
of its obligations thereunder, will (a) conflict with or result in any breach or
violation of any provision of the Articles of Incorporation or Bylaws of the
Company, (b) constitute a material default (or with the provision of notice or
the passage of time would constitute a material default) under the provisions of
any material agreement to which the Company is a party or by which it is bound
(as set forth in the Company Disclosure Schedule), or (c) violate any Legal
Requirement, order, writ, injunction, decree or arbitration award applicable to
the Company or its assets, excluding in the case of
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<PAGE>
subclauses (b) and (c) such defaults and violations (A) which would not have a
Material Adverse Effect on the Acquired Corporations and (B) would not adversely
affect the ability of the Company to consummate the transactions contemplated by
the Merger Agreement.
6. No governmental consent, approval, authorization, registration,
declaration or filing, or any other Governmental Authorization, is required for
the execution and delivery of the Merger Agreement on behalf of the Company or
for the Merger except for such consents, approvals or filings where the failure
to obtain such consent or approval or make such filing (A) would not have a
Material Adverse Effect on the Acquired Corporations and (B) would not adversely
affect the ability of the Company to consummate the transactions contemplated by
the Merger Agreement.
7. To the best of our knowledge, there is no action, proceeding or
investigation pending or threatened against the Company before any court or
administrative agency that challenges or seeks to prohibit the consummation of
the transactions contemplated in the Agreements or that, if determined adversely
to the Company, may reasonably be expected to have a Material Adverse Effect on
the Acquired Corporations.
8. Assuming that all necessary corporate actions in respect of the Merger
have been duly and validly taken by Parent and Merger Sub, then upon the
consummation of the transactions contemplated by the Merger Agreement and the
filing of the Articles of Merger with the Secretary of State of the State of
Florida as contemplated by the Merger Agreement, the Merger will have been
validly effected in accordance with the FBCA.
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EXHIBIT H
FORM OF OPINION OF COOLEY GODWARD LLP
, 1998
Eagle Systems, Inc.
Ladies and Gentlemen:
We have acted as counsel for The Titan Corporation, a Delaware corporation
("Parent"), in connection with the merger of Eagle Acquisition Sub, Inc.
("Merger Sub"), a Florida corporation and a wholly-owned subsidiary of Parent,
with and into DBA Systems, Inc., a Florida corporation (the "Company"), pursuant
to an Agreement and Plan of Merger and Reorganization dated as of January 5,
1998 among Parent, Merger Sub and the Company (the "Merger Agreement"). We are
rendering this opinion pursuant to Section 8.6 of the Merger Agreement.
Capitalized terms used but not defined herein have the respective meanings given
to them in the Merger Agreement.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Merger Agreement and the agreements entered into in connection
therewith (collectively, the "Agreements") by the various parties, and originals
or copies certified to our satisfaction of such records, documents,
certificates, opinions, memoranda and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinion expressed below.
In rendering this opinion, we have assumed: the genuineness and authenticity
of all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by Parent and Merger Sub of the Agreements) where authorization, execution and
delivery are prerequisites to the effectiveness of such documents. We have also
assumed: that all individuals executing and delivering documents had the legal
capacity to execute and deliver such documents; that the Company has received
all documents that the Company was to receive under the Agreements; that the
Agreements are binding upon the Company; that the Company has filed any required
state franchise or income tax returns and has paid any required state franchise
or income taxes; and that there are no extrinsic agreements or understandings
among any of the parties to the Agreements that would modify or interpret the
terms of the Agreements or the respective rights or obligations of the parties
thereunder.
Our opinion is expressed only with respect to the federal laws of the United
States of America and the laws of the General Corporation Law of the State of
Delaware. We express no opinion as to whether the laws of any particular
jurisdiction apply, and no opinion to the extent that the laws of any
jurisdiction other than those identified above are applicable to the subject
matter hereof. We are not rendering any opinion: (i) as to compliance with, or
the effects upon obligations arising under the Agreements of, any law, rule or
regulation relating to securities or to the sale or issuance thereof; (ii) as to
compliance with, or the effects upon obligations arising under the Agreements
of, any law, rule or regulation relating to antitrust, trade regulation or
unfair competition; or (iii) as to the enforceability of any of the agreements
attached as exhibits to the Merger Agreement.
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<PAGE>
With regard to our opinion in paragraph 4 below, our opinion is expressed
only with respect to the General Corporation Law of the State of Delaware and
the laws of the State of California; with respect to our opinion regarding the
violation of any order, writ, injunction, decree or arbitration award applicable
to Parent or Merger Sub, we have relied solely upon inquiries of officers of
Parent and Merger Sub and have made no further investigation.
The opinions expressed in paragraphs 2 and 3 below are further qualified by
the qualifications, exceptions and limitations set forth in Sections 11, 12, 13
and 14 of the Legal Opinion Accord (1991) adopted by the Section of Business Law
of the American Bar Association.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. Parent is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware.
2. Parent has the requisite corporate power and authority to perform
its obligations under the Merger Agreement. The execution, delivery and
performance of the Merger Agreement by Parent have been duly authorized by
all necessary action on the part of Parent's stockholders and Parent's board
of directors. The Merger Agreement has been duly and validly executed and
delivered by Parent.
3. The Merger Agreement constitutes the legal, valid and binding
obligation of Parent, enforceable against Parent in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to (i) general equity principles and
limitations on availability of equitable relief, including specific
performance, and (ii) the possible unenforceability of indemnification
obligations insofar as they relate to violations of state or federal
securities laws (regardless of whether enforceability is considered in a
proceeding in equity or at law).
4. Neither the execution and delivery of the Agreements by Parent and
Merger Sub, as applicable, nor the consummation by Parent and Merger Sub, as
applicable, of the transactions provided for therein nor the performance by
Parent and Merger Sub, as applicable, of their respective obligations
thereunder, will (a) conflict with or result in any breach or violation of
any provision of the Certificate of Incorporation or Bylaws of Parent or the
Articles of Incorporation or Bylaws of Merger Sub, or (b) to our knowledge
violate any Legal Requirement, order, writ, injunction, decree or
arbitration award applicable to Parent or Merger Sub or their respective
assets, excluding in the case of subclause (b) such defaults and violations
(A) which would not have a Material Adverse Effect on Parent or Merger Sub
and (B) would not adversely affect the ability of Parent or Merger Sub to
consummate the transactions contemplated by the Merger Agreements.
5. The Parent Common Stock to be issued in connection with the Merger
will be, upon issuance pursuant to the terms of the Merger Agreement,
validly issued, fully paid and nonassessable.
This opinion letter and the opinions expressed herein are intended for your
benefit and are not to be made available to or be relied upon by any other
person, firm or entity without our prior written consent.
Very truly yours,
COOLEY GODWARD LLP
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<PAGE>
APPENDIX B
OPINION OF A.G. EDWARDS & SONS, INC.
December 26, 1997
The Board of Directors
Titan Corporation
3033 Science Park Road
San Diego, CA 92121
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders (the "Shareholders") of the outstanding shares of
common stock ("Company Common Stock") of Titan Corporation (the "Company"), of
the consideration to be paid by the Company pursuant to the Agreement as
hereafter defined for each share of common stock ("DBA Common Stock") of DBA
Systems, Inc. ("DBA") in the proposed merger (the "Merger") pursuant to the
Agreement and Plan of Merger and Reorganization (the "Agreement"), dated as of
December 29, 1997, by and among the Company, Merger Subsidiary, a wholly-owned
subsidiary of Titan Defense Systems Corporation, a wholly owned subsidiary of
the Company ("Merger Sub") and DBA. Pursuant to the Agreement, as a result of
the Merger, the separate corporate existence of Merger Sub shall cease and DBA
shall become a wholly-owned subsidiary of the Company.
A.G. Edwards & Sons, Inc. ("A.G. Edwards"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate or
other purposes. A.G. Edwards expects to serve as a co-manager for a planned
follow-on offering for the Company. We are not aware of any present or
contemplated relationship between A.G. Edwards, the Company, or the Company's
directors and officers or its shareholders, or DBA, its directors, officers and
shareholders, which in our opinion would affect our ability to render a fair and
independent opinion in this matter.
In connection with this opinion, we have, among other things:
(i) reviewed the Agreement and related documents;
(ii) reviewed the Company's and DBA's historical audited financial
statements, certain unaudited interim financial statements and
financial projections;
(iii) held discussions with management of the Company and DBA regarding the
past and current business operations, financial condition and future
prospects of the Company and DBA, respectively, including information
relating to the strategic, financial and operational benefits
anticipated from the Merger;
(iv) reviewed the pro forma financial impact to the Company of the Merger;
(v) compared certain financial and stock market information for the Company
and DBA with similar information and stock market information for
certain other companies, the securities of which are publicly traded;
(vi) reviewed the historical trading activity of the Company Common Stock
and the DBA Common Stock;
(vii) reviewed the financial terms of certain recent business combinations in
the defense communications and information technology industries; and
(viii) completed such other studies and analyses that we considered
appropriate.
<PAGE>
December 26, 1997
Page 2
In preparing our opinion, A.G. Edwards has assumed and relied upon, without
independent verification, the accuracy and completeness of all financial and
other information publicly available or that was supplied or otherwise made
available to us by the Company and DBA. We have not been engaged to, and
therefore we have not, verified the accuracy or completeness of any such
information. A.G. Edwards has been informed and assumed that financial
projections supplied to, discussed with or otherwise made available to us
reflect the best currently available estimates and judgments of the managements
of the Company and DBA as to the expected future financial performance of the
Company and DBA, in each case on a stand-alone basis and after giving effect to
the Merger, including, without limitation, the projected cost savings and
operating synergies resulting from the Merger as projected by the management of
the Company. A.G. Edwards has not independently verified such information or
assumptions nor do we express any opinion with respect thereto. We have not made
any independent valuation or appraisal of the assets or liabilities of the
Company or DBA, nor have we been furnished with any such appraisals (with the
exception of an appraisal of DBA's property in Kissimmee, Florida). A.G. Edwards
has relied upon the assurances of the management of the Company and DBA that
they are not aware of any facts that would make such information inaccurate or
misleading.
In performing its analyses, A.G. Edwards made numerous assumptions with respect
to the defense communications and information technology industry, the various
commercial industries in which the Company and DBA operate, general business and
economic conditions and government regulations, which are beyond the control of
the Company. The analyses performed by A.G. Edwards are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. Such analyses were
prepared solely as part of A.G. Edwards' analysis of the fairness, from a
financial point of view, to the Shareholders, of the consideration paid pursuant
to the Agreement, and are being provided to the Board of Directors of the
Company in connection with the delivery of this fairness opinion.
In rendering our opinion, A.G. Edwards assumed the planned initial public
offering of Linkabit Wireless, Inc., a wholly-owned subsidiary of the Company,
would be completed at terms which are fair to the Company's shareholders and
therefore would not materially impact the Company's intrinsic or stock market
valuation. Given the assumed fairness of pricing and the inherent uncertainty of
the prospects for completion of the offering as well as the pricing thereof, the
pro forma impact of the offering was not included in our financial analysis.
In rendering our opinion, A.G. Edwards has also assumed that the Merger will be
accounted for as a "pooling-of-interests" business combination in accordance
with Generally Accepted Accounting Principles and that the Merger will be
consummated on the terms contained in the Agreement, without any waiver of any
material terms or conditions by the Company.
A.G. Edwards' opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Our opinion as expressed herein, in any event, is limited to the
fairness, from a financial point of view, to the Shareholders, of the
consideration to be paid by the Company pursuant to the Agreement.
It is understood that this letter is for the information of the Board of
Directors of the Company and does not constitute a recommendation as to how any
holder of the Company Common Shares should vote with respect to the Transaction.
This opinion may not be summarized, excerpted from or otherwise publicly
referred to without our prior written consent, except that this opinion may be
included in its entirety in the proxy materials to be distributed to the
Shareholders regarding the Transaction.
<PAGE>
December 26, 1997
Page 3
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the consideration to be paid by the Company pursuant to the Agreement is
fair, from a financial point of view, to the Shareholders.
Very truly yours,
A.G. EDWARDS & SONS, INC.
By: /s/ DOUGLAS E. REYNOLDS
-----------------------------------------
Douglas E. Reynolds
Managing Director
Investment Banking
<PAGE>
APPENDIX C
OPINION OF THE ROBINSON-HUMPHREY COMPANY, LLC
February 5, 1998
Board of Directors
DBA Systems, Inc.
1200 South Woody Burke Rd.
Melbourne, FL 32902
Gentlemen:
We understand that DBA Systems, Inc. ("DBA" or the "Company") has entered
into a proposed plan of merger with The Titan Corporation ("Titan"). We
understand that under this plan of merger (the "Proposed Transaction"), DBA will
merge with and into Titan and each issued and outstanding share of Common Stock
of DBA (the "DBA Common Stock") will be converted into 1.366667 shares of Titan
Common Stock. The terms and conditions of the Proposed Transaction are set forth
in more detail in the Merger Agreement dated January 5, 1998 by and among DBA
and Titan (the "Merger Agreement").
We have been requested by the Company to reaffirm our opinion (the
"Opinion") with respect to the fairness, from a financial point of view, to the
Company's stockholders of the consideration to be received by the Company in the
Proposed Transaction. We have not been requested to opine as to, and our opinion
does not in any manner address, the Company's underlying business decision to
proceed with or effect the Proposed Transaction.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed certain publicly available information concerning the Company
and Titan which we believe to be relevant to our analysis;
2. eviewed certain internal financial statements and other financial and
operating data concerning the Company and Titan prepared by the
management of the Company and Titan, respectively;
3. Analyzed certain financial assumptions prepared by the Company and
Titan;
4. Conducted discussions with members of management of the Company and
Titan concerning business, operations and prospects;
5. Reviewed the reported prices and trading activity for the common stock
of the Company and Titan;
6. Reviewed the historical market prices and trading activity for the
Company's shares and Titan's shares and compared them with those of
certain publicly traded companies which we deemed to be reasonably
similar to the Company and Titan, respectively;
7. Compared the results of operations and present financial condition of
the Company and Titan with those of certain publicly traded companies
which we deemed to be reasonably similar to the Company and Titan;
8. Reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
9. Reviewed the premiums paid to market prices of selected merger and
acquisition transactions;
<PAGE>
Board of Directors
DBA Systems, Inc.
February 5, 1998
Page 2
10. Performed certain financial analyses with respect to the Company's and
Titan's projected future operating performance, including discounted
cash flow analyses;
11. Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary.
We have relied upon the accuracy and completeness of the financial and other
information used by us in arriving at our opinion without independent
verification, and have further relied upon the assurances of management of the
Company that they are not aware of any facts that would make such information
inaccurate or misleading. With respect to the financial forecasts for the years
1998 through 2002, we have assumed that the assumptions provided by management
have been reasonably prepared and reflect the best currently available estimates
and judgment of the Company and Titan's management. In arriving at our opinion,
we have not conducted an extensive physical inspection of the properties or
facilities of the Company or Titan. We have not made or obtained any evaluations
or appraisals of the assets or liabilities of the Company or Titan. Our opinion
is necessarily based upon market, economic and other conditions as they exist
and can only be evaluated as of the date of this letter.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services.
In the ordinary course of our business, we have traded in the equity
securities of the Company and Titan for the accounts of our customers.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that the consideration to be received for the Company pursuant to
the Merger Agreement is fair from a financial point of view to the stockholders.
This opinion is for the use and benefit of the Board of Directors of the
Company and may not be used for any other purpose without our prior written
consent. We hereby consent, however, to the inclusion of this opinion as an
exhibit to any proxy statement distributed in connection with the Merger.
Very truly yours,
/s/ THE ROBINSON-HUMPHREY COMPANY, LLC
THE ROBINSON-HUMPHREY COMPANY, LLC
<PAGE>
APPENDIX D
FLORIDA BUSINESS CORPORATION ACT
SECTIONS 607.1301, 607.1302 AND 607.1320
607.1301 DISSENTERS' RIGHTS; DEFINITIONS. The following definitions apply
to ss. 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a copy of the
plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
HISTORY: s. 118, ch. 89-154. Fla. Stat. @ 607.1302 (1997)
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT.
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his or her shares in the event of, any of
the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its parent under
s. 607.1104, and the shareholders would have been entitled to vote on action
taken, except for the applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation, other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange
pursuant to s. 607.1202, including a sale in dissolution but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation is a
party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder is
entitled to vote on the amendment and if such amendment would adversely affect
such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of his or
her shares;
2. Altering or abolishing the voting rights pertaining to any of his or her
shares, except as such rights may be affected by the voting rights of new shares
then being authorized of any existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification of any of his or
her shares, when such exchange, cancellation, or reclassification would alter or
abolish the shareholder's voting rights or alter his or her percentage of equity
in the corporation, or effecting a reduction or cancellation of accrued
dividends or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of the shareholder's
redeemable shares, altering or abolishing any provision relating to any sinking
fund for the redemption or purchase of any of his or her shares, or making any
of his or her shares subject to redemption when they are not otherwise
redeemable;
<PAGE>
5. Making noncumulative, in whole or in part, dividends of any of the
shareholder's preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of the shareholder's
preferred shares; or
7. Reducing any stated preferential amount payable on any of the
shareholder's preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of incorporation
provide that a voting or nonvoting shareholder is entitled to dissent and obtain
payment for his or her shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his or her shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered in
his or her name. In that event, the shareholder's rights shall be determined as
if the shares as to which he or she has dissented and his or her other shares
were registered in the names of different shareholders.
(4) Unless the articles of incorporation otherwise provide, this section
does not apply with respect to a plan of merger or share exchange or a proposed
sale or exchange of property, to the holders of shares of any class or series
which, on the record date fixed to determine the shareholders entitled to vote
at the meeting of shareholders at which such action is to be acted upon or to
consent to any such action without a meeting, were either registered on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his or her
shares under this section may not challenge the corporate action creating his or
her entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
HISTORY: s. 119, ch. 89-154; s. 5, ch. 94-327; s. 31, ch. 97-102. Fla. Stat.
@ 607.1320 (1997)
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.
(1) (a) If a proposed corporate action creating dissenters' rights under s.
607.1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights and be accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A
shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written notice of the
shareholder's intent to demand payment for his or her shares if the proposed
action is effectuated, and
2. Not vote his or her shares in favor of the proposed action. A proxy or
vote against the proposed action does not constitute such a notice of intent to
demand payment.
(b) If proposed corporate action creating dissenters' rights under s.
607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to each shareholder
simultaneously with any request for the shareholder's written consent or, if
such a request is not made, within 10 days after the date the corporation
received written consents without a meeting from the requisite number of
shareholders necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his or her shares pursuant to
paragraph (1)(a) or, in the case of action authorized by written consent, to
each shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him or her, any shareholder
who elects to dissent shall file with the corporation a notice of such election,
stating the shareholder's name and address, the number, classes, and series of
shares as to which he or she dissents, and a demand for payment of the fair
value of his or her shares. Any shareholder failing to file such election to
dissent within the period set forth shall be
<PAGE>
bound by the terms of the proposed corporate action. Any shareholder filing an
election to dissent shall deposit his or her certificates for certificated
shares with the corporation simultaneously with the filing of the election to
dissent. The corporation may restrict the transfer of uncertificated shares from
the date the shareholder's election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
or her shares. After such offer, no such notice of election may be withdrawn
unless the corporation consents thereto. However, the right of such shareholder
to be paid the fair value of his or her shares shall cease, and the shareholder
shall be reinstated to have all his or her rights as a shareholder as of the
filing of his or her notice of election, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by the
board as of the time of such expiration or completion, but without prejudice
otherwise to any corporate proceedings that may have been taken in the interim,
if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a court has
been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder is
not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the shareholders' authorization date), the corporation shall make a
written offer to each dissenting shareholder who has made demand as provided in
this section to pay an amount the corporation estimates to be the fair value for
such shares. If the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders' authorization date, the
offer may be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the dissenting
shareholder holds, as of the latest available date and not more than 12 months
prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month period
ended on the date of such balance sheet or, if the corporation was not in
existence throughout such 12-month period, for the portion thereof during which
it was in existence.
(6) If within 30 days after the making of such offer any shareholder accepts
the same, payment for his or her shares shall be made within 90 days after the
making of such offer or the consummation of the proposed action, whichever is
later. Upon payment of the agreed value, the dissenting shareholder shall cease
to have any interest in such shares.
(7) If the corporation fails to make such offer within the period specified
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such period of 60 days may, file an action in any court of competent
jurisdiction in the county in this state where the registered office of the
corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his or her shares. If the corporation fails to
institute the proceeding as
<PAGE>
herein provided, any dissenting shareholder may do so in the name of the
corporation. All dissenting shareholders (whether or not residents of this
state), other than shareholders who have agreed with the corporation as to the
value of their shares, shall be made parties to the proceeding as an action
against their shares. The corporation shall serve a copy of the initial pleading
in such proceeding upon each dissenting shareholder who is a resident of this
state in the manner provided by law for the service of a summons and complaint
and upon each nonresident dissenting shareholder either by registered or
certified mail and publication or in such other manner as is permitted by law.
The jurisdiction of the court is plenary and exclusive. All shareholders who are
proper parties to the proceeding are entitled to judgment against the
corporation for the amount of the fair value of their shares. The court may, if
it so elects, appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers shall have
such power and authority as is specified in the order of their appointment or an
amendment thereof. The corporation shall pay each dissenting shareholder the
amount found to be due him or her within 10 days after final determination of
the proceedings. Upon payment of the judgment, the dissenting shareholder shall
cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate of
interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of such
costs and expenses may be apportioned and assessed as the court deems equitable
against any or all of the dissenting shareholders who are parties to the
proceeding, to whom the corporation has made an offer to pay for the shares, if
the court finds that the action of such shareholders in failing to accept such
offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of a
merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of such
dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation.
HISTORY: s. 120, ch. 89-154; s. 35, ch. 93-281; s. 32, ch. 97-102.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement of such action, suit or proceeding, provided that
such officer or director acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the corporation's best interest,
and, for criminal proceedings, had no reasonable cause to believe his or her
conduct was illegal. A Delaware corporation may indemnify officers and directors
against expenses (including attorney's fees) in connection with the defense or
settlement of an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him or
her against the expenses which such officer or director actually and reasonably
incurred.
The Bylaws of Titan contain a provision to limit the personal liability of
the directors of Titan for violations of their fiduciary duty, except to the
extent such limitation of liability is prohibited by the Delaware Law. This
provision eliminates each director's liability to Titan or its stockholders for
monetary damages except (i) for any breach of the director's duty of loyalty to
Titan or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware Law providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which a director derived an improper personal
benefit. The Bylaws of Titan provide that Titan shall indemnify directors and
officers to the fullest extent permitted by law. The effect of these provisions
is to eliminate the personal liability of directors for monetary damages for
actions involving a breach of their fiduciary duty of care, including any such
actions involving gross negligence.
In addition, Titan has entered into indemnity agreements with its executive
officers and directors whereby Titan obligates itself to indemnify such officers
and directors from any amounts which the officer or director becomes obligated
to pay because of any claim made against him or her arising out of any act or
omission committed while he or she is acting in his or her capacity as a
director and/or officer of Titan.
Titan maintains directors and officers liability insurance coverage that
insures its officers and directors against certain losses that may arise out of
their positions with Titan and insures Titan for liabilities it may incur to
indemnify its officers and directors.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger and Reorganization by and among the Registrant, Eagle Acquisition Sub, Inc.
and DBA Systems, Inc.(DBA), dated as of January 5, 1998.
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.
3.3 Articles of Incorporation of Eagle Acquisition Sub, Inc. (Eagle Sub).
3.4 Bylaws of Eagle Sub.
3.5 Certificate of Incorporation of DBA which was filed as an exhibit to DBA's 1985 Annual Report on Form
10-K, is incorporated herein by reference.
3.6 Bylaws of DBA which were filed as an exhibit to DBA's 1985 Annual Report on Form 10-K, is incorporated
herein by 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. which was Exhibit 4.2 to Registrant's 1996 Annual Report on Form 10-K, is incorporated herein by
this reference.
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 which was Exhibit 4.4 to Registrant's 1996 Annual Report on Form 10-K, is
incorporated herein by this reference.
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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
5.1 Opinion of Cooley Godward LLP
8.1 Tax Opinion of Cooley Godward LLP
8.2 Tax opinion of Arent Fox Kintner Plotkin & Kahn, PLLC
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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
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 which was Exhibit 10.18 to Registrant's 1996 Annual Report on Form 10-K, is
incorporated herein by this reference.
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 which was Exhibit 10.26 to Registrant's 1996 Annual Report on Form 10-K,
is incorporated herein by this reference.
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. which was Exhibit 10.28 to Registrant's 1996
Annual Report on Form 10-K, is incorporated herein by this reference.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
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. which was Exhibit 10.28 to
Registrant's 1996 Annual Report on Form 10-K, is incorporated herein by this reference.
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. which was Exhibit 10.31 to Registrant's 1996 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.32 Lease dated July 9, 1981 between DBA and the City of Melbourne Airport Authority which was filed as an
exhibit to DBA's 1982 Annual Report on Form 10-K, is incorporated herein by reference.
10.33 Employee Retirement Plan and Trust of DBA which was filed as an exhibit to DBA's 1979 Definitive Proxy
Statement, is incorporated herein by reference.
10.34 Bonus Agreement dated August 10, 1989 between DBA and John L. Slack which was filed as an exhibit to
DBA's 1990 Annual Report on Form 10-K, is incorporated herein by reference.
10.35 Lease Agreement executed on June 24, 1993 between DBA and the Equitable Life Assurance Society of the
United States which was filed as an exhibit to DBA's 1994 Annual Report on Form 10-K, is incorporated
herein by reference.
10.36 1992 Employee Incentive Stock Option Plan of DBA which was filed as an exhibit to DBA's 1992 Definitive
Proxy Statement.
10.37 1993 Directors' Stock Option Plan of DBA which was filed as an exhibit to DBA's 1993 Definitive Proxy
Statement.
10.38 Letter Agreement dated February 4, 1998 between Titan and DBA regarding certain registration rights
granted in connection with the Merger.
10.39 Form of Voting Agreement between Titan and certain DBA affiliates.
10.40 Form of Voting Agreement between DBA and certain Titan affiliates.
21.1 Subsidiaries of Registrant.
21.2 Subsidiaries of DBA which was filed as Exhibit 21 to DBA's 1997 Annual Report on Form 10-K is
incorporated herein by reference.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
23.2 Consent of Deloitte & Touche LLP, Independent Auditors.
99.1 Form of Proxy Card for Titan Meeting.
99.2 Form of Proxy Card for DBA Meeting.
</TABLE>
- ------------------------
* Schedules omitted pursuant to Regulation S-K, Item 601(b)(2) of the
Commission. Registrant undertakes to furnish such schedules to the
Commission supplementally upon request.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS.
(1) The Registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the Registrant
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 ("the Act")
and is used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the Registration Statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference to the Prospectus/Joint Proxy Statement
pursuant to Items 4, 10(b), 11 or 13 of Form S-4, within one business day of
receipt of such request and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(4) The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
(5) Insofar as indemnification for liabilities arising under the Act, as may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the Certificate of Incorporation and the Bylaws of the Registrant
and the Delaware General Corporation Law, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in a
successful defense of any action, such or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
question has been settled by controlling precedent, submit to a court of
approximate jurisdiction the question of whether such indemnification by it is
against public policy, as expressed in the Act, and will be governed by the
final adjudication of such issue.
(6) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (that is incorporated by reference in the Registration Statement) shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, The
Titan Corporation has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Diego, County of San Diego, State of California, on February 5, 1998.
<TABLE>
<S> <C> <C>
THE TITAN CORPORATION
By: /s/ GENE RAY
-----------------------------------------
Gene Ray,
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER AND PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement 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 Board of February 5, 1998
J. S. Webb Directors
President and Chief
/s/ GENE W. RAY Executive Officer
- ------------------------------ (Principal Executive February 5, 1998
Gene W. Ray Officer) and Director
Senior Vice President and
/s/ ERIC M. DEMARCO Chief Financial Officer
- ------------------------------ (Principal Financial and February 5, 1998
Eric M. DeMarco Accounting Officer)
/s/ CHARLES R. ALLEN
- ------------------------------ Director February 5, 1998
Charles R. Allen
/s/ JOSEPH F. CALIGIURI
- ------------------------------ Director February 5, 1998
Joseph F. Caligiuri
/s/ DANIEL J. FINK
- ------------------------------ Director February 5, 1998
Daniel J. Fink
/s/ ROBERT E. LA BLANC
- ------------------------------ Director February 5, 1998
Robert E. La Blanc
/s/ THOMAS G. POWNALL
- ------------------------------ Director February 5, 1998
Thomas G. Pownall
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger and Reorganization by and among the Registrant, Eagle Acquisition Sub, Inc.
and DBA Systems, Inc.(DBA), dated as of January 5, 1998.
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.
3.3 Articles of Incorporation of Eagle Acquisition Sub, Inc. (Eagle Sub).
3.4 Bylaws of Eagle Sub.
3.5 Certificate of Incorporation of DBA which was filed as an exhibit to DBA's 1985 Annual Report on Form
10-K, is incorporated herein by reference.
3.6 Bylaws of DBA which were filed as an exhibit to DBA's 1985 Annual Report on Form 10-K, is incorporated
herein by 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. which was Exhibit 4.2 to Registrant's 1996 Annual Report on Form 10-K, is incorporated herein by
this reference.
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 which was Exhibit 4.4 to Registrant's 1996 Annual Report on Form 10-K, is
incorporated herein by this reference.
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.
5.1 Opinion of Cooley Godward LLP
8.1 Tax Opinion of Cooley Godward LLP
8.2 Tax opinion of Arent Fox Kintner Plotkin & Kahn, PLLC
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
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 which was Exhibit 10.18 to Registrant's 1996 Annual Report on Form 10-K, is
incorporated herein by this reference.
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 which was Exhibit 10.26 to Registrant's 1996 Annual Report on Form 10-K,
is incorporated herein by this reference.
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. which was Exhibit 10.28 to Registrant's 1996
Annual Report on Form 10-K, is incorporated herein by this reference.
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. which was Exhibit 10.28 to
Registrant's 1996 Annual Report on Form 10-K, is incorporated herein by this reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
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. which was Exhibit 10.31 to Registrant's 1996 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.32 Lease dated July 9, 1981 between DBA and the City of Melbourne Airport Authority which was filed as an
exhibit to DBA's 1982 Annual Report on Form 10-K, is incorporated herein by reference.
10.33 Employee Retirement Plan and Trust of DBA which was filed as an exhibit to DBA's 1979 Definitive Proxy
Statement, is incorporated herein by reference.
10.34 Bonus Agreement dated August 10, 1989 between DBA and John L. Slack which was filed as an exhibit to
DBA's 1990 Annual Report on Form 10-K, is incorporated herein by reference.
10.35 Lease Agreement executed on June 24, 1993 between DBA and the Equitable Life Assurance Society of the
United States which was filed as an exhibit to DBA's 1994 Annual Report on Form 10-K, is incorporated
herein by reference.
10.36 1992 Employee Incentive Stock Option Plan of DBA which was filed as an exhibit to DBA's 1992 Definitive
Proxy Statement.
10.37 1993 Directors' Stock Option Plan of DBA which was filed as an exhibit to DBA's 1993 Definitive Proxy
Statement.
10.38 Letter Agreement dated February 4, 1998 between Titan and DBA regarding certain registration rights
granted in connection with the Merger.
10.39 Form of Voting Agreement between Titan and certain DBA affiliates.
10.40 Form of Voting Agreement between DBA and certain Titan affiliates.
21.1 Subsidiaries of Registrant.
21.2 Subsidiaries of DBA which was filed as Exhibit 21 to DBA's 1997 Annual Report on Form 10-K is
incorporated herein by reference.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
23.2 Consent of Deloitte & Touche LLP, Independent Auditors.
99.1 Form of Proxy Card for Titan Meeting.
99.2 Form of Proxy Card for DBA Meeting.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among:
THE TITAN CORPORATION,
a Delaware corporation;
EAGLE ACQUISITION SUB, INC.,
a Florida corporation; and
DBA SYSTEMS, INC.,
a Florida corporation
------------------------
Dated as of January 5, 1998
------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<C> <S> <C>
SECTION 1 DESCRIPTION OF TRANSACTION...................................................... 1
1.1 Merger of Merger Sub into the Company........................................... 1
1.2 Effect of the Merger............................................................ 1
1.3 Closing; Effective Date......................................................... 1
1.4 Articles of Incorporation and Bylaws; Directors and Officers.................... 1
1.5 Conversion of Shares............................................................ 2
1.6 Closing of the Company's Transfer Books......................................... 3
1.7 Exchange of Company Stock Certificates.......................................... 3
1.8 Fractional Shares............................................................... 4
1.9 No Liability.................................................................... 4
1.10 Tax Consequences................................................................ 4
1.11 Accounting Consequences......................................................... 4
1.12 Further Action.................................................................. 4
SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................... 5
2.1 Due Organization; Subsidiaries; Etc............................................. 5
2.2 Articles of Incorporation and Bylaws; Records................................... 5
2.3 Capitalization.................................................................. 5
2.4 SEC Filings; Financial Statements............................................... 7
2.5 Absence of Certain Changes or Events............................................ 8
2.6 Tax Matters..................................................................... 8
2.7 Contracts....................................................................... 8
2.8 Compliance with Legal Requirements.............................................. 12
2.9 Governmental Authorizations..................................................... 12
2.10 Employee and Labor Matters; Benefit Plans....................................... 12
2.11 Real Property................................................................... 14
2.12 Environmental Matters........................................................... 15
2.13 Transactions with Affiliates.................................................... 16
2.14 Legal Proceedings; Orders....................................................... 16
2.15 Authority; Binding Nature of Agreement.......................................... 16
2.16 Non-Contravention; Consents..................................................... 17
2.17 Disclosure...................................................................... 17
2.18 Financial Advisor............................................................... 18
2.19 Required Vote................................................................... 18
2.20 Company Action.................................................................. 18
2.21 Fairness Opinion................................................................ 18
2.22 No Dissenters' Rights........................................................... 18
2.23 Accounting Matters.............................................................. 18
SECTION 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB....................... 18
3.1 Due Organization, Etc........................................................... 18
3.2 Capitalization, Etc............................................................. 18
3.3 SEC Filings; Financial Statements............................................... 19
3.4 Absence of Certain Changes or Events............................................ 20
3.5 Legal Proceedings; Orders....................................................... 20
3.6 Disclosure...................................................................... 20
3.7 Authority; Binding Nature of Agreement.......................................... 20
3.8 Non-Contravention; Consents..................................................... 21
3.9 Financial Advisor............................................................... 21
3.10 Required Vote................................................................... 21
3.11 Parent and Merger Sub Action.................................................... 21
3.12 Accounting Matters.............................................................. 21
3.13 Government Contracts; Government Bids........................................... 21
3.14 Compliance with Legal Requirements.............................................. 22
3.15 Governmental Authorizations..................................................... 22
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
SECTION 4 CERTAIN COVENANTS OF THE COMPANY................................................ 22
4.1 Access and Investigation........................................................ 22
4.2 Operation of the Company's Business............................................. 23
4.3 Notification; Updates to Company Disclosure Schedule............................ 25
4.4 No Solicitation................................................................. 25
4.5 Company Shareholders' Meeting................................................... 26
4.6 Tax Representation Letter....................................................... 27
4.7 Continuity of Interest Certificates............................................. 27
4.8 Resignation of Officers and Directors........................................... 27
4.9 Comfort Letter.................................................................. 27
4.10 FIRPTA Matters.................................................................. 27
4.11 Affiliate Agreements............................................................ 27
4.12 Pooling of Interests............................................................ 27
4.13 Confidentiality................................................................. 28
SECTION 5 CERTAIN COVENANTS OF PARENT..................................................... 28
5.1 Access and Investigation........................................................ 28
5.2 Notification; Updates to Parent Disclosure Schedule............................. 28
5.3 Parent Stockholders' Meeting.................................................... 28
5.4 Tax Representation Letters...................................................... 29
5.5 Pooling of Interests............................................................ 29
5.6 Confidentiality................................................................. 29
5.7 "Tail" Insurance................................................................ 29
SECTION 6 ADDITIONAL COVENANTS OF THE PARTIES............................................. 30
6.1 Filings and Consents............................................................ 30
6.2 Public Announcements............................................................ 30
6.3 Best Efforts.................................................................... 30
6.4 Registration Statement; Joint Proxy Statement................................... 30
6.5 Regulatory Approvals............................................................ 31
6.6 Parent Plans and Benefit Arrangements........................................... 31
SECTION 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB....................
32
7.1 Accuracy of Representations..................................................... 32
7.2 Performance of Covenants........................................................ 32
7.3 No Material Adverse Effect...................................................... 32
7.4 Compliance Certificate.......................................................... 32
7.5 Stockholder Approval............................................................ 32
7.6 Consents........................................................................ 32
7.7 Legal Opinion................................................................... 32
7.8 Tax Opinion..................................................................... 32
7.9 No Restraints................................................................... 32
7.10 Executive Officer and Director Resignations..................................... 33
7.11 Effectiveness of Registration Statement......................................... 33
7.12 Continuity of Interest Certificates............................................. 33
7.13 Comfort Letter.................................................................. 33
7.14 No Governmental Litigation...................................................... 33
7.15 No Other Litigation............................................................. 33
7.16 HSR Act......................................................................... 33
7.17 Listing......................................................................... 33
7.18 FIRPTA Compliance............................................................... 33
7.19 NMS Listing..................................................................... 33
7.20 Employees....................................................................... 33
7.21 Affiliate Agreements............................................................ 34
7.22 Pooling Letters................................................................. 34
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
SECTION 8 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.............................. 34
8.1 Accuracy of Representations..................................................... 34
8.2 Performance of Covenants........................................................ 34
8.3 No Material Adverse Effect...................................................... 34
8.4 Compliance Certificate.......................................................... 34
8.5 Stockholder Approval............................................................ 34
8.6 Legal Opinion................................................................... 34
8.7 Tax Opinion..................................................................... 34
8.8 No Restraints................................................................... 35
8.9 Effectiveness of Registration Statement......................................... 35
8.10 No Governmental Litigation...................................................... 35
8.11 No Other Litigation............................................................. 35
8.12 HSR Act......................................................................... 35
8.13 Listing......................................................................... 35
SECTION 9 TERMINATION..................................................................... 35
9.1 Termination..................................................................... 35
9.2 Effect of Termination........................................................... 37
9.3 Fees and Expenses............................................................... 37
SECTION 10 MISCELLANEOUS PROVISIONS....................................................... 37
10.1 Further Assurances.............................................................. 37
10.2 Attorneys' Fees................................................................. 37
10.3 Notices......................................................................... 37
10.4 Time of the Essence............................................................. 38
10.5 Governing Law; Venue............................................................ 38
10.6 Successors and Assigns.......................................................... 38
10.7 Remedies Cumulative; Specific Performance....................................... 39
10.8 Waiver.......................................................................... 39
10.9 Amendments...................................................................... 39
10.10 Severability.................................................................... 39
10.11 Disclosure Schedules............................................................ 39
10.12 No Survival of Representations and Warranties................................... 40
10.13 Entire Agreement................................................................ 40
10.14 Construction.................................................................... 40
10.15 Headings........................................................................ 40
10.16 Counterparts.................................................................... 40
</TABLE>
<PAGE>
SCHEDULES
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A -- Certain Definitions
Exhibit B -- Directors and Officers of Surviving Corporation
Exhibit C -- Form of Continuity-of-Interest Certificate
Exhibit D -- Persons Executing Continuity of Interest Certificate
Exhibit E -- Resigning Officers and Directors of the Company
Exhibit F -- Affiliate Agreement
Exhibit G -- Form of Legal Opinion of Arent Fox
Exhibit H -- Form of Legal Opinion of Cooley Godward LLP
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement") is
made and entered into as of January 5, 1998, by and among THE TITAN CORPORATION,
a Delaware Corporation ("Parent"); EAGLE ACQUISITION SUB, INC. ("Merger Sub"), a
Florida corporation and a wholly-owned subsidiary of Parent; and DBA SYSTEMS,
INC., a Florida corporation (the "Company"). Certain capitalized terms used in
this Agreement are defined in Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub into the Company (the "Merger") in accordance with this Agreement and the
Florida Business Corporation Act (the "FBCA"). Upon consummation of the Merger,
Merger Sub will cease to exist, and the Company will become a wholly-owned
subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
C. For accounting purposes, it is intended that the Merger be treated as a
"pooling of interests."
D. This Agreement has been approved by the respective boards of directors of
Parent, Merger Sub and the Company.
E. Concurrent with the execution of this Agreement, all executive officers
and directors of Parent and the Company have executed and delivered to Parent
and/or the Company, as the case may be, Voting Agreements and irrevocable
proxies with respect to the voting of their respective shares of capital stock
of Parent and the Company, as the case may be, in favor of approval of the
Merger and this Agreement.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the FBCA.
1.3 CLOSING; EFFECTIVE DATE. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, 4365 Executive Drive, Suite 1100, San Diego, California
92121 at a time and on a date to be designated by the parties, but in any event
shall be no later than the second business day after the date that all of the
conditions set forth in Sections 7 and 8 have been satisfied or waived (the
"Closing Date"). Contemporaneously with the Closing, properly executed articles
of merger conforming to the requirements of the FBCA (the "Articles of Merger")
shall be filed with the Department of State of the State of Florida. The Merger
shall take effect at the time the Articles of Merger are filed with and accepted
by the Department of State of the State of Florida, or at such time as the
Articles of Merger shall specify (the "Effective Time").
1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. Unless
otherwise agreed to in writing by the Company and Parent prior to the Effective
Time:
(a) the Articles of Incorporation of the Company shall be the Articles of
Incorporation of the Surviving Corporation as of the Effective Time;
(b) the Bylaws of the Company shall be the Bylaws of the Surviving
Corporation as of the Effective Time; and
1
<PAGE>
(c) the directors and officers of the Surviving Corporation immediately
after the Effective Time shall be the individuals identified on Exhibit B.
1.5 CONVERSION OF SHARES.
(a) Subject to Section 1.8, at the Effective Time, by virtue of the Merger
and without any further action on the part of Parent, Merger Sub or the Company:
(i) subject to Section 1.5(b) (and unless adjusted as provided in
Section 9.1(h)) and except for shares described in subparagraph (iii) or
(iv) below, each share of Company Common Stock outstanding immediately prior
to the Effective Time shall be converted into the right to receive 1.366667
shares of Parent Common Stock;
(ii) each share of Common Stock, $.01 par value per share, of Merger Sub
outstanding immediately prior to the Effective Time shall be converted into
one share of Common Stock of the Surviving Corporation;
(iii) any shares of Company Common Stock then held by the Company or any
other Acquired Corporation (as defined in Section 2.1(a)), or held in the
Company's treasury, shall be canceled and retired and shall cease to exist,
and no consideration shall be delivered in exchange therefor; and
(iv) any shares of Company Common Stock then held by Parent, Merger Sub
or any other subsidiary of Parent shall be canceled and retired and shall
cease to exist, and no consideration shall be delivered in exchange
therefor.
(b) The term "Exchange Ratio" shall mean the number of shares of Parent
Common Stock into which each share of Company Common Stock is to be converted in
the Merger pursuant to Section 1.5(a)(i), as such fraction may be adjusted in
accordance with this Section 1.5(b). If, between the date of this Agreement and
the Effective Time, the shares of Company Common Stock or Parent Common Stock
then outstanding are changed into a different number or class of shares by
reason of any stock dividend, subdivision, reclassification, reorganization,
stock split, reverse stock split or other similar transaction, then the Exchange
Ratio shall be appropriately adjusted.
(c) If any shares of Company Common Stock outstanding immediately prior to
the Effective Time are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with the Company, then (unless such condition
terminates by virtue of the Merger pursuant to the express terms of such
agreement) the shares of Parent Common Stock issued in exchange for such shares
of Company Common Stock will also be unvested and subject to the same repurchase
option, risk of forfeiture or other condition, and the certificates representing
such shares of Parent Common Stock may accordingly be marked with appropriate
legends. The Company shall take all action that may be necessary to ensure that,
from and after the Effective Time, Parent is entitled to exercise any such
repurchase option or other right set forth in any such restricted stock purchase
agreement or other agreement.
(d) At the Effective Time, all rights with respect to Company Common Stock
under Company Options that are then outstanding shall be converted into and
become rights with respect to Parent Common Stock, and Parent shall assume each
Company Option in accordance with the terms (as in effect as of the date hereof)
of the stock option plan or other agreement, as the case may be, under which it
was issued and the stock option agreement, as the case may be, by which it is
evidenced. From and after the Effective Time, (i) each Company Option assumed by
Parent may be exercised solely for shares of Parent Common Stock, (ii) the
number of shares of Parent Common Stock subject to each Company Option shall be
equal to the number of shares of Company Common Stock subject to such Company
Option immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounding down to the nearest whole share (with cash, less the relevant fraction
of the applicable exercise price, being payable upon exercise for any fraction
of a share), (iii) the per share exercise price under each such Company Option
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shall be adjusted by dividing the per share exercise price under each such
Company Option by the Exchange Ratio and rounding up to the nearest cent and
(iv) any restriction on the exercise of any Company Option shall continue in
full force and effect and the term, exercisability, vesting schedule and other
provisions of such Company Option shall otherwise remain unchanged; PROVIDED,
HOWEVER, that each such Company Option shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock split, stock
dividend, subdivision, reclassification, reorganization, stock split,
combination or similar transaction subsequent to the Effective Time. The Company
shall take all actions that may be necessary (under the benefits plan or other
agreements pursuant to which Company Options are outstanding) to effectuate the
provisions of this Section 1.5(d) and to ensure that, from and after the
Effective Time, holders of Company Options have no rights with respect thereto
other than those specifically provided herein.
1.6 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time, (a)
all certificates representing shares of Company Common Stock outstanding
immediately prior to the Effective Time shall automatically be canceled and
retired and shall cease to exist, and all holders of certificates representing
shares of Company Common Stock that were outstanding immediately prior to the
Effective Time shall cease to have any rights as shareholders of the Company,
and (b) the stock transfer books of the Company shall be closed with respect to
all shares of such Company Common Stock outstanding immediately prior to the
Effective Time. No further transfer of any such shares of Company Common Stock
shall be made on such stock transfer books after the Effective Time. If, after
the Effective Time, a valid certificate previously representing any of such
shares of Company Common Stock (a "Company Stock Certificate") is presented to
the Surviving Corporation or Parent, such Company Stock Certificate shall be
canceled and shall be exchanged as provided in Section 1.7.
1.7 EXCHANGE OF COMPANY STOCK CERTIFICATES.
(a) Prior to the Closing Date, Parent shall select a reputable bank or trust
company to act as exchange agent in the Merger (the "Exchange Agent"). Promptly
after the Effective Time, Parent shall deposit with the Exchange Agent (i)
certificates representing the shares of Parent Common Stock issuable pursuant to
this Section 1.7, and (ii) cash sufficient to make payments in lieu of
fractional shares in accordance with Section 1.7(b). The shares of Parent Common
Stock and cash amounts so deposited with the Exchange Agent, together with any
dividends or distributions received by the Exchange Agent with respect to such
shares, are referred to collectively as the "Exchange Fund."
(b) As soon as practicable after the Effective Time, the Exchange Agent will
mail to the registered holders of Company Stock Certificates (i) a letter of
transmittal in customary form and containing such provisions as Parent may
reasonably specify (including a provision confirming that delivery of Company
Stock Certificates shall be effected, and risk of loss and title to Company
Stock Certificates shall pass, only upon delivery of such Company Stock
Certificates to the Exchange Agent), and (ii) instructions for use in effecting
the surrender of Company Stock Certificates in exchange for certificates
representing Parent Common Stock. Subject to Section 1.8, upon surrender of a
Company Stock Certificate to the Exchange Agent for exchange, together with a
duly executed letter of transmittal and such other documents as may be
reasonably required by the Exchange Agent or Parent, (1) the holder of such
Company Stock Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of shares of Parent Common Stock that such
holder has the right to receive pursuant to the provisions of Section 1.5(a)(i),
plus cash in lieu of any fractional shares as provided in Section 1.8, and (2)
the Company Stock Certificate so surrendered shall be marked "canceled." Until
surrendered as contemplated by this Section 1.7, each Company Stock Certificate
shall be deemed, from and after the Effective Time, to represent only the right
to receive shares of Parent Common Stock (and cash in lieu of any fractional
share of Parent Common Stock) as contemplated by Section 1.6. If any Company
Stock Certificate shall have been lost, stolen or destroyed, Parent may, in its
discretion and as a condition precedent to the issuance of any certificate
representing Parent Common Stock, require the owner of such lost, stolen or
destroyed Company Stock Certificate to provide an appropriate affidavit and to
deliver a bond (in such sum as Parent
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may reasonably direct) as indemnity against any claim that may be made against
the Exchange Agent, Parent or the Surviving Corporation with respect to such
Company Stock Certificate.
(c) No dividends or other distributions declared or made with respect to
Parent Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Company Stock Certificate with respect to the
shares of Parent Common Stock represented thereby, until such holder surrenders
such Company Stock Certificate in accordance with this Section 1.7 (at which
time such holder shall be entitled to receive all such dividends and
distributions, without interest).
(d) Any portion of the Exchange Fund that remains undistributed to holders
of Company Stock Certificates as of the date 180 days after the Effective Time
shall be delivered by the Exchange Agent to Parent upon demand, and any holders
of Company Stock Certificates who have not theretofore surrendered their Company
Stock Certificates in accordance with this Section 1.7 shall thereafter look
only to Parent for satisfaction of their claims for Parent Common Stock, cash in
lieu of fractional shares of Parent Common Stock and any dividends or
distributions with respect to Parent Common Stock.
(e) Each of the Exchange Agent, Parent and the Surviving Corporation shall
be entitled to deduct and withhold from any consideration payable or otherwise
deliverable pursuant to this Agreement to any holder or former holder of Company
Common Stock and/or any holders of Company Options such amounts as may be
required to be deducted or withheld therefrom under the Code or under any
provision of state, local or foreign tax law. To the extent such amounts are so
deducted or withheld, such amounts shall be treated for all purposes under this
Agreement as having been paid to the Person to whom such amounts would otherwise
have been paid.
1.8 FRACTIONAL SHARES. No fractional shares of Parent Common Stock shall
be issued in connection with the Merger, and no certificates for any such
fractional shares shall be issued. In lieu of such fractional shares, any holder
of Company Common Stock who would otherwise be entitled to receive a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock issuable to such holder) shall, upon surrender of such
holder's Company Stock Certificate(s), be paid in cash the dollar amount
(rounded to the nearest whole cent), without interest, determined by multiplying
such fraction by the closing sales price of a share of Parent Common Stock as
reported on the New York Stock Exchange ("NYSE") as of the date hereof (and if
such day is not a trading day, then the last trading day immediately preceding
the date hereof).
1.9 NO LIABILITY. Neither Parent nor the Surviving Corporation shall be
liable to any holder or former holder of Company Common Stock for any shares of
Parent Common Stock (or dividends or distributions with respect thereto), or for
any cash amounts, delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
1.10 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368(a) of
the Code. The parties to this Agreement hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the United States Treasury Regulations.
1.11 ACCOUNTING CONSEQUENCES. For accounting purposes, the Merger is
intended to be treated as a "pooling of interests." Neither the Company nor
Parent shall take any action prior to the Effective Time that could reasonably
be expected to prevent the Merger from being accounted for as a "pooling of
interests."
1.12 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary to carry out the purposes of this
Agreement or to vest the Surviving Corporation or Parent with full right, title
and possession of and to all rights and property of Merger Sub and the Company,
the officers and directors of the Surviving Corporation and Parent shall be
fully authorized (in the name of Merger Sub, in the name of the Company and
otherwise) to take such action.
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SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub that, except as
set forth in the Company SEC Documents or in the disclosure schedule prepared by
the Company in accordance with the requirements of Section 10.11 and delivered
by the Company to Parent on the date of this Agreement (the "Company Disclosure
Schedule"):
2.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(a) The Company and each of its direct and indirect majority-owned
subsidiaries (the Company and each of its subsidiaries is individually referred
to herein as an "Acquired Corporation" and collectively as the "Acquired
Corporations") are corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation, each
with full corporate power and authority to (i) conduct its business in the
manner in which such business is now being conducted, (ii) own and use its
assets in the manner in which such assets are now being owned and used and (iii)
perform its obligations under all Material Acquired Corporation Contracts by
which it or its assets are bound. Part 2.1 of the Company Disclosure Schedule
sets forth each majority-owned subsidiary of the Company. Except as set forth on
Part 2.1 of the Company Disclosure Schedule, none of the Acquired Corporations
owns or holds, directly or indirectly, any debt or equity securities of, or has
any other interest in, any Entity, and none of the Acquired Corporations has
entered into any agreement to acquire any such interest. For purposes of this
Agreement, a company's "subsidiaries" shall mean and include all Entities in
which such company, directly or indirectly, owns a majority interest or has the
power to vote a majority of the interests. Other than changes in the conduct of
the Company's business proposed to be made by the Company in connection with the
Merger, none of the Acquired Corporations has any plans to change, in any
material respect, its business.
(b) The Acquired Corporations are qualified to do business as foreign
corporations, and are in good standing, under the laws of the jurisdictions set
forth in Part 2.1(b) of the Company Disclosure Schedule, which are all the
jurisdictions where the nature of each Acquired Corporation's business requires
such qualification and where the failure to be so qualified would have a
Material Adverse Effect on such Acquired Corporation.
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. The Company and each of
the other Acquired Corporations has delivered (as reasonably requested by
Parent) or made available to Parent accurate and complete copies of: (1) the
Company's and such Acquired Corporation's articles of incorporation and bylaws
as currently in effect, including all amendments thereto; (2) the stock records
of the Company and such Acquired Corporation; and (3) the minutes and other
records of the meetings and other proceedings (including any actions taken by
written consent or otherwise without a meeting) of the shareholders of the
Company and of such Acquired Corporation, the Board of Directors of the Company
and such Acquired Corporation and all committees of the Board of Directors of
the Company and such Acquired Corporation. No Acquired Corporation is in
violation of any of the provisions of its articles of incorporation or bylaws.
The books of account, stock records, minute books and other records of each
Acquired Corporation are accurate and complete in all material respects, and
have been maintained in accordance with prudent business practices.
2.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 10,000,000
shares of Company Common Stock, $.10 par value, of which 4,426,562 shares have
been issued and are outstanding as of the date of this Agreement. All of the
outstanding shares of Company Common Stock have been duly authorized and validly
issued, and are fully paid and nonassessable. As of the date of this Agreement,
there are 1,148,488 shares of Company Common Stock held in treasury by the
Company and no shares held by any subsidiary of the Company. Except as set forth
in Part 2.3(a) of the Company Disclosure Schedule: (i) none of the outstanding
shares of Company Common Stock is entitled or subject to any preemptive right,
right of
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participation or any similar right; (ii) none of the outstanding shares of
Company Common Stock is subject to any right of first refusal in favor of the
Company or, to the Company's knowledge (defined in Exhibit A), any other Person;
and (iii) there is no Acquired Corporation Contract, or to the Company's
knowledge, any other contract or agreement, relating to the voting or
registration of, or restricting any Person from purchasing, selling, pledging or
otherwise disposing of (or granting any option or similar right with respect
to), any shares of Company Common Stock. Upon consummation of the Merger, (A)
the shares of Parent Common Stock issued in exchange for any shares of Company
Common Stock that are subject to an Acquired Corporation Contract pursuant to
which the Company has the right to repurchase, redeem or otherwise reacquire any
shares of Company Common Stock will, without any further act of Parent, the
Company or any other Person, become subject to the restrictions, conditions and
other provisions contained in such Acquired Corporation Contract, and (B) Parent
will automatically succeed to and become entitled to exercise the Company's
rights and remedies under any such Acquired Corporation Contract. The Company is
under no obligation to repurchase, redeem or otherwise acquire any outstanding
shares of Company Common Stock, Company Options or other securities of the
Company.
(b) Except as set forth in Part 2.3(b) of the Company Disclosure Schedule,
neither the Company nor any other Acquired Corporation has repurchased, redeemed
or otherwise reacquired any shares of capital stock or other securities of the
Company or any other Acquired Corporation. All securities so reacquired by the
Company and any other Acquired Corporation were reacquired in compliance with
the applicable provisions of the laws of the jurisdiction in which the Company
or the Acquired Corporation, as the case may be, is incorporated and all other
applicable Legal Requirements, except where failure to comply has not had and
will not have a Material Adverse Effect on the Company.
(c) As of the date of this Agreement, there were outstanding options to
purchase (i) 336,034 shares of Company Common Stock issuable under the Company's
1992 Employee Incentive Stock Option Plan (the "1992 Plan"), (ii) 20,000 shares
of Company Common Stock issuable under the Company's 1993 Directors' Stock
Option Plan (the "Directors' Plan"), and (iii) 25,000 shares of Company Common
Stock issuable outside of the 1992 Plan and the Directors' Plan (stock options
granted by the Company pursuant to the 1992 Plan, the Directors' Plan and
outside both such plans are collectively referred to in this Agreement as the
"Company Options"). Part 2.3(c) of the Company Disclosure Schedule sets forth
the following information with respect to each Company Option outstanding as of
the date of this Agreement: (i) the particular plan, if any, pursuant to which
such Company Option was granted; (ii) the name of the optionee; (iii) the number
of shares of Company Common Stock subject to such Company Option; (iv) the
exercise price of such Company Option; (v) the date on which such Company Option
was granted; (vi) the applicable vesting schedule(s), and the extent to which
such Company Option is vested as of the date of this Agreement; and (vii) the
date on which such Company Option expires. The Company has delivered to Parent
accurate and complete copies of all stock option plans pursuant to which the
Company has outstanding stock options, and the forms of all stock option
agreements evidencing such options.
(d) Except as set forth in Part 2.3(c) of the Company Disclosure Schedule
there is no: (i) outstanding subscription, option, call, warrant or right
(whether or not currently exercisable) to acquire any shares of the capital
stock or other securities of the Company; (ii) outstanding security, instrument
or obligation that is or may become convertible into or exchangeable for any
shares of the capital stock or other securities of the Company; (iii)
stockholder rights plan (or similar plan commonly referred to as a "poison
pill") or Acquired Corporation Contract under which the Company is or may become
obligated to sell or otherwise issue any shares of its capital stock or any
other securities; or (iv) to the best of the knowledge of the Company, condition
or circumstance that may give rise to or provide a basis for the assertion of a
claim by any Person to the effect that such Person is entitled to acquire or
receive any shares of capital stock or other securities of the Company.
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(e) All outstanding shares of Company Common Stock, all outstanding Company
Options and all other securities of the Company and all outstanding shares of
capital stock and all other securities of each other Acquired Corporation have
been issued and granted in compliance with (i) all applicable securities laws
and other applicable Legal Requirements, and (ii) all requirements set forth in
applicable Acquired Corporation Contracts.
(f) All of the outstanding shares of capital stock of each of the
subsidiaries of the Company are validly issued, fully paid and nonassessable and
are owned beneficially and of record by the Company, free and clear of any
Encumbrance.
2.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent a complete and accurate copy
(excluding copies of exhibits) of each report, schedule, registration statement
and definitive proxy statement filed by the Company with the Securities and
Exchange Commission ("SEC") on or after June 30, 1995 (the "Company SEC
Documents"), which are all the forms, reports and documents required to be filed
by the Company with the SEC since June 30, 1995. The Company SEC Documents (i)
complied with the requirements of the Securities Act or the Exchange Act, as the
case may be, at and as of the times they were filed (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) and (ii) did not at and as of the time they were filed (or, if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(b) Each of the sets of financial statements (including, in each case, any
related notes thereto) contained in the Company SEC Documents and the set of the
Company's unaudited interim financial statements as of and for the three month
period ended September 30, 1997 including the Company's unaudited consolidated
balance sheet as of September 30, 1997 (the "September Balance Sheet") that are
set forth in Part 2.4(a) of the Company Disclosure Schedule (collectively, the
"Past Financial Statements") (i) complied as to form in all material respects
with the published rules and regulations of the SEC applicable thereto; (ii) was
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods covered (except as may be
indicated in the notes thereto and, in the case of unaudited interim financial
statements, as permitted by Form 10-Q of the SEC, and except that unaudited
financial statements may not contain footnotes and are subject to year-end audit
adjustments which are not expected to be material in amount), (iii) fairly
presents the consolidated financial position of the Acquired Corporations as at
the respective dates thereof and the consolidated results of their operations
and cash flows for the periods indicated, and, (iv) with respect to the
unaudited financial statements to be delivered to Parent pursuant to Sections
4.1(b)(i) and 4.1(c) will be prepared in accordance with GAAP applied on a basis
consistent with the basis on which the Past Financial Statements were prepared
and will fairly present the consolidated financial position of the Company and
the other Acquired Corporations as at the respective dates thereof and the
consolidated results of operations and cash flows of the Company and the other
Acquired Corporations for the periods indicated, except that such financial
statements will be subject to normal year-end audit adjustments and will not
contain footnotes. The Company has provided to Parent true and complete copies
of all management letters received from the Company's accountants since 1990.
(c) The Company has previously furnished to Parent a complete and accurate
copy of (i) any amendments or modifications that have not yet been filed with
the SEC to agreements, documents or other instruments that have been filed by
the Company with the SEC pursuant to the Securities Act or the Exchange Act, and
(ii) all agreements, documents or instruments that are required to be filed by
the Company with the SEC pursuant to the Securities Act or the Exchange Act that
have not yet been filed.
(d) The Company and each of the other Acquired Corporations have no
Liabilities, except for (i) any Liability which is accrued or fully reserved
against in the September Balance Sheet or disclosed in the
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notes included in the Past Financial Statements, (ii) any Liabilities incurred
after September 30, 1997 in the ordinary course of business in an aggregate
amount of less than $100,000 or (iii) other Liabilities which, individually or
in the aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect on the Company.
2.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1997, there has
not been (a) any change, or any development or combination of changes or
developments that has had or would reasonably be expected to have a Material
Adverse Effect on the Company, (b) any damage, destruction or loss, whether or
not covered by insurance, that has had or would reasonably be expected to have a
Material Adverse Effect on the Company or (c) any transaction, commitment,
dispute or other event or condition (financial or otherwise) of any character
(whether or not in the ordinary course of business) which would be prohibited by
Section 4.2 if it were to occur or be effected between the date of this
Agreement and the Effective Time.
2.6 TAX MATTERS.
(a) The Company (or, if applicable, one of the other Acquired Corporations)
has filed, within the time (including any extensions of applicable due dates)
and in the manner prescribed by law, all Tax Returns required to be filed under
federal, state, local or any foreign laws by the Company and the other Acquired
Corporations, except where the failure to do so has not had and will not have a
Material Adverse Effect on the Company. The Company has provided to Parent
copies of all correspondence with the Internal Revenue Service relating to the
Company and the other Acquired Corporations since 1990.
(b) The Company (or, if applicable, one of the other Acquired Corporations)
has, within the time (including any extensions of applicable due dates) and in
the manner prescribed by law, paid all Taxes that are due and payable, except
Taxes that, individually and in the aggregate, are not material.
(c) None of the Acquired Corporations has filed (and will not file prior to
the Closing Date) any consent agreement under Section 341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply to any disposition of the
subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code)
owned by the Company.
(d) To the Company's knowledge, the consummation of the Merger and the
transaction contemplated thereby will not result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code, and there is
no agreement, plan or arrangement covering any employee or independent
contractor of the Company that would give rise to any payment that would not be
deductible pursuant to Section 280G or Section 162(m) of the Code.
(e) No outstanding debt obligation of the Company is "corporate acquisition
indebtedness" within the meaning of Section 279(b) of the Code.
2.7 CONTRACTS.
(a) Except as set forth in the Company SEC Documents or on Part 2.7(a) of
the Company Disclosure Schedule, there is no Acquired Corporation Contract that
constitutes a "Material Acquired Corporation Contract." For purposes of this
Agreement, a "Material Acquired Corporation Contract" shall be deemed to be any
Contract:
(i) relating to the employment or engagement of, or the performance of
services by, any employee, consultant or independent contractor which
involves a potential commitment of any Acquired Corporation in excess of
$60,000 per year;
(ii) relating to the acquisition, transfer, use, development, sharing or
license of any technology or any Acquired Corporation Proprietary Asset
(except for any Acquired Corporation Proprietary Asset that is licensed to
an Acquired Corporation under any third party software license agreement
generally available to the public);
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(iii) imposing any restriction on any Acquired Corporation's right or
ability (A) to compete with any other Person, (B) to acquire any product or
other asset or any services from any other Person, to sell any product or
other asset to or perform any services for any other Person or to transact
business or deal in any other manner with any other Person, or (C) to
develop or distribute any technology;
(iv) creating or involving any agency relationship, distribution
arrangement or franchise relationship involving payments or obligations in
excess of $100,000 per year;
(v) relating to the acquisition, issuance or transfer of any securities;
(vi) creating or relating to the creation of any Encumbrance (other than
Permitted Encumbrances) with respect to any asset owned or used by any
Acquired Corporation having a value in excess of $100,000;
(vii) involving or incorporating any liability, obligation, guaranty,
pledge, performance or completion bond, indemnity (other than customary
intellectual property indemnitees for hardware and software sold by any
Acquired Corporation), right of contribution or surety arrangement, any of
which obligations involve or may reasonably be expected to involve an
Acquired Corporation obligation in excess of $100,000 per year;
(viii) creating or relating to any partnership or joint venture or any
sharing of revenues, profits, losses, costs or liabilities;
(ix) relating to the purchase or sale of any product or other asset by
or to, or the performance of any services by or for, any Acquired
Corporation's Affiliate;
(x) entered into outside the ordinary course of business;
(xi) that may not be terminated by the applicable Acquired Corporation
(without penalty) within 60 days after the delivery of a termination notice
by the applicable Acquired Corporation;
(xii) contemplating or involving (A) the payment or delivery of cash or
other consideration in an amount or having a value in excess of $100,000 in
the aggregate, or (B) the performance of services having a value in excess
of $100,000 in the aggregate; or
(xiii) any Government Contract (i) creating or relating to the creation of
any Encumbrance (other than Permitted Encumbrances) with respect to any
asset owned or used by any Acquired Corporation having a value in excess of
$25,000; (ii) involving or incorporating any liability, obligation,
guaranty, pledge, performance or completion bond, indemnity (other than
customary intellectual property indemnitees for hardware and software sold
by any Acquired Corporation), right of contribution or surety arrangement,
any of which obligations involve or may reasonably be expected to involve an
Acquired Corporation obligation in excess of $25,000 per year; or (iii)
contemplating or involving (A) the payment or delivery of cash or other
consideration in an amount or having a value in excess of $25,000 in the
aggregate, or (B) the performance of services having a value in excess of
$25,000 in the aggregate.
(b) The Company has delivered to Parent accurate and complete copies of all
Material Acquired Corporation Contracts identified in Part 2.7(a) of the Company
Disclosure Schedule, including all amendments thereto. Each Contract identified
in Part 2.7(a) of the Company Disclosure Schedule is valid and in full force and
effect, and is enforceable by the applicable Acquired Corporation in accordance
with its terms, subject to (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(c) The Company and each of the other Acquired Corporations:
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(i) have not violated or breached, or committed any material default
under, any Material Acquired Corporation Contract in any material respect;
(ii) have not had any event occur, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could
reasonably be expected to, (A) result in a violation or breach of any of the
provisions of any Material Acquired Corporation Contract, (B) give any
Person the right to declare a default or exercise any remedy under any
Material Acquired Corporation Contract, (C) give any Person the right to
accelerate the maturity or performance of any Material Acquired Corporation
Contract, or (D) give any Person the right to cancel, terminate or modify
any Material Acquired Corporation Contract;
(iii) have not, since June 30, 1995, received any notice or other
communication regarding (i) any actual or possible violation or breach of,
or default under, any Material Acquired Corporation Contract, or (ii) any
actual or possible termination of any Material Acquired Corporation
Contract; and
(iv) have not waived any of its material rights under any Material
Acquired Corporation Contract.
(d) Except as set forth in Part 2.7(d) of the Company Disclosure Schedule:
(i) the Acquired Corporations have not had any determination of
noncompliance, entered into any consent order or undertaken any internal
investigation relating directly or indirectly to any Government Contract or
Government Bid;
(ii) the Acquired Corporations have complied in all material respects
with all Legal Requirements with respect to all Government Contracts and
Government Bids;
(iii) the Acquired Corporations have not, in obtaining or performing any
Government Contract, violated (A) the Truth in Negotiations Act of 1962, as
amended, (B) the Service Contract Act of 1963, as amended, (C) the Contract
Disputes Act of 1978, as amended, (D) the Office of Federal Procurement
Policy Act, as amended, (E) the Federal Acquisition Regulations (the "FAR")
or any applicable agency supplement thereto, (F) the Cost Accounting
Standards, (G) the Defense Industrial Security Manual (DOD 5220.22-M), (H)
the Defense Industrial Security Regulation (DOD 5220.22-R) or any related
security regulations, or (I) any other applicable procurement law or
regulation or other Legal Requirement;
(iv) all facts set forth in or acknowledged by any Acquired Corporation
in any certification, representation or disclosure statement submitted by
any Acquired Corporation with respect to any Government Contract or
Government Bid were current, accurate and complete in all material respects
as of the date of submission;
(v) none of the Acquired Corporations nor any of their respective
employees have been debarred or suspended from doing business with any
Governmental Body, and, to the best knowledge of the Company, no
circumstances exist that would warrant the institution of debarrment or
suspension proceedings against any Acquired Corporation or any employee of
any Acquired Corporation;
(vi) no negative determinations of responsibility, as contemplated in
Part 9 of the FAR (Contractor Qualifications), have been issued against any
Acquired Corporation in connection with any Government Contract or
Government Bid;
(vii) no direct or indirect costs incurred by any Acquired Corporation
have been disallowed as a result of a finding or determination of any kind
by any Governmental Body;
(viii) no Governmental Body, and no prime contractor or high-tier
subcontractor of any Governmental Body, has withheld or set off, or
threatened to withhold or set off, any amount due to any Acquired
Corporation under any Government Contract;
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(ix) there are not and have not been any irregularities, misstatements
or omissions relating to any Government Contract or Government Bid that have
led to or could reasonably be expected to lead to (A) any administrative,
civil, criminal or other investigation, Legal Proceeding or indictment
involving any Acquired Corporation or any of their employees, (B) the
disallowance of any costs submitted for payment by any Acquired Corporation,
(C) the recoupment of any payments previously made to any Acquired
Corporation, (D) a finding or claim of fraud, defective pricing, mischarging
or improper payments on the part of any Acquired Corporation, or (E) the
assessment of any penalties or damages of any kind against any Acquired
Corporation;
(x) there is not any (A) outstanding claim against any Acquired
Corporation by, or dispute involving any Acquired Corporation with, any
prime contractor, subcontractor, vendor or other Person arising under or
relating to the award or performance of any Government Contract, (B) fact
known by any Acquired Corporation upon which any such claim could reasonably
be expected to be based or which may give rise to any such dispute, or (C)
final decision of any Government Body against any Acquired Corporation;
(xi) no Acquired Corporation is undergoing and has not undergone any
audit, and the Company has no knowledge of any basis for any impending
audit, arising under or relating to any Government Contract (other than
normal routine audits conducted in the ordinary course of business); (xii)
no Acquired Corporation is subject to any financing arrangement or
assignment of proceeds with respect to the performance of any Government
Contract;
(xiii) no payment has been made by any Acquired Corporation or by a Person
acting on any Acquired Corporation's behalf to any Person (other than to any
bona fide employee or agent (as defined in subpart 3.4 of the FAR) of any
Acquired Corporation) which is or was contingent upon the award of any
Government Contract or which would otherwise be in violation of any
applicable procurement law or regulation or any other Legal Requirement;
(xiv) each Acquired Corporation's cost accounting system is in compliance
with applicable regulations and other applicable Legal Requirements, and has
not been determined by any Governmental body not to be in compliance with
any Legal Requirement;
(xv) each Acquired Corporation has complied with all applicable
regulations and other Legal Requirements and with all applicable contractual
requirements relating to the placement of legends or restrictive markings on
technical data, computer software and other Acquired Corporation Proprietary
Assets;
(xvi) in each case in which an Acquired Corporation has delivered or
otherwise provided any technical data, computer software or Acquired
Corporation Proprietary Asset to any Governmental Body in connection with
any Government Contract, such Acquired Corporation has marked such technical
data, computer software or Acquired Corporation Proprietary Asset with all
markings and legends (including any "restricted rights" legend and any
"government purpose license rights" legend) necessary (under the FAR or
other applicable Legal Requirements) to ensure that no Governmental Body or
other Person is able to acquire any unlimited rights with respect to such
technical data, computer software or Acquired Corporation Proprietary Asset,
except where failure to do so has not had and will not have a Material
Adverse Effect on any Acquired Corporation;
(xvii) no Acquired Corporation has made any disclosure to any Governmental
Body pursuant to any voluntary disclosure agreement;
(xviii) each Acquired Corporation has reached agreement with the cognizant
government representatives approving and "closing" all indirect costs
charged to Government Contracts for 1993, 1994, 1995 1996 and 1997, and
those years are closed;
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(xix) the responsible government representatives have agreed with the
Company on the "forward pricing rates" that each Acquired Corporation is
charging on cost-type Government Contracts and including in Government Bids;
and
(xx) each Acquired Corporation is not and will not be required to make
any filings with or give notice to, or to obtain any Consent from, any
Governmental Body under or in connection with any Government Contract or
Government Bid as a result of or by virtue of (A) the execution, delivery of
performance of this Agreement or any of the other agreements referred to in
this Agreement, or (B) the consummation of the Merger or any of the other
transactions contemplated by this Agreement.
2.8 COMPLIANCE WITH LEGAL REQUIREMENTS. The Acquired Corporations are, and
have at all times since June 30, 1995 been, in compliance with all applicable
Legal Requirements, except where the failure to comply with such Legal
Requirements has not had and will not have a Material Adverse Effect on any
Acquired Corporation. Since June 30, 1995, the Acquired Corporations have not
received any notice or other communication from any Governmental Body regarding
any actual or possible violation of, or failure to comply with, any Legal
Requirement.
2.9 GOVERNMENTAL AUTHORIZATIONS. Each Acquired Corporation has all
Governmental Authorizations necessary to enable such Acquired Corporation to
conduct its business in the manner in which its business is currently being
conducted, except where any failure to have such Governmental Authorizations has
not had and will not have a Material Adverse Effect on the Company. Each
Acquired Corporation is, and at all times since June 30, 1995 has been, in
compliance with the material terms and requirements of such Governmental
Authorizations. Since June 30, 1995, the Acquired Corporations have not received
any notice or other communication from any Governmental Body regarding (a) any
actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization.
2.10 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.10(a) of the Company Disclosure Schedule identifies each salary,
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, flexible benefit,
dependent care, educational assistance, pre-tax premium, pension or retirement
plan, program or agreement (collectively, the "Company Employee Plans")
sponsored, maintained, contributed to or required to be contributed to by the
Company or any of the Acquired Corporations for the benefit of any current or
former employee of the Company or any of the Acquired Corporations
("Employees").
(b) Except as set forth in Part 2.10(a) of the Company Disclosure Schedule,
neither the Company nor any of the Acquired Corporations maintains, sponsors or
contributes to, and none of the Acquired Corporations has at any time in the
past maintained, sponsored or contributed to any employee pension benefit plan
(as defined in Section 3(2) of ERISA, whether or not excluded from coverage
under specific Titles or Subtitles of ERISA) for the benefit of Employees (a
"Pension Plan").
(c) Except as set forth in Part 2.10(a) of the Company Disclosure Schedule,
neither the Company nor any of the Acquired Corporations maintains, sponsors or
contributes to any: (i) employee welfare benefit plan (as defined in Section
3(1) of ERISA, whether or not excluded from coverage under specific Titles or
Subtitles of ERISA) for the benefit of any Employees (a "Welfare Plan"), or (ii)
self-funded medical, dental or other similar Plan. None of the Plans identified
in the Company Disclosure Schedule is a multiemployer plan (within the meaning
of Section 3(37) of ERISA).
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(d) With respect to each Company Employee Plan, the Company has made
available to Parent: (i) an accurate and complete copy of such Company Employee
Plan (including all amendments thereto); (ii) an accurate and complete copy of
the annual report, if required under ERISA, with respect to such Company
Employee Plan for the last plan two years; (iii) an accurate and complete copy
of the most recent summary plan description, together with each summary of
material modifications, if required under ERISA, with respect to such Company
Employee Plan; (iv) if such Company Employee Plan is funded through a trust or
any third party funding vehicle, an accurate and complete copy of the trust or
other funding agreement (including all amendments thereto) and accurate and
complete copies of the most recent financial statements thereof; (v) accurate
and complete copies of all Contracts relating to such Company Employee Plan,
including service provider agreements, insurance contracts, minimum premium
contracts, stop-loss agreements, investment management agreements, subscription
and participation agreements and recordkeeping agreements; and (vi) an accurate
and complete copy of the most recent determination letter received from the
Internal Revenue Service with respect to such Company Employee Plan (if such
Company Employee Plan is intended to be qualified under Section 401(a) of the
Code).
(e) John Slack has not notified the Company, directly or indirectly, of his
intention to terminate his employment with the Company or to decline to accept
employment with Parent or any subsidiary of Parent.
(f) Neither the Company nor any of the Acquired Corporations is or has ever
been required to be treated as a single employer with any other Person under
Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of the Code other
than an Acquired Corporation. Neither the Company nor any of the Acquired
Corporations has ever been a member of an "affiliated service group" (within the
meaning of Section 414(m) of the Code) other than with another Acquired
Corporation. Neither the Company nor any of the Acquired Corporations has ever
made a complete or partial withdrawal from a multiemployer plan, as such term is
defined in Section 3(37) of ERISA, resulting in "withdrawal liability," as such
term is defined in Section 4201 of ERISA (without regard to subsequent reduction
or waiver of such liability under either Section 4207 or 4208 of ERISA).
(g) Neither the Company nor any of the Acquired Corporations has any plan or
commitment to create any Welfare Plan or any Pension Plan, or to modify or
change any existing Welfare Plan or Pension Plan (other than to comply with
applicable law) in a manner that would affect any Employee.
(h) No Company Employee Plan provides death, medical or health benefits
(whether or not insured) with respect to any Employee after any such Employee's
termination of service (other than (i) benefit coverage mandated by applicable
law, including coverage provided pursuant to Section 4980B of the Code, (ii)
deferred compensation benefits accrued as liabilities on the most recent
financial statements included in the Company SEC Documents, and (iii) benefits
the full costs of which are borne by Employees (or Employees' beneficiaries)).
(i) With respect to any Company Employee Plan constituting a group health
plan within the meaning of Section 4980B(g)(2) of the Code, the provisions of
Section 4980B of the Code ("COBRA") have been complied with in all material
respects. Part 2.10(h) of the Company Disclosure Schedule describes all
obligations of the Company and the Acquired Corporations as of the date of this
Agreement under any of the provisions of COBRA.
(j) Each of the Company Employee Plans has been operated and administered in
all material respects in accordance with applicable Legal Requirements,
including, but not limited to, ERISA and the Code.
(k) Each of the Company Employee Plans intended to be qualified under
Section 401(a) of the Code has received a favorable determination from the
Internal Revenue Service, and the Company is not aware of any reason why any
such determination letter should be revoked.
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(l) Neither the execution, delivery or performance of this Agreement, nor
the consummation of the Merger or any of the other transactions contemplated by
this Agreement will result in any payment (including any bonus, golden parachute
or severance payment) to any current or former employee or director of the
Company or any of the Acquired Corporations (whether or not under any Company
Employee Plan), or materially increase the benefits payable under any Company
Employee Plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(m) The Company and each of the Acquired Corporations are in compliance in
all material respects with all applicable Legal Requirements and Contracts
relating to employment, employment practices, wages, bonuses and terms and
conditions of employment, including employee compensation matters and the
classification of independent contractors and workers.
(n) The Company and each of the Acquired Corporations have good labor
relations, and neither the Company nor any of the Acquired Corporations has any
knowledge of any facts indicating that (i) the consummation of the Merger or any
of the other transactions contemplated by this Agreement will have a material
adverse effect on the labor relations of the Company or any of the Acquired
Corporations, or (ii) any of the Employees intends to terminate his or her
employment with the Company or the Acquired Corporation by which such Employee
is employed.
2.11 REAL PROPERTY.
(a) Except for mortgages, liens, security interests, encumbrances, options,
rights, covenants, easements, leases, licenses, matters affecting title and
other rights in favor of third parties disclosed in Part 2.11(a) of the Company
Disclosure Schedule and except for liens for taxes, assessments and other
governmental charges which are not due and payable or which, if payable, are not
yet delinquent, or are being contested in good faith by appropriate proceedings
and for which adequate reserves have been established in accordance with GAAP,
the Acquired Corporations own good and marketable fee simple title to the real
property listed in Part 2.11(a) of the Company Disclosure Schedule (the "Land"),
together with all improvements and buildings, structures and fixtures located
thereon (collectively, the "Improvements") and together with all rights,
privileges, easements, rights of way and appurtenances benefiting the Land
and/or the Improvements or used or connected with the beneficial use or
enjoyment of the Land and/ or the Improvements (the Land, the Improvements, and
all such rights, privileges, easements, rights of way, and appurtenances are
collectively referred to herein as the "Real Property"). The Real Property
constitutes all of the real property owned by the Acquired Corporations.
(b) There are now in full force and effect (i) all Governmental
Authorizations required by any Governmental Body in connection with the
ownership, operation, use and maintenance of the Real Property, and (ii) all
agreements, easements and other rights which are necessary to permit the full
and lawful use and operation of the buildings and improvements on any of the
Real Property, and (iii) the Company has not received any notice that any
proceedings in eminent domain, for rezoning or otherwise which would affect the
Real Property are pending or threatened with respect to the Real Property or any
portion thereof, except for such failures to have in full force and effect or
such proceedings that would not have a Material Adverse Effect.
(c) All of the Improvements are structurally sound with no known material
defects and are in good condition, order and repair and are not damaged by
waste, fire, earthquake or earth movement or other casualty or other physical
conditions that could, individually or in the aggregate, have a Material Adverse
Effect, and none of the Improvements is in need of maintenance or repairs except
for ordinary, routine maintenance and repairs that are not material in nature or
cost.
(d) The Acquired Corporations maintain fire, flood, windstorm, hurricane and
casualty insurance policies, with extended coverage (subject to reasonable
deductibles), with licensed carriers sufficient to allow them to replace any of
the Real Property that might be damaged or destroyed, and have liability
insurance reasonably adequate to protect them and their financial condition
against the risks involved in
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the business conducted by them. Part 2.11(d) of the Company Disclosure Schedule
lists all such policies. Neither the Company nor any other Acquired Corporation
has done anything by way of action or inaction which might invalidate any of
such policies in whole or in part.
(e) No notices of violation of any Governmental Authorization relating to
the Real Property or the Company have been issued to the Company or entered
against the Company or received by the Company, and no such violations exist,
except where any noncompliance with this requirement (individually or in the
aggregate) has not had and will not have a Material Adverse Effect on the
Company. The Improvements to the Real Property are permitted, conforming
structures under applicable zoning and building laws and ordinances and the
present uses thereof are permitted conforming uses under applicable zoning and
building laws and ordinances. The conveyance of the Real Property to Parent will
include all rights necessary to ensure compliance with all governmental
regulations.
(f) The Company has received all permits necessary to use and operate the
Real Property as it is currently being used and operated by the Company, except
where any noncompliance with this requirement (individually or in the aggregate)
has not had and will not have a Material Adverse Effect on the Company.
(g) The Real Property is connected to and served by water, solid waste and
sewage disposal, drainage, telephone, gas, electricity and other utility
equipment facilities and services required by law and which are adequate for the
present use and operation of the Real Property, or any portion thereof, and
which are installed and connected pursuant to valid permits and are in full
compliance with all statutes, ordinances and regulations. No fact or condition
exists which would result in the termination or impairment in the furnishing of
utility services to the Real Property.
(h) To the best of the Company's knowledge, there are no material physical
or mechanical defects or deficiencies in the condition of the Real Property,
including, but not limited to, the roofs, exterior walls or structural
components of the Real Property and the heating, air conditioning, plumbing,
ventilating, elevator, utility, sprinkler and other mechanical and electrical
systems, apparatus and appliances located on the Real Property or in the Real
Property. To the best of the Company's knowledge, the Real Property is free from
infestation by termites or other pests, insects or animals.
2.12 ENVIRONMENTAL MATTERS.
(a) Each Acquired Corporation is, and at all times prior to the date hereof
has been, in compliance with all applicable Environmental Laws (which compliance
includes, but is not limited to, the possession by each Acquired Corporation of
all Governmental Authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof), except where any
noncompliance with this requirement (individually or in the aggregate) has not
had and will not have a Material Adverse Effect on the Company. No Acquired
Corporation has received any communication (written or oral) from any
Governmental Body or Person that alleges that any Acquired Corporation is not or
has not been in such compliance and there are not past or present actions,
activities, circumstances, conditions, events or incidents that may prevent or
interfere with such compliance in the future.
(b) There is no Environmental Claim pending or threatened against the
Acquired Corporations or any other person or entity whose liability for an
Environmental Claim the Acquired Corporations have or may have retained or
assumed either contractually or by operation of law. No Acquired Corporation has
received in writing any order, notice, communication, warning, citation,
summons, directive or any other document related to Hazardous Materials or any
alleged, actual or potential violation or failure to comply with any
Environmental Law.
(c) There are no past or present actions, activities, circumstances,
conditions, events or incidents (including, without limitation, the Release,
presence or disposal of any Hazardous Material) which could form the basis of
any Environmental Claim against any Acquired Corporation; or to the best
knowledge of
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the Company against any other person or entity whose liability for any
Environmental Claim any Acquired Corporation has or may have retained or
assumed; either contractually or by operation of law.
(d) No Acquired Corporation has nor, to the best knowledge of the Company,
has any other Person, Released, stored, buried or dumped Hazardous Materials or
any other wastes produced by, or resulting from, any business, commercial or
industrial activities, operations or processes, on, beneath or adjacent to the
Real Property or any property formerly owned, operated or leased by an Acquired
Corporation other than general office supplies used in the ordinary course of
business, including without limitation, copier toner, liquid paper, glue, ink,
and household cleaners (which general office supplies and other Hazardous
Materials were and are stored or disposed of in accordance with applicable laws
and regulations and in a manner such that there has been no Release of any such
substances into the indoor or outdoor environment which could have a Material
Adverse Effect on the Company).
(e) The Acquired Corporations have delivered or otherwise made available for
inspection to the Parent true, complete and correct copies of any reports,
studies, analyses, tests or monitoring possessed or initiated by the Acquired
Corporations pertaining to Hazardous Materials in, on, beneath or adjacent to
the Real Property or any property formerly owned, operated or leased by an
Acquired Corporation or regarding the Acquired Corporations' compliance with
applicable Environmental Laws.
(f) No transfers of permits or other Governmental Authorizations under
Environmental Laws, and no additional permits or other Governmental
Authorizations under Environmental Laws, will be required to permit Parent to
conduct the business of the Acquired Corporations in compliance with all
applicable Environmental Laws immediately following the Effective Time, as
conducted by the Acquired Corporations immediately prior to the Effective Time.
(g) The Real Property does not contain any wetlands, as defined in the Clean
Water Act and regulations promulgated thereunder, 33 C.F.R. 328.3, or similar
state or local laws, other especially sensitive or protected areas or species of
flora or fauna, or underground storage tanks.
2.13 TRANSACTIONS WITH AFFILIATES. Except for compensation of employees,
every transaction between Company and any of its "affiliates" or their
"associates" (as such terms are defined in the rules and regulations of the SEC)
which is currently in effect or was consummated since June 30, 1995, and which
involves more than $60,000 is set forth in the Company SEC Documents.
2.14 LEGAL PROCEEDINGS; ORDERS. There is no pending Legal Proceeding, and,
to the best knowledge of the Company, no Person has threatened to commence any
Legal Proceeding that: (i) may have a Material Adverse Effect on the Company or
any of the other Acquired Corporations or their businesses taken individually or
as a whole; or (ii) challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the Merger or any of the
other transactions contemplated by this Agreement. To the best knowledge of the
Company, no event has occurred, and no claim, dispute or other condition or
circumstance exists, that will, or that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
There is no order, writ, injunction, judgment or decree to which any Acquired
Corporation, or any of the assets owned or used by any Acquired Corporation, is
subject, except where any noncompliance with this representation has not had and
will not have (individually or in the aggregate) a Material Adverse Effect on
the Company. To the best knowledge of the Company, no officer or other employee
of any Acquired Corporation is subject to any order, writ, injunction, judgment
or decree that prohibits such officer or other employee from engaging in or
continuing any conduct, activity or practice relating to such Acquired
Corporation's business. There is no action, suit, proceeding or investigation by
any Acquired Corporation currently pending or which any Acquired Corporation
intends to initiate.
2.15 AUTHORITY; BINDING NATURE OF AGREEMENT. Subject to the obtaining of
the approval of the Company's shareholders as contemplated by Section 2.19, the
Company has full corporate power and authority to enter into and to perform its
obligations under this Agreement and the execution, delivery and
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performance by the Company of this Agreement and the other agreements and
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Company's Board of Directors and no other corporate
proceedings on the part of the Company are necessary for the Company to
authorize this Agreement or to consummate the Merger. This Agreement has been
duly executed and delivered by duly authorized officers of the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as enforcement thereof
may be limited by (i) laws of general application relating to bankruptcy,
insolvency, moratorium, reorganization or other similar laws, both state and
federal, affecting the enforcement of creditors' rights or remedies in general,
and (ii) rules of law governing specific performance, injunctive relief and
other equitable remedies.
2.16 NON-CONTRAVENTION; CONSENTS. Neither the execution and delivery of
this Agreement by the Company nor the consummation by the Company of the Merger
will (a) conflict with or result in any breach of any provision of the Articles
of Incorporation or bylaws of the Company, or (b) result in a default by the
Company or any other Acquired Corporation under any Material Acquired
Corporation Contract to which the Company or such other Acquired Corporation is
a party, except for any default which has not had and will not have a Material
Adverse Effect on the Acquired Corporations, or (c) result in a violation by the
Company of any order, writ, injunction, judgment or decree to which the Company
is subject, except for any violation which has not had and will not have a
Material Adverse Effect on the Acquired Corporations. Except (i) as set forth on
Part 2.16 of the Company Disclosure Schedule with respect to Material Acquired
Corporation Contracts, (ii) as provided in Section 1.3 with respect to the
filing of the Articles of Merger with the Department of State of the State of
Florida, (iii) as provided in Section 2.19, and (iv) except as may be required
by the Securities Act, the Exchange Act, state securities or "blue sky" laws,
the HSR Act and the Rules of The Nasdaq Stock Market (the "Nasdaq Rules"), the
Company is not and will not be required to make any filing with or give any
notice to, or to obtain any Consent from, any Person in connection with the
execution and delivery of this Agreement, or the consummation of the Merger.
2.17 DISCLOSURE.
(a) The copies of all documents furnished by the Company pursuant to the
terms of this Agreement are complete and accurate copies of the original.
(b) The Company has timely filed all required forms, reports and documents
required to be filed with the SEC and Nasdaq since January 1, 1993.
(c) None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in the registration statement on Form
S-4 to be filed with the SEC by Parent in connection with the issuance of the
Parent Common Stock in the Merger (the "S-4 Registration Statement") will, at
the time the S-4 Registration Statement is filed with the SEC or at the time the
S-4 Registration Statement becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. None of the information supplied or to be supplied by the Company
for inclusion or incorporation by reference in the Joint Prospectus/Proxy
Statement filed as a part of the S-4 Registration Statement (the "Prospectus/
Proxy Statement"), will, at the time mailed to the shareholders of the Company,
at the time of the Company Shareholders' Meeting or as of the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The information provided by the Company in the Prospectus/Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations promulgated by the SEC
thereunder.
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2.18 FINANCIAL ADVISOR. Except for The Robinson-Humphrey Company, Inc., no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or any of the other
transactions contemplated thereby based upon arrangements made by or on behalf
of any of the Acquired Corporations. The total of all fees, commissions and
other amounts that have been paid or may become payable to The Robinson-Humphrey
Company, Inc. by the Acquired Corporations if the Merger is consummated will not
exceed $190,000 (plus reimbursement of expenses).
2.19 REQUIRED VOTE. The affirmative vote of the holders of a majority of
the shares of Company Common Stock outstanding on the record date for the
Company Shareholders' Meeting (the "Company Required Vote") is the only vote of
the holders of any class or series of the Company's capital stock necessary to
adopt and approve this Agreement, the Merger and the transactions contemplated
thereby.
2.20 COMPANY ACTION. The Board of Directors of the Company (at a meeting
duly called and held) has (a) determined by majority vote that the Merger is
advisable and fair and in the best interests of the Company and its
shareholders, (b) by majority vote approved this Agreement and the Merger in
accordance with the provisions of Sections 607.0824 and 607.1101 of the FBCA and
its Articles of Incorporation and Bylaws, (c) by majority vote recommended the
adoption and approval of this Agreement and the Merger by the holders of Company
Common Stock and directed that the Merger be submitted for consideration by the
Company's shareholders at the Company Shareholders' Meeting, and (d) took any
and all action necessary so that no state takeover law shall be applicable to
the Parent, the Merger or the transactions contemplated thereby.
2.21 FAIRNESS OPINION. The Company's Board of Directors has received the
written opinion of The Robinson-Humphrey Company, Inc., financial advisor to the
Company, dated as of the date of this Agreement, to the effect that the
consideration to be received by the shareholders of the Company in the Merger is
fair to the shareholders of the Company from a financial point of view.
2.22 NO DISSENTERS' RIGHTS. The Company's Common Stock is designated as a
national market system security within the meaning of Section 607.1302 of the
FBCA. The Company's Articles of Incorporation or Bylaws do not provide the
holders of any class or series of capital stock of the Company with dissenters'
rights under Section 607.1302 of the FBCA or any other applicable law.
2.23 ACCOUNTING MATTERS. To the knowledge of the Company, neither the
Company nor any of its affiliates has taken or agreed to, or plans to, take any
action that would prevent Parent from accounting for the business combination to
be effected by the Merger as a "pooling of interests."
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company that, except as
set forth in the Parent SEC Documents or in the disclosure schedule prepared by
Parent in accordance with the requirements of Section 10.11 and that has been
delivered by Parent to the Company on the date of this Agreement (the "Parent
Disclosure Schedule"):
3.1 DUE ORGANIZATION, ETC. Parent and Merger Sub are corporations duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation, each with full corporate power and
authority (i) to conduct its business in the manner in which its business is
currently being conducted, (ii) to own and use its assets in the manner in which
its assets are currently owned and used, and (iii) to perform its obligations
under all Material Parent Contracts by which it or its assets are bound. Each of
Parent, and Merger Sub is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction in which the failure to be so
qualified would have a Material Adverse Effect on Parent, or Merger Sub or on
the ability of Parent, or Merger Sub to consummate the transactions contemplated
hereby.
3.2 CAPITALIZATION, ETC. The authorized capital stock of Parent consists
of: (i) 45,000,000 shares of Common Stock, $.01 par value per share, 17,411,189
shares of which have been issued and are outstanding
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as of December 26, 1997, and (ii) 2,500,000 shares of Preferred Stock, (A)
250,000 shares of which have been designated as Series A Junior Participating
Preferred Stock, none of which has been issued as of the date hereof, (B)
1,068,102 shares of which have been designated as $1.00 Cumulative Convertible
Preferred Stock, $1.00 par value per share, 694,872 of which have been issued
and are outstanding as of the date hereof, and (C) 500,000 shares of which have
been designated as Series B Cumulative Convertible Redeemable Preferred Stock,
all of which have been issued as of the date hereof. All of the outstanding
shares of Parent capital stock have been duly authorized and validly issued, and
are fully paid and nonassessable, and none of such shares is subject to any
repurchase option or restriction on transfer other than restrictions imposed by
federal or state securities laws. All outstanding shares of Parent capital stock
have been issued in compliance with all applicable securities laws and other
applicable Legal Requirements, and all requirements set forth in applicable
Contracts. All of the outstanding shares of capital stock of Merger Sub are
owned beneficially and of record by Parent, free and clear of any Encumbrances
and were issued in compliance with all applicable securities laws and other
applicable Legal Requirements. There are no outstanding subscriptions, options,
calls, warrants or other rights (whether or not currently exercisable) to
acquire any shares of the capital stock or other securities of Parent. The
shares of Parent Common Stock to be issued to the Company's shareholders in the
Merger, when issued by Parent in accordance with the terms of this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable, will be
issued in compliance with applicable federal and state securities laws and,
except for the restrictions imposed by applicable federal and state securities
laws, will be free and clear of any Encumbrances created or imposed, directly or
indirectly, by Parent (subject to the terms of Affiliate Agreements entered into
as contemplated by this Agreement).
3.3 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered to the Company a complete and accurate copy
(excluding copies of exhibits) of each report, schedule, registration statement
and definitive proxy statement filed by Parent with the SEC on or after June 30,
1995 (the "Parent SEC Documents"), which are all the forms, reports and
documents required to be filed by Parent with the SEC since June 30, 1995. The
Parent SEC Documents (i) complied with the requirements of the Securities Act or
the Exchange Act, as the case may be, at and as of the times they were filed
(or, if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing); and (ii) did not at and as of the time they
were filed (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) As of the time they were filed with the SEC, the consolidated financial
statements (including, in each case, any notes related thereto) contained in the
Parent SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered (except as may be indicated in the notes to such financial
statements and, in the case of unaudited interim financial statements, as
permitted by Form 10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to year-end audit
adjustments which are not expected to be material in amount); and (iii) fairly
present the consolidated financial position of Parent and its subsidiaries as of
the respective dates thereof and the consolidated results of operations and cash
flows of Parent and its subsidiaries for the periods covered thereby.
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(c) Parent has furnished to the Company a complete and accurate copy of (i)
any amendments, supplements or modifications that have not yet been filed with
the SEC to agreements, documents or other instruments that have been previously
filed by Parent with the SEC pursuant to the Securities Act or the Exchange Act,
and (ii) all agreements, documents or instruments that are required to be filed
by Parent with the SEC pursuant to the Securities Act or the Exchange Act that
have not yet been filed.
3.4 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1996, there
has not been (a) any change, or any development or combination of developments
of which management of the Parent has knowledge, that has had or would
reasonably be expected to have a Material Adverse Effect on Parent, or (b) any
damage, destruction or loss, whether or not covered by insurance, that has had
or would reasonably be expected to have a Material Adverse Effect on Parent.
3.5 LEGAL PROCEEDINGS; ORDERS. There is no pending Legal Proceeding, and,
to the best knowledge of Parent, no Person has threatened to commence any Legal
Proceeding that: (i) may have a Material Adverse Effect on Parent or its
business; or (ii) challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the Merger or any of the
other transactions contemplated by this Agreement. To the best knowledge of
Parent, no event has occurred, and no claim, dispute or other condition or
circumstance exists, that will, or that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
There is no order, writ, injunction, judgment or decree to which Parent, or any
of the assets owned or used by Parent, is subject which could have a Material
Adverse Effect on Parent or its ability to consummate the Merger.
3.6 DISCLOSURE.
(a) The copies of all documents furnished by Parent pursuant to the terms of
this Agreement are complete and accurate copies of the original.
(b) Parent has timely filed all required forms, reports and documents
required to be filed with the SEC and the NYSE.
(c) None of the information supplied or to be supplied by Parent for
inclusion or incorporation by reference in the S-4 Registration Statement will,
at the time the S-4 Registration Statement is filed with the SEC or at the time
the S-4 Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. None of the information supplied or to be supplied by Parent for
inclusion or incorporation by reference in the Prospectus/Proxy Statement will,
at the dates mailed to the shareholders of the Company, at the time of the
Company Shareholders' Meeting to be held in accordance with this Agreement as of
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The information provided by Parent and Merger Sub in the
Prospectus/Proxy Statement will comply as to form in all material respects with
the provisions of the Exchange Act and the rules and regulations promulgated by
the SEC thereunder.
3.7 AUTHORITY; BINDING NATURE OF AGREEMENT. Each of Merger Sub and,
subject to obtaining approval of the Parent's stockholders as contemplated by
Section 3.10, Parent has full corporate power and authority to enter into and to
perform its obligations under this Agreement and the execution, delivery and
performance by Parent and Merger Sub of this Agreement and the other agreements
and transactions contemplated hereby have been duly authorized by all necessary
action on the part of Parent's and Merger Sub's Boards of Directors and no other
corporate proceedings on the part of Parent or Merger Sub are necessary for
Parent or Merger Sub to authorize this Agreement or to consummate the Merger.
This Agreement has been duly executed and delivered by duly authorized officers
of Parent and Merger Sub and constitutes the legal, valid and binding obligation
of Parent and Merger Sub, enforceable against Parent and Merger Sub in
accordance with its terms, except as enforcement thereof may be limited by
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(i) laws of general application relating to bankruptcy, insolvency, moratorium,
reorganization or other similar laws, both state and federal, affecting the
enforcement of creditors' rights or remedies in general, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
3.8 NON-CONTRAVENTION; CONSENTS. Neither the execution and delivery of
this Agreement by Parent nor the consummation by Parent or Merger Sub of the
Merger will (a) conflict with or result in any breach of any provision of the
Certificate of Incorporation or bylaws of Parent or the Articles of
Incorporation or Bylaws of Merger Sub, or (b) result in a default by Parent or
any other Acquiring Corporation (as defined in Section 3.13) under any Contract
material to Parent to which Parent or such other Acquiring Corporation is a
party, except for any default which has not had and will not have a Material
Adverse Effect on Parent, or (c) result in a violation by Parent or Merger Sub
of any order, writ, injunction, judgment or decree to which Parent or Merger Sub
is subject, except for any violation which has not had and will not have a
Material Adverse Effect on Parent. Except (i) as provided in Section 1.3 with
respect to the filing of Articles of Merger, (ii) as provided in Section 3.10,
and (iii) as may be required by the Securities Act, the Exchange Act, state
securities or "blue sky" laws, the HSR Act and the NYSE Bylaws, Parent is not
and will not be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with the execution and
delivery of this Agreement, or the consummation of the Merger.
3.9 FINANCIAL ADVISOR. Except for A.G. Edwards & Sons, Inc., no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or any of the other transactions
contemplated thereby based upon arrangements made by or on behalf of Parent.
3.10 REQUIRED VOTE. The affirmative vote of the holders of a majority of
the voting power represented by the outstanding shares of Parent Common Stock,
$1.00 Cumulative Convertible Preferred Stock and Series B Cumulative Convertible
Redeemable Preferred Stock, voting as a single class, on the record date for the
Parent Stockholders' Meeting (the "Parent Required Vote") approving and adopting
the Merger Agreement and approving the Merger is the only vote of the holders of
any class or series of the Parent's capital stock necessary to adopt and approve
this Agreement, the Merger and the transactions contemplated thereby.
3.11 PARENT AND MERGER SUB ACTION. The Board of Directors of each of
Parent and Merger Sub (at a meeting duly called and held or by unanimous written
consent) has (a) unanimously determined that the Merger is advisable and fair
and in the best interests of Parent or Merger Sub, as the case may be, and their
respective stockholders, (b) unanimously approved this Agreement and the Merger
in accordance with the provisions of the laws of their respective states of
Incorporation, and, in the case of Parent, unanimously recommended the adoption
and approval of this Agreement and the Merger by the holders of Parent Common
Stock and directed that the Merger be submitted for consideration by the
Parent's stockholders at the Parent Stockholders' Meeting.
3.12 ACCOUNTING MATTERS. To the knowledge of Parent, Parent has not taken
and has not agreed, and does not plan, to take any action that would prevent
Parent from accounting for the business combination to be effected by the Merger
as a "pooling of interests."
3.13 GOVERNMENT CONTRACTS; GOVERNMENT BIDS. Except as set forth in Part
3.13 of the Parent Disclosure Schedule:
(i) None of Parent and any of its majority-owned subsidiaries (including
Parent, the "Acquiring Corporations") has had any determination of
noncompliance, entered into any consent order or undertaken any internal
investigation relating directly or indirectly to any Government Contract or
Government Bid;
(ii) the Acquiring Corporations have complied in all material respects
with all Legal Requirements with respect to all Government Contracts and
Government Bids;
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(iii) the Acquiring Corporations have not, in obtaining or performing any
Government Contract, violated (A) the Truth in Negotiations Act of 1962, as
amended, (B) the Service Contract Act of 1963, as amended, (C) the Contract
Disputes Act of 1978, as amended, (D) the Office of Federal Procurement
Policy Act, as amended, (E) the FAR or any applicable agency supplement
thereto, (F) the Cost Accounting Standards, (G) the Defense Industrial
Security Manual (DOD 5220.22-M), (H) the Defense Industrial Security
Regulation (DOD 5220.22-R) or any related security regulations, or (I) any
other applicable procurement law or regulation or other Legal Requirement;
(iv) none of the Acquiring Corporations nor any of their respective
employees have been debarred or suspended from doing business with any
Governmental Body, and, to the best knowledge of Parent, no circumstances
exist that would warrant the institution of debarrment or suspension
proceedings against any Acquiring Corporation or any employee of any
Acquiring Corporation; and
(v) there are not and have not been any irregularities, misstatements or
omissions relating to any Government Contract or Government Bid that have
led to or could reasonably be expected to lead to (A) any administrative,
civil, criminal or other investigation, Legal Proceeding or indictment
involving any Acquiring Corporation or any of their employees, (B) the
disallowance of any costs submitted for payment by any Acquiring
Corporation, (C) the recoupment of any payments previously made to any
Acquiring Corporation, (D) a finding or claim of fraud, defective pricing,
mischarging or improper payments on the part of any Acquiring Corporation,
or (E) the assessment of any penalties or damages of any kind against any
Acquiring Corporation.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS. The Acquiring Corporations are,
and have at all times since June 30, 1995 been, in compliance with all
applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and will not have a Material Adverse Effect on
any Acquiring Corporation. Since June 30, 1995, the Acquiring Corporations have
not received any notice or other communication from any Governmental Body
regarding any actual or possible violation of, or failure to comply with, any
Legal Requirement.
3.15 GOVERNMENTAL AUTHORIZATIONS. Each Acquiring Corporation has all
Governmental Authorizations necessary to enable such Acquiring Corporation to
conduct its business in the manner in which its business is currently being
conducted, except where any failure to have such Governmental Authorizations has
not had and will not have a Material Adverse Effect on Parent. Each Acquiring
Corporation is, and at all times since June 30, 1995 has been, in compliance
with the material terms and requirements of such Governmental Authorizations.
Since June 30, 1995, the Acquiring Corporations have not received any notice or
other communication from any Governmental Body regarding (a) any actual or
possible violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Authorization.
SECTION 4. CERTAIN COVENANTS OF THE COMPANY
4.1 ACCESS AND INVESTIGATION.
(a) During the period from the date of this Agreement through the Effective
Time (the "Pre-Closing Period"):
(i) the Company and each of the other Acquired Corporations afford, and
shall cause the independent auditors, counsel and other advisors and
representatives (collectively, "Representatives") of the Company and each of
the other Acquired Corporations to afford, to Parent and to Parent's
Representatives, reasonable access to the properties, books, records
(including filed Tax Returns, Tax Returns in preparation and the audit work
papers, management letters and other records of the independent auditors of
the Company and each of the other Acquired Corporations) and personnel of
the Company and each of the other Acquired Corporations in order that Parent
and Parent's
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Representatives may have a full opportunity to make such investigation as
Parent reasonably desires to make of the Company and each of the other
Acquired Corporations;
(ii) the Company shall permit Parent and Parent's Representatives to
make such reasonable inspections of the Company and each of the other
Acquired Corporations and their respective operations as Parent may
reasonably require from time to time;
(iii) the Company shall furnish Parent and Parent's Representatives with,
and shall cause the Company's Representatives and the Representatives of the
Company's Subsidiaries to furnish Parent with, such financial and operating
data and other information with respect to the business and properties of
the Company and each of the other Acquired Corporations as Parent may
reasonably request from time to time; and
(iv) to the extent any transfers of permits or other Governmental
Authorizations under Environmental Laws will be required to permit Parent to
conduct the business of the Acquired Corporations in full compliance with
all applicable Environmental Laws, the Company agrees, and shall cause each
of the Acquired Corporations, to cooperate with Parent to effect such
transfers and use commercially reasonable efforts to obtain such transfers
of permits and other Governmental Authorizations prior to the Effective
Time.
(b) Without limiting the generality of Section 4.1(a), during the
Pre-Closing Period, the Company shall promptly provide Parent with copies of:
(i) all material operating and financial reports prepared by the Company
for its senior management, including copies of the unaudited monthly
consolidated balance sheets of the Company and each of the other Acquired
Corporations and the related unaudited monthly consolidated statements of
operations, changes in cash flows and changes in shareholders' equity (with
copies of such monthly financial statements to be delivered to Parent no
later than the 20th day after the last day of the month to which they
relate);
(ii) any written materials or communications sent by the Company to its
shareholders generally;
(iii) any notice, report or other document filed with or sent to any
Governmental Body in connection with the Merger or the transactions
contemplated thereby; and
(iv) any notices or other documents received by the Company relating to
any service of process or Legal Proceeding involving the Company or any
other Acquired Corporation, or any of their respective officers or
directors.
(c) No investigation by Parent or any of its Representatives pursuant to
this Section 4.1 shall limit or otherwise affect any representations or
warranties of the Company or any condition to any obligation of Parent.
4.2 OPERATION OF THE COMPANY'S BUSINESS. During the Pre-Closing Period,
except as contemplated by this Agreement or consented to by Parent in writing,
the Company and each of the other Acquired Corporations shall:
(a) conduct its business and operations in the ordinary course and in
substantially the same manner as such business and operations have been
conducted prior to the date of this Agreement;
(b) use reasonable efforts to preserve intact its current business
organization, keep available the services of its current officers and employees
and maintain its relations and goodwill with all suppliers, customers,
landlords, creditors, employees and other Persons having business relationships
with such Acquired Corporation in each case, in all material respects;
(c) use reasonable efforts to keep in full force all insurance policies in
effect as of the date of this Agreement;
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(d) not declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities;
(e) not sell, issue or authorize the issuance of (i) any capital stock or
other security, (ii) any option, call, warrant or right to acquire, or relating
to, any capital stock or other security, or (iii) any instrument convertible
into or exchangeable for any capital stock or other security (except that the
Company shall be permitted to issue Company Common Stock upon the exercise of
outstanding Company Options);
(f) not amend or waive any of its rights under, or authorize the
acceleration of vesting under (i) any provision of its Company Stock Plans, (ii)
any provision of any agreement evidencing any outstanding Company Option or
(iii) any provision of any restricted stock purchase agreement;
(g) not amend or permit the adoption of any amendment to any Acquired
Corporation's articles of incorporation, or other charter documents or bylaws,
or effect or permit any Acquired Corporation to become a party to any
Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(h) not form any subsidiary or acquire any equity interest or other interest
in any other Entity;
(i) not make any capital expenditure other than in accordance with the
capital budget set forth in the Company Disclosure Schedule, except for capital
expenditures that, when added to all other capital expenditures made on behalf
of the Acquired Corporations during the Pre-Closing Period, do not exceed
$100,000 in the aggregate;
(j) not (i) except in the ordinary course of business and consistent with
past practices (provided in such cases disclosure is made to Parent as required
hereunder), enter into or become bound by, or permit any of the assets owned or
used by it to become bound by, any Material Acquired Corporation Contract, or
(ii) amend or prematurely terminate, or waive any material right or remedy
under, any Material Acquired Corporation Contract;
(k) not (i) acquire, lease or license any material right or other material
asset from any other Person, (ii) sell or otherwise dispose of, or lease or
license, any material right or other material asset to any other Person except
that the Acquired Corporations may sell inventory in the ordinary course of
business, or (iii) waive or relinquish any right, except for immaterial assets
acquired, leased, licensed, sold or disposed of, or the waiver or relinquishment
of immaterial rights, by the Acquired Corporations pursuant to Contracts that
are not Material Acquired Corporation Contracts;
(l) not (i) lend money to any Person (other than ordinary advances for
travel and entertainment), or (ii) incur or guarantee any indebtedness (whether
under the Company's existing credit lines or otherwise), other than trade
payables not exceeding $200,000, individually or in the aggregate, incurred in
the ordinary course of business and consistent with past practice;
(m) not (i) establish, adopt or amend any Company Employee Plan, (ii) make
or pay any contribution or similar payment to any Company Employee Plan, whether
in the form of cash, securities or other consideration, except those
contributions or payments described in Part 4.2(m) of the Company Disclosure
Schedule; (iii) pay any bonus or make any profit-sharing or similar payment to,
or increase the amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to, any of its directors, officers or
employees except pursuant to agreements in effect on the date hereof or in
accordance with the Company's past practices, or (iv) hire any new employee
whose aggregate annual compensation is expected to exceed $100,000;
(n) not change any of its methods of accounting or accounting practices in
any respect (except as otherwise required by generally accepted accounting
principles or any change therein);
(o) not make any Tax election;
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(p) not commence or settle any Legal Proceeding;
(q) except as contemplated by this Agreement, not enter into any material
transaction or take any other material action outside the ordinary course of
business or inconsistent with its past practices; and
(r) not agree or commit to take any of the actions described in clauses
"(d)" through "(q)" of this Section 4.2.
4.3 NOTIFICATION; UPDATES TO COMPANY DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, the Company shall promptly notify Parent
in writing of:
(i) the discovery by the Company of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by the Company or any other Acquired
Corporation in this Agreement, the Proxy Statement/Prospectus or the Company
SEC Documents;
(ii) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement and that would cause or constitute
an inaccuracy in or breach of any representation or warranty made by the
Company in this Agreement if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any breach of any covenant or obligation of the Company or any
other Acquired Corporation contained in this Agreement; and (iv) any event,
condition, fact or circumstance that would make the timely satisfaction of
any of the conditions set forth in Section 7 or Section 8 impossible or
unlikely.
(b) If any event, condition, fact or circumstance that is required to be
disclosed pursuant to Section 4.3(a) requires any change in the Company
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Company Disclosure Schedule were dated as of
the date of the occurrence, existence or discovery of such event, condition,
fact or circumstance, then the Company shall promptly deliver to Parent an
update to the Company Disclosure Schedule specifying such change. No such update
shall be deemed to supplement or amend the Company Disclosure Schedule for the
purpose of (i) determining the accuracy of any of the representations and
warranties made by the Company or any other Acquired Corporation in this
Agreement, or (ii) determining whether any of the conditions set forth in
Section 7 has been satisfied.
4.4 NO SOLICITATION.
(a) The Company shall not directly or indirectly, and shall not authorize or
permit any other Acquired Corporation or any Representative of any of the
Acquired Corporations directly or indirectly to, (i) solicit, initiate,
encourage or induce the making, submission or announcement of any Acquisition
Proposal or take any action that could reasonably be expected to lead to an
Acquisition Proposal, (ii) furnish any information regarding any of the Acquired
Corporations to any Person in connection with or in response to an Acquisition
Proposal, (iii) continue or engage in discussions or negotiations with any
Person with respect to any Acquisition Proposal, (iv) approve, endorse or
recommend any Acquisition Proposal or (v) enter into any letter of intent or
similar document or any Contract contemplating or otherwise relating to any
Acquisition Transaction; PROVIDED, HOWEVER, that this Section 4.4(a) shall not
prohibit the Company from furnishing information regarding the Company or any
other Acquired Corporation to, or entering into discussions with, any Person in
response to an unsolicited bona fide written proposed Acquisition Proposal
submitted by such Person if (1) the Board of Directors of the Company concludes
in good faith, based upon the written advice of its financial advisor, that such
Acquisition Proposal could reasonably be expected to result in a transaction
that is more favorable to the
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Company's shareholders than the Merger (any such more favorable unsolicited bona
fide written Acquisition Proposal being referred to in this Agreement as a
"Superior Proposal"); PROVIDED, HOWEVER, that if any financing is required to
consummate the transaction contemplated by such proposal, then such proposal
shall not be deemed to be a "Superior Proposal" unless the Company's Board of
Directors reasonably determines that the required financing is reasonably
capable of being obtained by such third party, (2) the Board of Directors of the
Company concludes in good faith, based upon the written advice of its outside
legal counsel, that such action is required in order for the Board of Directors
of the Company to comply with its fiduciary obligations to the Company's
shareholders under applicable law, (3) prior to furnishing any such information
to, or entering into discussions with, such Person, the Company gives the Parent
written notice of the identity of such Person and of the Company's intention to
furnish information to, or enter into discussions with, such Person, and the
Company receives from such Person an executed confidentiality agreement
containing customary limitations on the use and disclosure of all written and
oral information furnished to such Person by or on behalf of the Company, and
(4) prior to furnishing any such information to such Person, the Company
furnishes such information to the Parent (to the extent such information has not
been previously furnished by the Company to the Parent). Without limiting the
generality of the foregoing, the Company acknowledges and agrees that any
violation of any of the restrictions set forth in the preceding sentence by any
Representative of any of the Acquired Corporations, whether or not such
Representative is purporting to act on behalf of the Acquired Corporations,
shall be deemed to constitute a breach of this Section 4.4 by the Company.
(b) The Company shall promptly advise the Parent orally and in writing of
any Acquisition Proposal (including the identity of the Person making or
submitting such Acquisition Proposal and the terms thereof) that is made or
submitted by any Person during the Pre-Closing Period.
(c) The Company shall immediately cease and cause to be terminated any
discussions or negotiations existing as of the date of this Agreement with any
Person that relate to any Acquisition Proposal.
4.5 COMPANY SHAREHOLDERS' MEETING.
(a) Company shall take all action necessary in accordance with its Articles
of Incorporation, Bylaws and under all applicable Legal Requirements to call,
give notice of, convene and hold a special meeting of the holders of Company
Common Stock (the "Company Shareholders' Meeting") to consider, act and vote
upon the adoption and approval of this Agreement, the Merger and the
transactions contemplated thereby. The Company Shareholders' Meeting will be
held as promptly as practicable and in any event within 45 days after the Proxy
Statement/Prospectus has been cleared by the SEC or, if the SEC has not taken
formal action to clear the Proxy Statement/Prospectus, within 45 days of filing
the definitive Proxy Statement/Prospectus with the SEC. The Company
Shareholders' Meeting shall be called, convened, held and conducted, and all
proxies solicited in connection with the Company Stockholders' Meeting shall be
solicited in all material respects in compliance with all applicable Legal
Requirements. The Company's obligation to call, give notice of, convene and hold
the Company Stockholders' Meeting in accordance with this Section 4.5(a) shall
not be limited or otherwise affected by the commencement, disclosure,
announcement or submission to Company of any Acquisition Proposal, or by
withdrawal, amendment or modification of the recommendation of the Board of
Directors of Company with respect to this Agreement or the Merger.
(b) The Board of Directors of Company has by majority vote recommended (and
the Proxy Statement/Prospectus shall include a statement to the effect that the
Board of Directors of Company has by majority vote recommended) that the holders
of Company Common Stock vote in favor and adopt and approve this Agreement, the
Merger and the transactions contemplated thereby at the Company Shareholders'
Meeting.
(c) Notwithstanding the foregoing, nothing in Section 6.4 or in this Section
4.5 shall prevent the Board of Directors of the Company from withdrawing,
amending or modifying its recommendation (by a 5 to 2 majority vote) in favor of
this Agreement and the Merger or approval and adoption of this Agreement
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(and the Proxy Statement/Prospectus may reflect such withdrawal, amendment or
modification) if (i) a Superior Proposal is made to the Company and is not
withdrawn, and (ii) the Board of Directors of the Company shall conclude in good
faith, based upon the written advice of its outside legal counsel, that such
withdrawal, amendment or modification is required in order for the Board of
Directors of the Company to act in a manner that is consistent with its
fiduciary obligations to the Company's shareholders under applicable law.
Nothing contained in this Section 4.5(c) shall limit the Company's obligation to
convene the Company Shareholders' Meeting (regardless of whether the
recommendation of the Board of Directors of the Company shall have been
withdrawn, amended or modified).
(d) The Company shall use commercially reasonable best efforts to obtain
from each of its officers and directors executed Voting Agreements and
irrevocable proxies with respect to the voting of shares of the Company's
capital stock in favor of approval of the Merger and this Agreement, and to
deliver such executed documents to Parent within three (3) business days
following the date of this Agreement.
4.6 TAX REPRESENTATION LETTER. As soon as practicable after the execution
of this Agreement, the Company shall deliver to Cooley Godward LLP and Arent Fox
Kintner Plotkin & Kahn ("Arent Fox") tax representation letters in customary
form (which will be used and relied upon in connection with the legal opinions
contemplated by Section 7.8 and Section 8.7).
4.7 CONTINUITY OF INTEREST CERTIFICATES. The Company shall use all
commercially reasonable efforts to obtain and deliver to Parent prior to the
filing of the S-4 Registration Statement with the SEC a Continuity of Interest
Certificate in the form attached hereto as Exhibit C signed by each person
identified on Exhibit D.
4.8 RESIGNATION OF OFFICERS AND DIRECTORS. The Company shall use all
commercially reasonable efforts to obtain and deliver to Parent prior to the
Closing, effective as of the Closing, the resignation of each officer and
director of the Company and each of the other Acquired Corporations as set forth
on Exhibit E.
4.9 COMFORT LETTER. The Company shall cause to be delivered to Parent a
comfort letter, dated a date not more than two (2) business days before the date
on which the S-4 Registration Statement becomes effective, from Deloitte &
Touche LLP, the Company's independent auditors, in form and substance reasonably
satisfactory to Parent and Parent's counsel and accountants, covering such
matters as are normally covered in a comfort letter delivered in connection with
an S-4 Registration Statement covering transactions of the type contemplated by
this Agreement.
4.10 FIRPTA MATTERS. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the
United States Treasury Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Section 1.897 - 2(h)(2)
of the United States Treasury Regulations.
4.11 AFFILIATE AGREEMENTS. The Company shall deliver to Parent, within ten
days after the date of this Agreement, a letter from the Company identifying all
persons who may be "affiliates" of the Company as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act ("Company
Affiliates"). The Company shall use all commercially reasonable efforts to cause
each person who is or becomes a Company Affiliate to execute and deliver to
Parent, on or prior to the earlier of (a) the date of the mailing of the Proxy
Statement/Prospectus and (b) the thirtieth day prior to the Effective Time, an
Affiliate Agreement in the form attached hereto as Exhibit F.
4.12 POOLING OF INTERESTS. The Company agrees (a) not to take any action
during the Pre-Closing Period that would adversely affect the ability of Parent
to account for the Merger as a "pooling of interests," and (b) to use all
reasonable efforts to attempt to ensure that none of its "affiliates" (as that
term is used in Rule 145 under the Securities Act) takes any action that could
adversely affect the ability of Parent to account for the Merger as a "pooling
of interests."
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4.13 CONFIDENTIALITY. The Company shall hold in strict confidence, and
shall cause each of its Representatives to hold in strict confidence, all
documents and information obtained pursuant to the provisions hereof during the
Pre-Closing Period with respect to Parent, Parent's stockholders, and Parent's
Representatives, to the same extent the Company does with its own documents and
information. The Company shall not permit any of such documents or information
to be improperly utilized or to be disclosed or conveyed to any other Person.
SECTION 5. CERTAIN COVENANTS OF PARENT
5.1 ACCESS AND INVESTIGATION. During the Pre-Closing Period, Parent shall,
and shall cause its Representatives to: (a) provide the Company and the
Company's Representatives with reasonable access to Parent's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to Parent and each Parent
Subsidiary; and (b) provide the Company and the Company's Representatives with
such copies of the existing books, records, Tax Returns, work papers and other
documents and information relating to Parent and each Parent Subsidiary, and
with such additional financial, operating and other data and information
regarding Parent and each Parent Subsidiary, as the Company or its
Representatives may reasonably request. No investigation by the Company or any
of its Representatives pursuant to this Section 5.1 shall limit or otherwise
affect any representations or warranties of Parent or any condition to any
obligation of the Company.
5.2 NOTIFICATION; UPDATES TO PARENT DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, Parent shall promptly notify the Company
in writing of:
(i) the discovery by Parent of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by Parent in this Agreement or an inaccuracy
in the Prospectus/ Proxy Statement or any Parent SEC Documents;
(ii) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement and that would cause or constitute
an inaccuracy in or breach of any representation or warranty made by Parent
in this Agreement; if (A) such representation or warranty had been made as
of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any breach of any covenant or obligation of Parent; and
(iv) any event, condition, fact or circumstance that would make the
timely satisfaction of any of the conditions set forth in Section 7 or
Section 8 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to be
disclosed pursuant to Section 5.2(a) requires any change in the Parent
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Parent Disclosure Schedule were dated as of
the date of the occurrence, existence or discovery of such event, condition,
fact or circumstance, then Parent shall promptly deliver to the Company an
update to the Parent Disclosure Schedule specifying such change. No such update
shall be deemed to supplement or amend the Parent Disclosure Schedule for the
purpose of (i) determining the accuracy of any of the representations and
warranties made by Parent in this Agreement, or (ii) determining whether any of
the conditions set forth in Section 8 has been satisfied.
5.3 PARENT STOCKHOLDERS' MEETING.
(a) Parent shall take all action necessary in accordance with its
Certificate of Incorporation, Bylaws and under all applicable Legal Requirements
to call, give notice of, convene and hold a special meeting of the holders of
Parent Common Stock, $1.00 Cumulative Convertible Preferred Stock and Series B
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Cumulative Convertible Redeemable Preferred Stock (the "Parent Stockholders'
Meeting") to consider, act and vote (as a single class) upon the adoption and
approval of this Agreement, the Merger and the transactions contemplated
thereby. The Parent Stockholders' Meeting will be held as promptly as
practicable and in any event within 45 days after the Proxy Statement/Prospectus
has been cleared by the SEC or, if the SEC has not taken formal action to clear
the Proxy Statement/Prospectus, within 45 days of filing the definitive Proxy
Statement/Prospectus with the SEC. The Parent Stockholders' Meeting shall be
called, convened, held and conducted, and all proxies solicited in connection
with the Parent Stockholders' Meeting shall be solicited in all material
respects in compliance with all applicable Legal Requirements.
(b) The Board of Directors of Parent has unanimously recommended (and the
Proxy Statement/ Prospectus shall include a statement to the effect that the
Board of Directors of Parent has unanimously recommended) that the stockholders
entitled to vote do vote in favor and adopt and approve this Agreement, the
Merger and the transactions contemplated thereby at the Parent Stockholders'
Meeting, which unanimous recommendation shall not be withdrawn, amended or
modified in a manner adverse to the Company. For purposes of this Agreement, it
shall constitute a modification adverse to the Company if such recommendation
shall no longer be unanimous.
(c) Nothing contained in this Section 5.3 shall limit Parent's obligation to
convene the Parent Stockholders' Meeting (regardless of whether the unanimous
recommendation of the Board of Directors of Parent shall have been withdrawn,
amended or modified). Nothing in this Section 5.3 shall prevent the Board of
Directors of Parent from withdrawing, amending or modifying its unanimous
recommendation that the holders of Parent Common Stock vote in favor of this
Agreement, the Merger and the transactions contemplated thereby if the Board of
Directors of Parent concludes in good faith, based upon the written advice of
its outside legal counsel, that the withdrawal, amendment or modification of
such recommendation is required in order for the Board of Directors of Parent to
comply with its fiduciary obligations to Parent's stockholders under applicable
law.
(d) Parent shall use commercially reasonable best efforts to obtain from
each of its officers and directors executed Voting Agreements and irrevocable
proxies with respect to the voting of shares of Parent's capital stock in favor
of approval of the Merger and this Agreement, and to deliver such executed
documents to the Company within three (3) business days following the date of
this Agreement.
5.4 TAX REPRESENTATION LETTERS. As soon as practicable after the execution
of this Agreement, Parent and Merger Sub shall deliver to Cooley Godward LLP and
Arent Fox, tax representation letters in customary form (which will be used and
relied upon in connection with the legal opinions contemplated by Section 7.8
and Section 8.7).
5.5 POOLING OF INTERESTS. Parent agrees (a) not to take any action during
the Pre-Closing Period that would adversely affect the ability of Parent to
account for the Merger as a "pooling of interests," and (b) to use all
reasonable efforts to attempt to ensure that none of its "affiliates" (as that
term is used in Rule 145 under the Securities Act) takes any action that could
adversely affect the ability of Parent to account for the Merger as a "pooling
of interests."
5.6 CONFIDENTIALITY. Parent shall hold in strict confidence, and shall
cause each of its Representatives to hold in strict confidence, all documents
and information obtained pursuant to the provisions hereof during the
Pre-Closing Period with respect to the Company, the Company's shareholders, and
the Company's Representatives, to the same extent Parent does with its own
documents and information. Parent shall not permit any of such documents or
information to be improperly utilized or to be disclosed or conveyed to any
other Person.
5.7 "TAIL" INSURANCE. At or prior to the Effective Time, either the Merger
Sub or the Company will purchase a one (1) year "tail" on the Company's existing
directors and officers liability insurance coverage (up to $5 million limit) at
a cost of no more than $135,000, with respect to actions occurring prior to or
at the Effective Time.
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SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES
6.1 FILINGS AND CONSENTS. As promptly as practicable after the execution
of this Agreement, each of the Company and Parent (a) shall make all filings (if
any) and give all notices (if any) required to be made and given by such party
in connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use its commercially reasonable efforts to obtain each
Consent (if any) required to be obtained (pursuant to any applicable Legal
Requirement or Contract, or otherwise) by such party in connection with the
Merger or any of the other transactions contemplated by this Agreement. Each
party shall promptly deliver to the other party a copy of each such filing made,
each such notice given and each such Consent obtained by such parties during the
Pre-Closing Period.
6.2 PUBLIC ANNOUNCEMENTS. The Company and Parent shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to the Merger and the transactions contemplated thereby. Without
limiting the generality of the foregoing, neither party shall (and neither party
shall permit any of its Representatives to) issue any press release or make any
public statement regarding this Agreement, the Merger or regarding any of the
other transactions contemplated thereby, without the other party's prior
consent, except that either party shall be permitted, without the consent of the
other party, to make such disclosures if it shall have been advised in writing
by its outside legal counsel that such disclosure is required to be made under
applicable law.
6.3 BEST EFFORTS. During the Pre-Closing Period, (a) the Company shall use
its best efforts to cause the conditions set forth in Section 7 to be satisfied
on a timely basis, and (b) Parent and Merger Sub shall use their best efforts to
cause the conditions set forth in Section 8 to be satisfied on a timely basis.
6.4 REGISTRATION STATEMENT; JOINT PROXY STATEMENT.
(a) As promptly as practicable after the date of this Agreement, Parent and
the Company shall prepare and cause to be filed with the SEC a registration
statement on Form S-4 covering the Parent Common Stock to be issued to the
Company shareholders in the Merger (the "S-4 Registration Statement"), in which
the Proxy Statement/Prospectus will be included as a prospectus, and any other
documents required by the Securities Act or the Exchange Act in connection with
the Merger. Each of Parent and the Company shall use all reasonable efforts to
cause the S-4 Registration Statement (including the Proxy Statement/Prospectus)
to comply with the rules and regulations promulgated by the SEC, to respond
promptly to any comments of the SEC or its staff and to have the S-4
Registration Statement declared effective under the Securities Act as promptly
as practicable after it is filed with the SEC. Parent will use all reasonable
efforts to cause the Proxy Statement/Prospectus to be mailed to Parent's
stockholders, and the Company will use all reasonable efforts to cause the Proxy
Statement/Prospectus to be mailed to the Company's shareholders, as promptly as
practicable after the S-4 Registration Statement is declared effective under the
Securities Act. The Company shall promptly furnish to Parent all information
concerning the Acquired Corporations and the Company's shareholders that may be
required or reasonably requested in connection with any action contemplated by
this Section 6.4. If any event relating to any of the Acquired Corporations
occurs, or if the Company becomes aware of any information, that should be set
forth in an amendment or supplement to the S-4 Registration Statement or the
Proxy Statement/ Prospectus, then the Company shall promptly inform Parent
thereof and shall cooperate with Parent in filing such amendment or supplement
with the SEC and, if appropriate, in mailing such amendment or supplement to the
shareholders of the Company.
(b) Prior to the Effective Time, Parent shall use reasonable efforts to
obtain all regulatory approvals needed to ensure that the Parent Common Stock to
be issued in the Merger will be registered or qualified under the securities law
of every jurisdiction of the United States in which any registered holder of
Company Common Stock has an address of record on the record date for determining
the shareholders entitled to notice of and to vote at the Company Shareholders'
Meeting; PROVIDED, HOWEVER, that Parent shall not be required (i) to qualify to
do business as a foreign corporation in any jurisdiction in which it is not now
qualified or (ii) to file a general consent to service of process in any
jurisdiction.
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6.5 REGULATORY APPROVALS. Without limiting the generality of Section 6.1,
the Company and Parent shall use all reasonable efforts to file, as soon as
practicable after the date of this Agreement, all notices, reports and other
documents required to be filed with any Governmental Body with respect to the
Merger and the other transactions contemplated by this Agreement, and to submit
promptly any additional information requested by any such Governmental Body.
Without limiting the generality of the foregoing, the Company and Parent shall,
promptly after the date of this Agreement, prepare and file the notifications,
if any, required under the HSR Act in connection with the Merger. The Company
and Parent shall respond as promptly as practicable to (i) any inquiries or
requests received from the Federal Trade Commission or the Department of Justice
for additional information or documentation and (ii) any inquiries or requests
received from any state attorney general or other Governmental Body in
connection with antitrust or related matters. Each of the Company and Parent
shall (1) give the other party prompt notice of the commencement of any Legal
Proceeding by or before any Governmental Body with respect to the Merger or any
of the other transactions contemplated by this Agreement, (2) keep the other
party informed as to the status of any Legal Proceeding, and (3) promptly inform
the other party of any communication to or from the Federal Trade Commission,
the Department of Justice or any other Governmental Body regarding the Merger.
The Company and Parent will consult and cooperate with one another, and will
consider in good faith the views of one another, in connection with any
analysis, appearance, presentation, memorandum, brief, argument, opinion or
proposal made or submitted in connection with any Legal Proceeding under or
relating to the HSR Act or any other federal or state antitrust or fair trade
law. In addition, except as may be prohibited by any Governmental Body or by any
Legal Requirement, in connection with any Legal Proceeding under or relating to
the HSR Act or any other federal or state antitrust or fair trade law or any
other similar Legal Proceeding, each of the Company and Parent agrees to permit
authorized Representatives of the other party to be present at each meeting or
conference relating to any such Legal Proceeding and to have access to and be
consulted in connection with any document, opinion or proposal made or submitted
to any Governmental Body in connection with any such Legal Proceeding.
6.6 PARENT PLANS AND BENEFIT ARRANGEMENTS. The employee benefit plans and
benefit arrangements maintained by the Company (each, a "Plan") that provide
non-discretionary, non-cash benefits to employees of the Company and that are
substantially similar to benefit plans and benefit arrangements currently
maintained by Parent shall, to the extent practicable, be maintained in effect
by the Surviving Corporation until the Continuing Employees are allowed to
participate in such similar benefit plans or benefit arrangements maintained by
Parent. Parent shall use reasonable efforts to attempt to ensure that: (a) as
soon as practicable after the Effective Time, Parent's benefit plans and benefit
arrangements will provide benefits to the Continuing Employees that are
comparable to the non-discretionary, non-cash benefits provided to similarly
situated employees of Parent; (b) to the extent practicable, any pre-existing
condition limitations contained in Parent's health plans and health benefit
arrangements for any Continuing Employee who would be deemed under Parent's
health plans and health benefit arrangements to have a disqualifying
pre-existing condition are waived, to the extent such condition was covered by a
Plan immediately prior to the Effective Time (provided that, in the case of
Parent's disability and life insurance plans, such Continuing Employee is
actively at work and is not hospitalized or on disability leave as of the
Effective Time); and (c) to the extent practicable, Parent's benefit plans and
benefit arrangements give full credit to each Continuing Employee for such
Continuing Employee's period of service with the Company prior to the Effective
Time for all purposes for which such service was recognized under the Plans
prior to the Effective Time.
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SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS. The representations and warranties
(considered individually and collectively) made by the Company in this Agreement
and in each of the other agreements and instruments delivered to Parent in
connection with the transactions contemplated by this Agreement shall have been
accurate in all material respects as of the date of this Agreement (without
giving double effect to any "Material Adverse Effect" or other materiality
qualifications contained in such representations and warranties), and shall be
accurate in all material respects as of the Closing Date as if made at the
Closing Date (without giving effect to any update or modification to the Company
Disclosure Schedule except as to matters previously approved by Parent in
writing and without giving double effect to any "Material Adverse Effect" or
other materiality qualifications contained in such representations and
warranties).
7.2 PERFORMANCE OF COVENANTS. Each and every covenant or obligation that
the Company is required to comply with or to perform at or prior to the Closing,
considered individually and collectively, shall have been complied with and
performed in all material respects on or prior to the Closing Date.
7.3 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall have been no Material Adverse Effect on the Acquired Corporations and
there shall not have occurred any change or development, or any combination of
changes or developments, that would reasonably be expected to have a Material
Adverse Effect on the Acquired Corporations.
7.4 COMPLIANCE CERTIFICATE. The Company shall have delivered to Parent a
certificate of the chief executive officer of the Company evidencing compliance
with the conditions set forth in Sections 7.1, 7.2 and 7.3.
7.5 STOCKHOLDER APPROVAL. This Agreement, the Merger and the transactions
contemplated hereby shall have been adopted and approved in accordance with the
Parent Required Vote and the Company Required Vote and each such required vote
shall be continuing and remain in full force and effect.
7.6 CONSENTS. All Consents required to be obtained in connection with the
Merger and the other transactions contemplated by this Agreement (including the
Consents identified on Part 2.16 of the Company Disclosure Schedule and the
Governmental Authorizations referenced in Section 4.1(a)(iv)) shall have been
obtained and shall be in full force and effect.
7.7 LEGAL OPINION. Parent shall have received a legal opinion of Arent
Fox, counsel to the Company, in the form of Exhibit G, dated as of the Closing
Date;
7.8 TAX OPINION. Parent shall have received (i) the tax representation
letters set forth in Sections 4.6 and 5.4, (ii) the Continuity of Interest
Certificates referred to in Section 7.12, and (iii) a legal opinion of Cooley
Godward LLP, counsel to Parent, addressed to the Parent, dated as of the Closing
Date, to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code and no gain or loss will be recognized by
Parent or the Company as a result of the issuance of Parent Common Stock
pursuant to this Agreement (it being understood that, in rendering such opinion,
Cooley Godward LLP may rely upon the tax representation letters referred to in
Section 4.6 and Section 5.4 and the Continuity of Interest Certificates referred
to in Section 7.12);
7.9 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
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7.10 EXECUTIVE OFFICER AND DIRECTOR RESIGNATIONS. The Company shall have
delivered to Parent the written resignations of the executive officers and
directors of the Company and the other Acquired Corporations as set forth in
Exhibit E.
7.11 EFFECTIVENESS OF REGISTRATION STATEMENT. The S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued or threatened by the
SEC with respect to the S-4 Registration Statement.
7.12 CONTINUITY OF INTEREST CERTIFICATES. Each person identified on
Exhibit D shall have executed and delivered to Parent a Continuity of Interest
Certificate in the form of Exhibit C.
7.13 COMFORT LETTER. Parent shall have received the comfort letter
required under Section 4.9 and, in addition a bring-down comfort letter, in form
and substance reasonably satisfactory to Parent, dated the Closing Date;
7.14 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Legal Proceeding in which a Governmental Body is threatened to become a
party: (a) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the transactions contemplated thereby; (b) relating to the
Merger and seeking to obtain from Parent or the Company or any of their
respective subsidiaries any damages that may be material to Parent or the
Company and its respective subsidiaries taken as a whole; (c) seeking to
prohibit or limit in any material respect Parent's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with respect to
the stock of the Surviving Corporation; or (d) which would materially and
adversely affect the right of Parent, the Surviving Corporation or any
subsidiary of Parent to own the assets or operate the business of the Company.
7.15 NO OTHER LITIGATION. There shall not be pending any Legal Proceeding
in which there is a reasonable possibility of an outcome that would have a
Material Adverse Effect on Parent or the Acquired Corporations: (a) challenging
or seeking to restrain or prohibit the consummation of the Merger or any of the
transactions contemplated thereby or by this Agreement; (b) relating to the
Merger and seeking to obtain from Parent or its respective subsidiaries or the
Acquired Corporations or any of their respective officers or directors any
damages that may be material to Parent and its subsidiaries taken as a whole or
the Acquired Corporations; (c) seeking to prohibit or limit in any material
respect Parent's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Surviving
Corporation; or (d) which would affect adversely the right of Parent, the
Surviving Corporation or any subsidiary of Parent to own the assets or operate
the business of the Acquired Corporations.
7.16 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
7.17 LISTING. The shares of Parent Common Stock issuable to the Company
shareholders in the Merger shall have been approved for listing (subject to
notice of issuance) on the NYSE.
7.18 FIRPTA COMPLIANCE. The Company shall have filed with the Internal
Revenue Service the notification required by Section 4.10 and shall have
delivered to Parent the statement required by Section 4.10.
7.19 NMS LISTING. The Company Common Stock shall be listed on the Nasdaq
National Market System and no delisting or other notice of suspension shall have
been received by or communicated to the Company.
7.20 EMPLOYEES. John L. Slack shall not have ceased to be employed by the
Company, or expressed an intention to terminate his employment with the Company
or to decline to accept employment with Parent or any subsidiary of Parent.
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7.21 AFFILIATE AGREEMENTS. Parent shall have received from each Person
identified as a Company Affiliate pursuant to Section 4.11 or who becomes a
Company Affiliate a duly executed Affiliate Agreement in the form of Exhibit F.
7.22 POOLING LETTERS. Arthur Andersen LLP, Parent's independent auditors,
shall have received from Deloitte & Touche LLP, the Company's independent
auditors, a letter dated as of the Closing Date, in form and substance
reasonably satisfactory to Arthur Andersen LLP, to the effect that Deloitte &
Touche LLP is not aware of any fact concerning the Company that would preclude
Parent from accounting for the Merger using the pooling of interests method of
accounting in accordance with GAAP and all published rules, regulations and
policies of the SEC, and Parent shall have received from Arthur Andersen LLP a
letter dated as of the Closing Date to the effect that the Merger will be
eligible for the pooling of interests method of accounting in accordance with
GAAP and all published rules, regulations and policies of the SEC.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise consummate
the transactions contemplated by this Agreement are subject to the satisfaction,
at or prior to the Closing, of each of the following conditions:
8.1 OCCURACY OF REPRESENTATIONS. The representations and warranties
(considered individually and collectively) made by Parent and Merger Sub in this
Agreement and in each of the other agreements and instruments delivered to the
Company in connection with the transactions contemplated by this Agreement shall
have been accurate in all material respects as of the date of this Agreement
(without giving double effect to any "Material Adverse Effect" or other
materiality qualifications contained in such representations and warranties),
and shall be accurate in all material respects as of the Closing Date as if made
at the Closing Date (without giving effect to any update or modification to the
Parent Disclosure Schedule except as to matters previously approved by the
Company in writing and without giving double effect to any "Material Adverse
Effect" or other materiality qualifications contained in such representations
and warranties).
8.2 PERFORMANCE OF COVENANTS. Each and every covenant or obligation that
Parent and/or Merger Sub is required to comply with or to perform at or prior to
the Closing, considered individually and collectively, shall have been complied
with and performed in all material respects on or prior to the Closing Date.
8.3 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall have been no Material Adverse Effect on Parent and there shall not have
occurred any change or development, or any combination of changes or
developments, that would reasonably be expected to have a Material Adverse
Effect on Parent.
8.4 COMPLIANCE CERTIFICATE. Parent shall have delivered to the Company a
certificate of the chief executive officer of Parent evidencing compliance with
the conditions set forth in Sections 8.1, 8.2 and 8.3.
8.5 STOCKHOLDER APPROVAL. This Agreement, the Merger and the transactions
contemplated thereby shall have been adopted and approved in accordance with the
Parent Required Vote and the Company Required Vote and each such required vote
shall be continuing and remain in full force and effect.
8.6 LEGAL OPINION. The Company shall have received a legal opinion of
Cooley Godward LLP, counsel to Parent, in the form of Exhibit H dated as of the
Closing Date;
8.7 TAX OPINION. The Company shall have received (i) the tax
representation letters set forth in Sections 4.6 and 5.4 and the Continuity of
Interest Certificates referred to in Section 7.12, and (ii) a legal opinion of
Arent Fox, dated as of the Closing Date, addressed to the Company, to the effect
that the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code and no gain or
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loss will be recognized by the Company or its shareholders as a result of the
transactions contemplated by this Agreement (it being understood that, in
rendering such opinion, Arent Fox may rely upon the tax representation letters
referred to in Section 4.6 and Section 5.4 and the Continuity of Interest
Certificates referred to in Section 7.12); PROVIDED, HOWEVER, that if such
counsel does not render such opinion, this condition shall nonetheless be deemed
to be satisfied with respect to the Company if Cooley Godward LLP renders such
opinion to the Company.
8.8 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
8.9 EFFECTIVENESS OF REGISTRATION STATEMENT. The S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the S-4 Registration Statement.
8.10 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Legal Proceeding in which a Governmental Body is or is threatened to become
a party: (a) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the transactions contemplated thereby or; (b) relating to
the Merger and seeking to obtain from Parent or its subsidiaries or the Acquired
Corporations any damages that may be material to Parent and the its subsidiaries
taken as a whole or the Acquired Corporations taken as a whole.
8.11 NO OTHER LITIGATION. There shall not be pending any Legal Proceeding
in which there is a reasonable possibility of an outcome that would have a
Material Adverse Effect on Parent and its subsidiaries taken as a whole or the
Acquired Corporations: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the transactions contemplated thereby or by
this Agreement or; (b) relating to the Merger and seeking to obtain from Parent
or its subsidiaries or the Acquired Corporations or any of their respective
officers or directors any damages that may be material to Parent and its
subsidiaries taken as a whole or the Acquired Corporations taken as a whole.
8.12 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
8.13 LISTING. The shares of Parent Common Stock issuable to the Company
shareholders in the Merger shall have been approved for listing (subject to
notice of issuance) on the NYSE.
SECTION 9. TERMINATION
9.1 TERMINATION. This Agreement may be terminated prior to the Effective
Date:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the Merger shall not have been
consummated by May 31, 1998 (unless the failure to consummate the Merger is
attributable to a failure on the part of the party seeking to terminate this
Agreement to perform any material obligation required to be performed by such
party at or prior to the Effective Date);
(c) by either Parent or the Company if a court of competent jurisdiction or
other Governmental Body shall have issued a final and nonappealable order,
decree or ruling, or shall have taken any other action, having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger;
(d) by the Company if a Parent Triggering Event shall have occurred;
PROVIDED, HOWEVER, that if this Agreement is terminated pursuant to this Section
9.1(d), Parent shall pay to the Company a nonrefundable fee of $500,000 in cash
concurrently with the effectiveness of such termination;
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<PAGE>
(e) by Parent if a Company Triggering Event shall have occurred; PROVIDED,
HOWEVER, that if this Agreement is terminated pursuant to this Section 9.1(e),
the Company shall pay to Parent a nonrefundable fee of $500,000 in cash
concurrently with the effectiveness of such termination;
(f) by either party if any of the other party's representations and
warranties contained in this Agreement shall be or shall have become materially
inaccurate, or if any of the other party's covenants contained in this Agreement
shall have been breached in any material respect; PROVIDED, HOWEVER, that if an
inaccuracy in a party's representations and warranties or a breach of a covenant
by a party is curable by such party and such party is continuing to exercise all
reasonable efforts to cure such inaccuracy or breach, then the breaching party
shall have thirty (30) days from the time of receipt of written notice from the
nonbreaching party of such breach or inaccuracy to cure such breach and if it is
not cured within such thirty (30) day period, the nonbreaching party may
terminate this Agreement under this Section 9.1(f) on account of such inaccuracy
or breach; PROVIDED FURTHER that if this Agreement is terminated pursuant to
this Section 9.1(f), then the breaching party shall have to pay the
non-breaching party a nonrefundable fee of $500,000 in cash concurrently with
the effectiveness of such termination;
(g) by the Company (at any time prior to the adoption and approval of this
Agreement, the Merger and the transactions contemplated hereby) if, pursuant to
and in compliance with Section 4.4, the Company and its Board of Directors elect
to accept a Superior Proposal; PROVIDED, HOWEVER, that if this Agreement is
terminated pursuant to this Section 9.1(g), the Company shall pay to Parent a
nonrefundable fee of $500,000 in cash upon the Company's (or its Board of
Directors') election to accept such Superior Proposal;
(h) by the Company on the date mutually agreed to between Parent and the
Company as the date the S-4 Registration Statement is to be declared effective
by the SEC (which date shall be the earliest practicable date on which the S-4
Registration Statement can be declared effective by the SEC) (the "Determination
Date"), if the average NYSE closing price per share of Parent Common Stock over
the twenty (20) trading days prior to such date ("Updated Average Price") is
more than $8.00, or by Parent on the Determination Date if the Updated Average
Price is less than $6.00; PROVIDED, HOWEVER, that if this Agreement is
terminated by the Company pursuant to this Section 9.1(h), the Company shall pay
to Parent a nonrefundable fee of $500,000 in cash concurrently with the
effectiveness of such termination; PROVIDED, FURTHER, that if this Agreement is
terminated by Parent pursuant to this Section 9.1(h), Parent shall pay to the
Company a nonrefundable fee of $500,000 in cash concurrently with the
effectiveness of such termination; PROVIDED, FURTHER, however, that neither
party shall have the right to exercise its right of termination under this
Section 9(h) if such party is not in compliance in all material respects with
its covenants and obligations relating to the S-4 Registration Statement under
this Agreement. If the Updated Average Price is less than $6.00 or more than
$8.00 and this Agreement is not terminated pursuant to this Section 9.1(h) by
either party (as applicable), the Exchange Ratio shall be adjusted to equal the
number (rounded at six decimal places) that results from dividing $9.50 by such
Updated Average Price;
(i) by Parent if the Board of Directors of Parent shall not have received
the written opinion of A.G. Edwards & Sons, Inc., financial advisor to Parent,
dated on or about the Determination Date (or a written addendum, or "bring-down"
to an earlier opinion, reasonably satisfactory to Parent), to the effect that
the consideration to be received by the Company shareholders in the Merger is
fair to the stockholders of Parent from a financial point of view, which
fairness opinion shall be in customary form, without any unusual limitations or
qualifications; and
(j) by the Company if the Board of Directors of the Company shall not have
received the written opinion of Robinson-Humphrey Company, Inc., financial
advisor to Company, dated on or about the Determination Date (or a written
addendum, or "bring-down" to an earlier opinion, reasonably satisfactory to the
Company), to the effect that the consideration to be received by the Company
shareholders in the Merger is fair to the shareholders of the Company from a
financial point of view, which fairness opinion shall be in customary form,
without any unusual limitations or qualifications.
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9.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 9.1, this Agreement shall be of no further
force or effect; PROVIDED, HOWEVER, that (i) this Section 9.2, Section 9.3 and
Section 10.2 shall survive the termination of this Agreement and shall remain in
full force and effect, and (ii) the termination of this Agreement shall not
relieve any party from any liability for any breach of this Agreement or from
any obligation to pay any fees pursuant to Section 9.1.
9.3 FEES AND EXPENSES. Except as set forth in this Section 9, each party
to this Agreement shall bear and pay all fees, costs and expenses (including
legal fees and accounting fees) that have been incurred or that are incurred in
the future by such party in connection with the transactions contemplated by
this Agreement, including all fees, costs and expenses incurred by such party in
connection with or by virtue of (a) the investigation and review conducted by
such party (or its Representatives) with respect to the other party's business
(and the furnishing of information to the other party and its Representatives in
connection with such investigation and review), (b) the negotiation, preparation
and review of this Agreement and all agreements, certificates, opinions and
other instruments and documents delivered or to be delivered in connection with
the transactions contemplated by this Agreement, (c) the preparation and
submission of any filing or notice required to be made or given in connection
with any of the transactions contemplated by this Agreement, and the obtaining
of all Consents and Governmental Authorizations required to be obtained in
connection with any of such transactions, and (d) the consummation of the
Merger; PROVIDED, HOWEVER, that the parties shall bear equally all fees and
expenses (other than attorney's fees) associated with the printing and filing of
the S-4 Registration Statement and forms and notifications required to be filed
by the Company or Parent under the HSR Act; PROVIDED, FURTHER, that any fees
associated with the filing of any notifications required to be filed by any
Company shareholder under the HSR Act shall be borne exclusively by the Company.
SECTION 10. MISCELLANEOUS PROVISIONS
10.1 FURTHER ASSURANCES. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
10.2 ATTORNEYS' FEES. Notwithstanding Section 9.3, if any action at law or
suit in equity to enforce this Agreement or the rights of any of the parties
hereunder is brought against any party hereto, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements (in
addition to any other relief to which the prevailing party may be entitled).
10.3 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be made in writing and
delivered to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone number
as such party shall have specified in a written notice given to the other
parties hereto):
if to Parent or Merger Sub:
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121-1199
Attn: General Counsel
Facsimile: (619) 552-9759
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with a copy to (which shall not constitute notice):
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Attention: Jeremy D. Glaser, Esq.
Facsimile: (619) 453-3555
if to the Company:
DBA Systems, Inc.
1200 S. Woody Burke Road
Melbourne, FL 32902-0550
Attn: General Counsel
Facsimile: (407) 727-1689
with a copy to (which shall not constitute notice):
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Attention: Jeffrey E. Jordan, Esq.
Facsimile: (202) 857-6395
All such notices and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of a telecopy, when the party receiving such telecopy shall have
confirmed receipt of the communication, (c) in the case of delivery by
nationally-recognized, overnight courier, on the business day following dispatch
and (d) in the case of mailing, if mailed by first class mail, postage prepaid,
certified or registered on the fifth business day following such mailing.
10.4 TIME OF THE ESSENCE. Time is of the essence for this Agreement.
10.5 GOVERNING LAW; VENUE.
(a) This Agreement shall be construed in accordance with, and governed in
all respects by, the internal laws of the State of California (without giving
effect to principles of conflicts of laws); PROVIDED, that the effectiveness and
effect of the Merger shall be governed by the laws of the State of Florida.
(b) Any legal action or other legal proceeding relating to this Agreement or
the enforcement of any provision of this Agreement may be brought or otherwise
commenced in any state or federal court located in San Diego, California. Each
party to this Agreement:
(i) expressly and irrevocably consents and submits to the jurisdiction
of each state and federal court located in San Diego, California (and each
appellate court located in the State of California) in connection with any
such legal proceeding;
(ii) agrees that each state and federal court located in California
shall be deemed to be a convenient forum; and
(iii) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal
court located in California, any claim that such party is not subject
personally to the jurisdiction of such court, that such legal proceeding has
been brought in an inconvenient forum, that the venue of such proceeding is
improper or that this Agreement or the subject matter of this Agreement may
not be enforced in or by such court.
10.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall be enforceable by and inure solely to the benefit of, the parties hereto
and their successors and permitted assigns; PROVIDED,
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HOWEVER, that this Agreement may not be assigned by any party without the
written consent of the other parties, and any attempted assignment without such
consent shall be void and of no effect. None of the provisions of this Agreement
are intended to provide any rights or remedies to any Person other than the
parties hereto and their respective successors and assigns (if any).
10.7 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies of
the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction restraining such breach or threatened breach.
10.8 WAIVER.
(a) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) No Person shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such
Person; and no waiver shall be deemed to be a continuing waiver or waiver of any
other provision, whether or not similar, of this Agreement.
10.9 AMENDMENTS. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto, whether executed before or
after adoption and approval of this Agreement, the Merger and the transactions
contemplated thereby by the shareholders of the Company in accordance with the
Company Required Vote and the stockholders of Parent in accordance with the
Parent Required Vote; PROVIDED, HOWEVER, that (i) after any such adoption and
approval of this Agreement, the Merger and the transactions contemplated thereby
by the Company's shareholders, no amendment shall be made which by law or NASD
regulation requires further approval of the shareholders of the Company without
the further approval of such shareholders, and (ii) after any such approval of
this Agreement, the Merger and the transactions contemplated thereby by Parent's
stockholders, no amendment shall be made which by law or NYSE regulation
requires further approval of Parent's stockholders without the further approval
of such stockholders.
10.10 SEVERABILITY. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.11 DISCLOSURE SCHEDULES. The disclosure schedules shall be arranged in
separate parts corresponding to the numbered and lettered sections contained in
Section 2 or in Section 3, as the case may be. The Company Disclosure Schedule
shall be certified as to its accuracy and completeness by the chief executive
officer of the Company and the Parent Disclosure Schedule shall be certified as
to its accuracy and completeness by the chief executive officer of Parent.
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10.12 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Agreement or in any
certificate, document or other instrument delivered pursuant to this Agreement
shall survive the Merger.
10.13 ENTIRE AGREEMENT. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and, supersede all prior and contemporaneous
agreements and understandings among or between any of the parties relating to
the subject matter hereof.
10.14 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include the
masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including," and
variations thereof, shall not be deemed to be terms of limitation, but rather
shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
10.15 HEADINGS. The bold-faced section headings contained in this
Agreement are for convenience of reference only, shall not be deemed to be a
part of this Agreement and shall not be referred to in connection with the
construction or interpretation of this Agreement. 10.16 Counterparts. This
Agreement may be executed in several counterparts, each of which shall
constitute an original and all of which, when taken together, shall constitute
one and the same instrument.
10.16 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first set forth above.
<TABLE>
<S> <C> <C>
THE TITAN CORPORATION,
a Delaware corporation
By: /s/ GENE W. RAY
-----------------------------------------
Name: Gene W. Ray
Title: President and CEO
EAGLE ACQUISITION SUB, INC.,
a Florida corporation
By: /s/ ERIC M. DEMARCO
-----------------------------------------
Name: Eric M. Demarco
Title: President, Secretary and Treasurer
DBA SYSTEMS, INC.,
a Florida corporation
By: /s/ JOHN L. SLACK
-----------------------------------------
Name: John L. Slack
Title: President and CEO
</TABLE>
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EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUIRED CORPORATION. "Acquired Corporation" and "Acquired Corporations"
shall have the meanings set forth in Section 2.1.
ACQUIRED CORPORATION CONTRACT. "Acquired Corporation Contract" shall mean
any Contract: (a) to which any Acquired Corporation is a party; (b) by which any
Acquired Corporation or any of its assets is or may become bound or under which
any Acquired Corporation has, or may become subject to, any obligation; or (c)
under which any Acquired Corporation has or may acquire any right or interest.
ACQUIRED CORPORATION PROPRIETARY ASSETS. "Acquired Corporation Proprietary
Assets" shall mean any Proprietary Asset owned by or licensed to or otherwise
used by the Company or any other Acquired Corporation.
ACQUIRING CORPORATIONS. "Acquiring Corporations" shall have the meaning set
forth in Section 3.13.
ACQUISITION PROPOSAL. "Acquisition Proposal" shall mean any offer or
proposal (other than an offer or proposal by Parent) contemplating or otherwise
relating to any Acquisition Transaction.
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction not contemplated by this Agreement involving:
(A) any sale, lease, license, exchange, transfer or other disposition of
the assets of the Company constituting more than 20% of the assets of the
Company or accounting for more than 20% of the revenues of the Company in
any one transaction or in a series of related transactions;
(B) any offer to purchase, tender offer, exchange offer or any similar
transaction or series of related transactions made by any Person or group of
Persons within the meaning of Section 13(d)(3) of the Exchange Act,
involving more than 20% of the outstanding shares of the capital stock of
the Company; or
(C) any merger, consolidation, business combination, share exchange,
reorganization or similar transaction or series of related transactions
involving the Company.
AFFILIATES. "Affiliates" shall mean any Person that, directly or indirectly,
through one or more intermediaries, controls or is controlled by or is under
common control with, a specified Person.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including the Company
Disclosure Schedule and Parent Disclosure Schedule), as it may be amended from
time to time.
CERTIFICATE OF MERGER. "Certificate of Merger" shall have the meaning set
forth in Section 1.3.
CLEANUP. "Cleanup" means all actions required to: (1) cleanup, remove,
respond to, treat or remediate Hazardous Materials in the indoor or outdoor
environment; (2) prevent the Release of Hazardous Materials so that they do not
migrate, endanger or threaten to endanger public health or welfare of the indoor
or outdoor environment; (3) perform pre-remedial studies and investigations and
post-remedial monitoring and care; (4) respond to any government requests for
information or documents in any way relating to cleanup, removal, response,
treatment or remediation or potential cleanup, removal, treatment or remediation
of Hazardous Materials in the indoor or outdoor environment, or (5) restore
natural resources affected by the Release of Hazardous Materials.
CLOSING. "Closing" shall have the meaning set forth in Section 1.3.
CLOSING DATE. "Closing Date" shall have the meaning set forth in Section
1.3.
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CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
COMPANY. "Company" shall mean DBA Systems, Inc., a Florida corporation.
COMPANY AFFILIATES. "Company Affiliates" shall have the meaning set forth in
Section 4.12.
COMPANY COMMON STOCK. "Company Common Stock" shall mean the Company's common
stock, $.10 par value.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall have the
meaning set forth in the Preamble to Section 2.
COMPANY EMPLOYEE PLANS. "Company Employee Plans" shall have the meaning set
forth in Section 2.10(a).
COMPANY OPTION. "Company Option" shall mean any option to purchase capital
stock of the Company held by any director, officer or employee of, or consultant
to, the Company.
COMPANY REQUIRED VOTE. "Company Required Vote" shall have the meaning set
forth in Section 2.19.
COMPANY SEC DOCUMENTS. "Company SEC Documents" shall have the meaning set
forth in Section 2.4(a).
COMPANY SHAREHOLDERS' MEETING. "Company Shareholders' Meeting" shall have
the meaning set forth in Section 4.5.
COMPANY STOCK CERTIFICATE. "Company Stock Certificate" shall have the
meaning set forth in Section 1.6.
COMPANY TRIGGERING EVENT. A "Company Triggering Event" shall be deemed to
have occurred if: (i) the Board of Directors of the Company shall have failed to
recommend that the Company's stockholders vote in favor of, or shall for any
reason have withdrawn or shall have amended or modified in a manner adverse to
Parent its recommendation (by 5 to 2 majority vote) that the Company's
stockholders vote in favor of, the Merger or approval or adoption of this
Agreement; (ii) the Company shall have failed to include in the Proxy
Statement/Prospectus the recommendation of the Board of Directors of the Company
that the Company's stockholders vote in favor of approval and adoption of this
Agreement and the Merger; (iii) the Board of Directors of the Company shall have
approved, endorsed or recommended any Acquisition Proposal; (iv) the Company
shall have entered into any letter of intent or similar document or any Contract
relating to any Acquisition Proposal; (v) the Company shall have failed to hold
the Company Shareholders' Meeting as promptly as practicable and in any event
within 45 days after the definitive Proxy Statement/Prospectus was filed with
the SEC; (vi) a tender or exchange offer relating to securities of the Company
shall have been commenced and the Company shall not have published, sent or
given to its securityholders, within ten (10) business days after the
commencement of such tender or exchange offer, a statement disclosing that the
Company recommends rejection of such tender or exchange offer; or (vii) an
Acquisition Proposal is publicly announced, and the Company (A) fails to issue a
press release announcing its opposition to such Acquisition Proposal within ten
(10) business days after such Acquisition Proposal is announced or (B) otherwise
fails to actively oppose such Acquisition Proposal.
TITAN DEFENSE. "Titan Defense" shall mean Titan Defense Systems Corporation,
a Delaware corporation and wholly-owned subsidiary of Parent.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTINUING EMPLOYEE. "Continuing Employee" shall mean any employee of the
Company who continues as an employee of the Surviving Corporation or Parent
after the Effective Time.
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CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan, or legally binding commitment or undertaking of
any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, liability, claim,
demand, settlement, judgment, award, fine, penalty, Tax, fee (including
reasonable attorneys' fees), charge, cost (including costs of investigation) or
expense of any nature. Damages shall not include lost profits, lost savings, or
other indirect, special, incidental or consequential damages whether such
damages are based on tort, contract, or any other legal theory, and even if the
Indemnitee has been advised of the possibility of such damages.
EFFECTIVE TIME. "Effective Time" shall have the meaning set forth in Section
1.3.
EMPLOYEES. "Employees" shall have the meaning set forth in Section 2.10(a).
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company, limited liability company,
joint stock company, firm or other enterprise, association, organization or
entity.
ENVIRONMENTAL CLAIM. "Environmental Claim" means any claim, demand, action,
cause of action, investigation or notice (written or oral) by any person or
entity alleging potential liability (including, without limitation, potential
liability for investigatory costs, Cleanup costs, governmental response costs,
natural resources damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from (A) the presence, or Release into the
indoor or outdoor environment, of any Hazardous Materials at any location,
whether or not owned or operated by any Acquired Corporation, or (B)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law.
ENVIRONMENTAL LAWS. "Environmental Laws" means all federal, state, local and
foreign laws and regulations relating to pollution or protection of human health
or the environment, including without limitation, laws relating to Releases or
threatened Releases of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, Release,
disposal, transport or handling of Hazardous Materials and all laws and
regulations with regard to record keeping, notification, disclosure and
reporting requirements respecting Hazardous Materials.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
EXCHANGE RATIO. "Exchange Ratio" shall have the meaning set forth in Section
1.5(b).
FAR. "FAR" shall have the meaning set forth in Section 2.7(d)(iii).
FBCA. "FBCA" shall mean the Florida Business Corporation Act.
GAAP. "GAAP" shall have the meaning set forth in Section 2.4(b).
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GOVERNMENT BID. "Government Bid" shall mean any quotation, bid or proposal
submitted to any Governmental Body or any proposed prime contractor or
higher-tier subcontractor of any Governmental Body.
GOVERNMENT CONTRACT. "Government Contract" shall mean any prime contract,
subcontract, letter contract, purchase order or delivery order executed or
submitted to or on behalf of any Governmental Body or any prime contractor or
higher-tier subcontractor, or under which any Governmental Body or any such
prime contractor otherwise has or may acquire any right or interest.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any: (a)
permit, license, consent, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, city, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
board, instrumentality, official, organization, unit, body or Entity and any
court or other tribunal).
HAZARDOUS MATERIALS. "Hazardous Materials" means all substances defined as
Hazardous Substances, Oils, Pollutants or Contaminants in the National Oil and
Hazardous Substances Pollution Contingency Plan, 40 C.F.R. Section300.5, or
defined as such by, or regulated as such under, any Environmental Law.
HSR ACT. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
IMPROVEMENTS. "Improvements" shall have the meaning set forth in Section
2.11(a).
KNOWLEDGE. An individual will be deemed to have "knowledge" of a particular
fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such fact
or other matter.
A Person (other than an individual) will be deemed to have "knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, knowledge of such
fact or other matter.
LAND. "Land" shall have the meaning set forth in Section 2.11(a).
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state, local,
municipal, foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.
LIABILITIES. "Liabilities" shall mean any liability or obligation of any
kind or nature, secured or unsecured (whether absolute, accrued, contingent or
otherwise, and whether due or to become due).
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MATERIAL ADVERSE EFFECT. A violation of a representation or warranty or any
other matter will be deemed to have a "Material Adverse Effect" on the Company
or Parent, as the case may be, if such violation or other matter (considered
together with all other matters that would constitute exceptions to such
representations and warranties set forth in the Agreement but for the presence
of "Material Adverse Effect" or other materiality qualifications, or any similar
qualifications, in such representations and warranties) would have a material
adverse effect on the Company's and the other Acquired Corporations', taken as a
whole, or Parent's and Parent's subsidiaries, taken as a whole, as the case may
be, business, condition, assets, liabilities, operations, financial performance
or prospects.
MATERIAL ACQUIRED CORPORATION CONTRACT. "Material Acquired Corporation
Contract" shall have the meaning set forth in Section 2.7(a).
MERGER SUB. "Merger Sub" shall mean Eagle Acquisition Sub, Inc., a Florida
corporation.
NASDAQ. "Nasdaq" shall mean the National Association of Securities Dealers,
Inc. Automated Quotation System.
NYSE. "NYSE" shall mean the New York Stock Exchange.
PARENT. "Parent" shall mean The Titan Corporation, a Delaware corporation.
PARENT COMMON STOCK. "Parent Common Stock" shall mean Parent's Common Stock,
$0.01 par value per share.
PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" shall have the
meaning set forth in the Preamble to Section 3.
PARENT REQUIRED VOTE. "Parent Required Vote" shall have the meaning set
forth in Section 3.10.
PARENT SEC DOCUMENTS. "Parent SEC Documents" shall have the meaning set
forth in Section 3.3.
PARENT STOCKHOLDERS' MEETING. "Parent Stockholders' Meeting" shall have the
meaning set forth in Section 5.3(a).
PARENT TRIGGERING EVENT. A "Parent Triggering Event" shall be deemed to have
occurred if: (i) the Board of Directors of Parent shall have failed to recommend
that Parent's stockholders vote in favor of, or shall for any reason have
withdrawn or shall have amended or modified in a manner adverse to the Company
its unanimous recommendation that Parent's stockholders vote in favor of the
Merger or approval or adoption of this Agreement; (ii) Parent shall have failed
to include in the Proxy Statement/ Prospectus the unanimous recommendation of
Parent's Board of Directors that Parent's stockholders vote in favor of approval
and adoption of this Agreement and the Merger; or (iii) Parent shall have failed
to hold the Parent Stockholders' Meeting as promptly as practicable and in any
event within 45 days after the definitive Proxy Statement/Prospectus was filed
with the SEC.
PAST FINANCIAL STATEMENTS. "Past Financial Statements" shall mean those
financial statements of the Company (including footnotes thereto) set forth in
Section 2.4(b).
PENSION PLAN. "Pension Plan" shall have the meaning set forth in Section
2.10(b).
PERMITTED ENCUMBRANCES. "Permitted Encumbrances" shall mean (i) any lien for
current taxes not yet due and payable; (ii) liens imposed by law, such as
mechanics' liens, incurred in good faith in the ordinary course of business;
(iii) zoning restrictions, easements, or other restrictions on real property or
irregularities in title that have not and will not (individually or in the
aggregate) materially detract from the value of or impair the use of real
property, or otherwise have a Material Adverse Effect on the Company; and (iv)
minor liens that have arisen in the ordinary course of business and that have
not and will not (individually or in the aggregate) materially detract from the
value of the assets subject thereto, materially impair the operations of the
Company, or otherwise have a Material Adverse Effect on the Company.
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PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PLAN. "Plan" shall have the meaning set forth in Section 6.6.
PRE-CLOSING PERIOD. "Pre-Closing Period" shall have the meaning set forth in
Section 4.1.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, source code, computer program, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset; or (b) right to use or exploit
any of the foregoing.
REAL PROPERTY. "Real Property" shall have the meaning set forth in Section
2.11(a).
RELEASE. "Release" means any release, spill, emission, discharge, leaking,
pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the indoor or outdoor environment
(including, without limitation, ambient air, surface water, groundwater and
surface or subsurface strata) or into or out of any property, including the
movement of Hazardous Materials through or in the air, soil, surface water,
groundwater or property.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
S-4 REGISTRATION STATEMENT. "S-4 Registration Statement" shall have the
meaning set forth in Section 6.4(a).
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
SEPTEMBER BALANCE SHEET. "September Balance Sheet" shall have the meaning
set forth in Section 2.4(b).
SUPERIOR PROPOSAL. "Superior Proposal" shall have the meaning set forth in
Section 4.4(a).
SURVIVING CORPORATION. "Surviving Corporation" shall have the meaning set
forth in Section 1.1.
TAXES. "Taxes" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax,
environmental tax, business tax, withholding tax or payroll tax), levy,
assessment, tariff, duty (including any customs duty), deficiency or fee, and
any related charge or amount (including any fine, penalty or interest), imposed,
assessed or collected by or under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
WELFARE PLAN. "Welfare Plan" shall have the meaning set forth in Section
2.10(c).
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EXHIBIT B
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
OFFICERS*
Except to the extent otherwise agreed in writing by Parent and the Company,
the officers of the Company following the Closing will be the same persons that
are officers of the Company immediately prior to the Closing, and such persons
will hold the same positions as immediately prior to the Closing.
DIRECTORS
Gene W. Ray
Eric M. DeMarco
Cheryl Barr
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*Parent intends that following the Closing, John L. Slack will become President
and Chief Executive Officer of Titan Defense, and Eric M. DeMarco will be Chief
Financial Officer of Titan Defense.
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EXHIBIT C
FORM OF CONTINUITY-OF-INTEREST CERTIFICATE
("Shareholder") is aware that, pursuant to that certain
Agreement and Plan of Merger and Reorganization (the "Reorganization Agreement")
dated as of January 5, 1998 among The Titan Corporation, a Delaware corporation
("Parent"); Eagle Acquisition Sub, Inc., a Florida corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"); and DBA Systems, Inc., a
Florida corporation (the "Company"); it is contemplated that Merger Sub will be
merged into the Company (the contemplated merger of Merger Sub into the Company
being referred to in this Certificate as the "Merger"). As a result of the
Merger, it is contemplated that holders of the common stock of the Company
("Company Common Stock") will receive shares of common stock of Parent ("Parent
Common Stock") in exchange for their shares of Company Common Stock, and that
the Company will become a wholly-owned subsidiary of Parent.
1. Shareholder represents, warrants and certifies to Parent, Merger Sub and
the Company as follows:
(a) Shareholder currently is the holder of the number of shares of
Company Common Stock set forth beneath Shareholder's signature on the
signature page hereof (the "Shares"), and did not acquire any of the Shares
in contemplation of the Merger.
(b) Shareholder has not engaged in a Sale (as defined below) of any
shares of Company Common Stock in contemplation of the Merger.
(c) Shareholder has no plan or intention to engage in a sale, exchange,
transfer, distribution, redemption or reduction in any way of Shareholder's
risk of ownership (by short sale or otherwise), or other disposition,
directly or indirectly (such actions being collectively referred to herein
as a "Sale") of more than fifty percent (50%) of the shares of Parent Common
Stock to be received by Shareholder in the Merger. (For purposes of the
preceding sentence, shares of Company Common Stock (or the portion thereof)
(i) with respect to which Shareholder will receive consideration in the
Merger other than shares of Parent Common Stock (including cash to be
received in lieu of any fractional share of Parent Common Stock) and/or (ii)
with respect to which a Sale (A) occurred in contemplation of the Merger or
(B) will occur prior to the Merger, shall be considered shares of Company
Common Stock exchanged for shares of Parent Common Stock in the Merger and
then disposed of pursuant to a plan.)
(d) Shareholder is not aware of, or participating in, any plan or
intention on the part of the shareholders of the Company to engage in a Sale
or Sales of more than fifty percent (50%) of the shares of Parent Common
Stock to be received in the Merger. (For purposes of the preceding sentence,
shares of Company Common Stock (or the portion thereof) (i) with respect to
which a shareholder of the Company receives consideration in the Merger
other than shares of Parent Common Stock (including, without limitation,
cash received in lieu of a fractional share of Parent Common Stock) or (ii)
with respect to which a Sale occurs prior to and in contemplation of the
Merger, shall be considered shares of outstanding Company Common Stock
exchanged for shares of Parent Common Stock in the Merger and then disposed
of pursuant to a plan.)
(e) Except to the extent written notification to the contrary is
received by Parent and the Company from Shareholder prior to the
consummation of the Merger, the representations, warranties and
certifications contained herein shall be accurate at all times from the date
hereof through the date on which the Merger is consummated.
(f) Shareholder has consulted with such legal counsel and financial
advisors as Shareholder has deemed appropriate in connection with the
execution of this Certificate.
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2. Shareholder understands that Parent, Merger Sub, the Company, and the
Company's shareholders, as well as legal counsel to Parent, Merger Sub and the
Company (in connection with rendering their opinions that the Merger will be a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended) will be relying on the accuracy of the
representations, warranties and certifications contained herein.
Shareholder has executed this Certificate on ___________, 1998
Signature: __________
Number of shares of Company
Common Stock owned: __________
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EXHIBIT D
PERSONS EXECUTING CONTINUITY OF INTEREST CERTIFICATE
John L. Slack
Charles B. Robertson
Edward M. Bielski
Dudley J. Gordon
Dr. Richard N. Baney
Ambassador Robert F. Ellsworth
William C. Potter
Dr. Lynn E. Weaver
Thomas J. Boyce, Jr.
Norman J. Wechsler
Kathryn A. Eckstein
James E. Pruitt
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EXHIBIT E
RESIGNING OFFICERS AND DIRECTORS OF THE COMPANY AND THE
OTHER ACQUIRED CORPORATIONS
All officers and directors of the Company and the other Acquired
Corporations (subject to the appointments set forth on Exhibit B of this
Agreement), except as may otherwise be determined by Parent in its sole
discretion prior to Closing.
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EXHIBIT F
AFFILIATE AGREEMENT
This Affiliate Agreement (this "Agreement") is entered into as of January 5,
1998, by and between THE TITAN CORPORATION, a Delaware corporation ("Parent"),
and the undersigned affiliate ("Affiliate") of DBA SYSTEMS, INC., a Florida
corporation (the "Company").
RECITALS
A. Pursuant to that certain Agreement and Plan of Merger and Reorganization
(the "Merger Agreement"), dated as of January 5, 1998, by and among Parent;
Eagle Acquisition Sub, Inc. ("Merger Sub"), a Florida corporation and a
wholly-owned subsidiary of Parent; and the Company; Merger Sub will merge with
and into the Company (the "Merger").
B. As a result of the Merger and certain related transactions, the
stockholders of the Company will receive shares (the "Shares") of Parent Common
Stock (as defined in the Merger Agreement). Affiliate understands that he may be
deemed an "affiliate" of the Company as such term is defined in paragraphs (c)
and (d) of Rule 145 ("Rule 145") under the Securities Act of 1933, as amended
(the "Act"), and the Securities and Exchange Commission Accounting Series
Release Nos. 130 and 135 (the "Pooling Rules"), as amended, and as such
Affiliate may only transfer, sell or dispose of Shares in accordance with Rule
145, this Agreement and the Pooling Rules.
C. Affiliate understands that the representations, warranties and covenants
set forth herein will be relied upon by Parent, Merger Sub and the Company, and
their respective counsel and accounting firms.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. Capitalized terms used in this Agreement and not otherwise defined shall
have the meanings given them in the Merger Agreement.
2. Affiliate represents, warrants, understands and agrees that:
(a) Affiliate has full power and capacity to execute and deliver this
Agreement and to make the representations, warranties and agreements herein
and to perform his obligations hereunder.
(b) Affiliate has carefully read this Agreement and has discussed with
counsel, to the extent Affiliate felt necessary, the requirements,
limitations and restrictions on his ability to sell, transfer or otherwise
dispose of the Shares he may receive and fully understands the requirements,
limitations and restrictions this Agreement places upon Affiliate's ability
to transfer, sell or otherwise dispose of such Shares.
(c) If Affiliate has executed a Continuity of Interest Certificate
and/or any other agreement in connection herewith (the "Other Agreements"),
he understands and agrees to abide by all restrictions contained therein.
(d) Affiliate will not, publicly or privately, sell, transfer or
otherwise dispose of, or reduce Affiliate's interest in or risk relating to,
any Shares held by Affiliate until such time as the financial results
covering at least 30 days of post-Closing combined operations of the Company
and Parent have been published by Parent (within the meaning of the Pooling
Rules).
(e) Until the earlier of (i) the Closing Date or (ii) the termination of
the Merger Agreement, Affiliate will not sell, transfer or otherwise dispose
of, or reduce Affiliate's interest in or risk relating to, any Company
Common Stock held by Affiliate.
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(f) Subject to Section 2(d) above, Affiliate will not sell, pledge,
transfer or otherwise dispose of any of the Shares held by Affiliate unless
at such time either (i) such transfer shall be in conformity with the
provisions of Rule 145(d) (or any successor rule then in effect), (ii)
Affiliate shall have furnished to Parent an opinion of counsel reasonably
satisfactory to Parent, to the effect that no registration under the Act
would be required in connection with the proposed offer, sale, pledge,
transfer or other disposition or (iii) a registration statement under the
Act covering the proposed offer, sale, pledge, or other disposition shall be
effective under the Act.
3. Affiliate understands and agrees that, except as set forth in the Merger
Agreement, Parent is under no obligation to register the sale, transfer or other
disposition of the Shares or to take any other action necessary in order to make
compliance with an exemption from registration available.
4. Affiliate further represents that he is the beneficial owner of the
Company Common Stock set forth below, or, if not set forth below, that he is not
the beneficial owner of any Company Common Stock.
5. Each party hereto acknowledges that (i) it will be impossible to measure
in money the damage to Parent if Affiliate fails to comply with any of the
obligations imposed by this Agreement, (ii) every such obligation is material
and (iii) in the event of any such failure, Parent will not have an adequate
remedy at law or damages and, accordingly, each party hereto agrees that
injunctive relief or other equitable remedy, in addition to remedies at law or
damages, is an appropriate remedy for any such failure.
6. This Agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the laws of the State of
California.
7. This Agreement shall be binding upon, enforceable by and inure to the
benefit of the parties named herein and their respective successors; this
Agreement may not be assigned by any party without the prior written consent of
Parent. Any attempted assignment not in compliance with this Section 7 shall be
void and have no effect.
8. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
THE TITAN CORPORATION
By:
-----------------------------------
--------------------------------------
[Print Name and Title]
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AFFILIATE
--------------------------------------
--------------------------------------
[Print Name, and Title (if
applicable)]
Address:
-------------------------------
--------------------------------------
--------------------------------------
Shares of Company Common Stock
Beneficially Owned:
---------------------------------------------------------------------
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EXHIBIT G
SUBSTANTIVE PROVISIONS OF THE OPINION OF
ARENT FOX
[Capitalized terms defined as in the Merger Agreement]
1. Each of the Acquired Corporations is a corporation duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation. Each of the Acquired Corporations has the
corporate power and authority to own, lease and operate its properties and to
carry on its business as now conducted. To the best of our knowledge, each of
the Acquired Corporations is qualified as a foreign corporation to do business
and is in good standing in each jurisdiction in the United States in which the
ownership of its property or the conduct of its business requires such
qualification except for such jurisdictions where the failure to be so qualified
would not have a Material Adverse Effect on the Acquired Corporations.
2. The authorized capital stock of the Company consists of 10,000,000
shares of Company Common Stock, $.10 par value, of which 4,426,562 shares have
been issued and are outstanding as of the date of this Agreement. All of the
outstanding shares of Company Common Stock have been duly authorized and validly
issued, and are fully paid and nonassessable. As of the date of this Agreement,
there are 1,148,488 shares of Company Common Stock held in treasury by the
Company and no shares held by any subsidiary of the Company. All of the
outstanding shares of capital stock or other securities of the Acquired
Corporations other than the Company have been duly authorized and validly
issued, are fully paid and nonassessable and are owned by the Company.
3. To the best of our knowledge, there are no options, warrants, calls,
rights, commitments, conversion rights or agreements of any character to which
the Company or any Acquired Corporation is a party or by which the Company or
any Acquired Corporation is bound obligating the Company or any Acquired
Corporation to issue, deliver or sell, or cause to be issued, delivered or sold,
any shares of capital stock of the Company or any Acquired Corporation or
securities convertible into or exchangeable for shares of capital stock of the
Company or any Acquired Corporation, or obligating the Company or any Acquired
Corporation to grant, extend or enter into any such option, warrant, call,
right, commitment, conversion right or agreement, other than as described in the
Merger Agreement or the Company Disclosure Schedule.
4. All corporate action, including approval by the Company's Board of
Directors and its shareholders, required to be taken on the part of the Company
to authorize the Company to execute, deliver and perform its obligations under
the Agreements [which shall be defined as the Merger Agreement and documents
executed by the Company in connection therewith] and to consummate the
transactions provided for therein has been duly and validly taken. The
Agreements have been duly authorized, executed and delivered by the Company and
are the valid and binding obligation of the Company enforceable against the
Company in accordance with their terms, except that such enforcement may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other laws, now or hereafter in effect, relating to or limiting
creditor's rights generally and (ii) equitable principles (whether considered at
law or in equity).
5. Neither the execution and delivery of the Agreements by the Company nor
the consummation by the Company of the transactions provided for therein
(including, without limitation, the Merger) nor the performance by the Company
of its obligations thereunder, will (a) conflict with or result in any breach or
violation of any provision of the Articles of Incorporation or Bylaws of the
Company, (b) constitute a material default (or with the provision of notice or
the passage of time would constitute a material default) under the provisions of
any material agreement to which the Company is a party or by which it is bound
(as set forth in the Company Disclosure Schedule), or (c) violate any Legal
Requirement, order, writ, injunction, decree or arbitration award applicable to
the Company or its assets, excluding in the case of
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subclauses (b) and (c) such defaults and violations (A) which would not have a
Material Adverse Effect on the Acquired Corporations and (B) would not adversely
affect the ability of the Company to consummate the transactions contemplated by
the Merger Agreement.
6. No governmental consent, approval, authorization, registration,
declaration or filing, or any other Governmental Authorization, is required for
the execution and delivery of the Merger Agreement on behalf of the Company or
for the Merger except for such consents, approvals or filings where the failure
to obtain such consent or approval or make such filing (A) would not have a
Material Adverse Effect on the Acquired Corporations and (B) would not adversely
affect the ability of the Company to consummate the transactions contemplated by
the Merger Agreement.
7. To the best of our knowledge, there is no action, proceeding or
investigation pending or threatened against the Company before any court or
administrative agency that challenges or seeks to prohibit the consummation of
the transactions contemplated in the Agreements or that, if determined adversely
to the Company, may reasonably be expected to have a Material Adverse Effect on
the Acquired Corporations.
8. Assuming that all necessary corporate actions in respect of the Merger
have been duly and validly taken by Parent and Merger Sub, then upon the
consummation of the transactions contemplated by the Merger Agreement and the
filing of the Articles of Merger with the Secretary of State of the State of
Florida as contemplated by the Merger Agreement, the Merger will have been
validly effected in accordance with the FBCA.
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EXHIBIT H
FORM OF OPINION OF COOLEY GODWARD LLP
, 1998
Eagle Systems, Inc.
Ladies and Gentlemen:
We have acted as counsel for The Titan Corporation, a Delaware corporation
("Parent"), in connection with the merger of Eagle Acquisition Sub, Inc.
("Merger Sub"), a Florida corporation and a wholly-owned subsidiary of Parent,
with and into DBA Systems, Inc., a Florida corporation (the "Company"), pursuant
to an Agreement and Plan of Merger and Reorganization dated as of January 5,
1998 among Parent, Merger Sub and the Company (the "Merger Agreement"). We are
rendering this opinion pursuant to Section 8.6 of the Merger Agreement.
Capitalized terms used but not defined herein have the respective meanings given
to them in the Merger Agreement.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Merger Agreement and the agreements entered into in connection
therewith (collectively, the "Agreements") by the various parties, and originals
or copies certified to our satisfaction of such records, documents,
certificates, opinions, memoranda and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinion expressed below.
In rendering this opinion, we have assumed: the genuineness and authenticity
of all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by Parent and Merger Sub of the Agreements) where authorization, execution and
delivery are prerequisites to the effectiveness of such documents. We have also
assumed: that all individuals executing and delivering documents had the legal
capacity to execute and deliver such documents; that the Company has received
all documents that the Company was to receive under the Agreements; that the
Agreements are binding upon the Company; that the Company has filed any required
state franchise or income tax returns and has paid any required state franchise
or income taxes; and that there are no extrinsic agreements or understandings
among any of the parties to the Agreements that would modify or interpret the
terms of the Agreements or the respective rights or obligations of the parties
thereunder.
Our opinion is expressed only with respect to the federal laws of the United
States of America and the laws of the General Corporation Law of the State of
Delaware. We express no opinion as to whether the laws of any particular
jurisdiction apply, and no opinion to the extent that the laws of any
jurisdiction other than those identified above are applicable to the subject
matter hereof. We are not rendering any opinion: (i) as to compliance with, or
the effects upon obligations arising under the Agreements of, any law, rule or
regulation relating to securities or to the sale or issuance thereof; (ii) as to
compliance with, or the effects upon obligations arising under the Agreements
of, any law, rule or regulation relating to antitrust, trade regulation or
unfair competition; or (iii) as to the enforceability of any of the agreements
attached as exhibits to the Merger Agreement.
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With regard to our opinion in paragraph 4 below, our opinion is expressed
only with respect to the General Corporation Law of the State of Delaware and
the laws of the State of California; with respect to our opinion regarding the
violation of any order, writ, injunction, decree or arbitration award applicable
to Parent or Merger Sub, we have relied solely upon inquiries of officers of
Parent and Merger Sub and have made no further investigation.
The opinions expressed in paragraphs 2 and 3 below are further qualified by
the qualifications, exceptions and limitations set forth in Sections 11, 12, 13
and 14 of the Legal Opinion Accord (1991) adopted by the Section of Business Law
of the American Bar Association.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. Parent is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware.
2. Parent has the requisite corporate power and authority to perform
its obligations under the Merger Agreement. The execution, delivery and
performance of the Merger Agreement by Parent have been duly authorized by
all necessary action on the part of Parent's stockholders and Parent's board
of directors. The Merger Agreement has been duly and validly executed and
delivered by Parent.
3. The Merger Agreement constitutes the legal, valid and binding
obligation of Parent, enforceable against Parent in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to (i) general equity principles and
limitations on availability of equitable relief, including specific
performance, and (ii) the possible unenforceability of indemnification
obligations insofar as they relate to violations of state or federal
securities laws (regardless of whether enforceability is considered in a
proceeding in equity or at law).
4. Neither the execution and delivery of the Agreements by Parent and
Merger Sub, as applicable, nor the consummation by Parent and Merger Sub, as
applicable, of the transactions provided for therein nor the performance by
Parent and Merger Sub, as applicable, of their respective obligations
thereunder, will (a) conflict with or result in any breach or violation of
any provision of the Certificate of Incorporation or Bylaws of Parent or the
Articles of Incorporation or Bylaws of Merger Sub, or (b) to our knowledge
violate any Legal Requirement, order, writ, injunction, decree or
arbitration award applicable to Parent or Merger Sub or their respective
assets, excluding in the case of subclause (b) such defaults and violations
(A) which would not have a Material Adverse Effect on Parent or Merger Sub
and (B) would not adversely affect the ability of Parent or Merger Sub to
consummate the transactions contemplated by the Merger Agreements.
5. The Parent Common Stock to be issued in connection with the Merger
will be, upon issuance pursuant to the terms of the Merger Agreement,
validly issued, fully paid and nonassessable.
This opinion letter and the opinions expressed herein are intended for your
benefit and are not to be made available to or be relied upon by any other
person, firm or entity without our prior written consent.
Very truly yours,
COOLEY GODWARD LLP
H-2
<PAGE>
ARTICLES OF INCORPORATION
OF
EAGLE ACQUISITION SUB, INC.
ARTICLE I - NAME
The name of the corporation is Eagle Acquisition Sub, Inc.,
(hereinafter called the "Corporation").
ARTICLE II - PURPOSE
The Corporation is organized for the purpose of transacting any
or all lawful business for corporations organized under The Florida
Business Corporation Act of the State of Florida.
ARTICLE III - CAPITAL STOCK
The aggregate number of shares which the Corporation shall have
the authority to issue is 1,000 shares of Common Stock, par value $.01
per share. Shares of capital stock of the Corporation that have been
issued and subsequently acquired by the Corporation shall constitute
issued but not outstanding shares of the same class and series, until
canceled or disposed of (whether by resale or otherwise) by the
Corporation. If the Corporation cancels any such shares, the canceled
shares shall constitute authorized and unissued shares of the same class
and shall be undesignated as to series.
ARTICLE IV - INITIAL REGISTERED AGENT
The street address of the initial registered office of the
Corporation is 1201 Hays Street, Tallahassee, Florida 32301 and the name
of the initial registered agent of the Corporation at that address is
Corporation Service Company.
ARTICLE V - INITIAL PRINCIPAL OFFICE
The street address of the initial principal office and mailing
address of the Corporation is 3033 Science Park Road, San Diego,
California 92121.
ARTICLE VI - INITIAL BOARD OF DIRECTORS
The Corporation shall have one (1) director initially. The
number of directors
Page 1
<PAGE>
may be either increased or decreased from time to time as provided in
the Bylaws of the Corporation, but shall never be less than one. The
name and address of the initial director of the Corporation is Eric M.
DeMarco, 3033 Science Park Road, San Diego, California 92121.
ARTICLE VII - COMMENCEMENT OF CORPORATE EXISTENCE
The corporate existence shall commence on October 24, 1997,
which is the date of subscription and acknowledgment of these Articles
of Incorporation, which shall be filed with the Department of State
within five (5) days hereof, exclusive of holidays.
ARTICLE VIII - INCORPORATOR
The name and address of the person signing these Articles of
Incorporation is Thomas R. McGuigan, P.A., 200 S. Biscayne Boulevard,
Suite 4000, Miami, Florida 33131-2398.
IN WITNESS WHEREOF, the undersigned Incorporator has executed
these Articles of Incorporation this 24th day of October, 1997.
THOMAS R. MCGUIGAN, P.A.
Thomas R. McGuigan, P.A., Incorporator
CERTIFICATE DESIGNATING THE ADDRESS
AND AN AGENT UPON WHOM PROCESS MAY BE SERVED
W I T N E S S E T H:
That Eagle Acquisition Sub, Inc., desiring to organize under the
laws of the State of Florida, has named Corporation Service Company,
located at 1201 Hays Street, Tallahassee, Florida 32301, as its agent to
accept service of process within this state.
ACKNOWLEDGMENT:
Having been named to accept service of process for the above-s
Page 2
<PAGE>
tated corporation, at the place designated in this certificate, I hereby
agree to act in this capacity, and I further agree to comply with the
provisions of all statutes relative to the proper and complete
performance of my duties, and I am familiar with, and accept the duties
and obligations of a registered agent outlined in Section 607.0505,
Florida Statutes.
Dated this 24th day of October, 1997.
CORPORATION SERVICE COMPANY
By: KAREN B. ROZAR
Page 3
<PAGE>
Exhibit 3.4
BYLAWS
OF
EAGLE ACQUISITION SUB, INC.
ARTICLE I
Offices
Section l. Registered Office. The initial registered office of Eagle
Acquisition Sub, Inc., a Florida corporation (the "Corporation"), shall be
located in the State of Florida.
Section 2. Other Offices. The Corporation may also have offices at such
other places, either within or without the State of Florida, as the Board of
Directors of the Corporation (the "Board of Directors") may from time to time
determine or as the business of the Corporation may require.
ARTICLE II
Meetings of Shareholders
Section l. Annual Meetings. All annual meetings of the shareholders of the
Corporation for the election of directors and for such other business as may
properly come before the meeting shall be held (i) on such date and at such
other time as may be fixed, from time to time, by the Board of Directors,
and (ii) at such place, within or without the State of Florida, as may be
designated by the Board of Directors and stated in the notice of meeting or
in a duly executed waiver of notice thereof.
Section 2. Special Meetings. Special meetings of the shareholders may be
called by the Board of Directors, the President or the holders of not less
than 10% of the Corporation's stock entitled to vote on any issue proposed to
be considered at such meeting. Special meetings of shareholders may be held
at such time and date, and at such place, within or without the State of
Florida, as shall be designated by the Board of Directors and set forth in
the notice of meeting required pursuant to Section 3 of this
<PAGE>
Article. A meeting properly requested by shareholders shall be called for a
date not less than 10 nor more than 60 days after the request is properly
made. The call for the meeting shall be issued by the Secretary, unless the
Board of Directors, the President or the shareholders requesting the calling
of the meeting, designate another person to do so. Only business within the
purpose or purposes described in the notice required pursuant to Section 3 of
this Article may be conducted at a special meeting of shareholders.
Section 3. Notice. A written notice of each meeting of shareholders shall
be given to each shareholder entitled to vote at the meeting at the address
as it appears on the stock transfer records of the Corporation, not less than
ten (10) nor more than sixty (60) days before the date of the meeting, by or
at the direction of the President, the Secretary or the officer or persons
calling the meeting. If the notice is mailed at least 30 days before the
date of the meeting, it may be done by a class of United States mail other
than first class. The notice so given shall state the date, time and place
of the meeting and, in the case of a special shareholders' meeting, the
purpose or purposes for which the meeting is called. If mailed, notice shall
be deemed to be delivered when deposited in the United States mail addressed
to the shareholder at his address as it appears on the stock transfer books
of the Corporation, with postage thereon prepaid. If a shareholders' meeting
is adjourned to a different date, time or place, notice need not be given of
the new date, time or place if the new date, time or place is announced at
the meeting before an adjournment is taken.
Section 4. Waiver of Notice. Shareholders may waive notice of any meeting
before or after the date and time specified in the written notice of meeting.
Any such waiver of notice must be in writing, be signed by the shareholder
entitled to the notice and be delivered to the Corporation for inclusion in
the appropriate corporate records. Neither the business to be transacted at,
nor the purpose of, any shareholders' meeting need be specified in any
written waiver of notice. Attendance of a person at a shareholders' meeting
shall constitute a waiver of notice of such meeting, unless the shareholder
at the beginning of the meeting objects to holding the meeting or transacting
business at
<PAGE>
the meeting.
Section 5. Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at a shareholders' meeting, to demand a
special meeting, to act by written consent or to take any other action, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than
seventy (70) days nor, in the case of a shareholders' meeting, less than ten
(10) days, prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed for
the determination of shareholders entitled to notice of or to vote at a
shareholders' meeting, then the record date for such meeting shall be the
close of business on the day before the first notice is delivered to
shareholders. A determination of shareholders entitled to notice of or to
vote at a shareholders' meeting is effective for any adjournment of the
meeting unless the Board of Directors fixes a new record date for the
adjourned meeting, which it must do if the meeting is adjourned to a date
more than 120 days after the date fixed for the original meeting.
Section 6. Quorum. A majority of the shares entitled to vote on a matter,
represented in person or by proxy, shall constitute a quorum for action on
that matter at a meeting of shareholders. If a quorum is not present or
represented at a meeting of shareholders, the holders of a majority of the
shares represented, and who would be entitled to vote at a meeting if a
quorum were present, may adjourn the meeting from time to time. Once a
quorum has been established at a shareholders' meeting, the subsequent
withdrawal of shareholders, so as to reduce the number of shares entitled to
vote at the meeting below the number required for a quorum, shall not affect
the validity of any action taken at the meeting or any adjournment thereof.
Section 7. Voting. If a quorum is present, action on a matter, other than
the election of directors, shall be approved if the votes cast by the
shareholders represented at the meeting and entitled to vote on the subject
matter favoring the action exceeds the votes cast opposing the action, unless
a greater number of affirmative votes or voting by classes is required by
Florida law or by the Articles of Incorporation. Directors shall be
<PAGE>
elected in accordance with Article III, Section 3, of these Bylaws. Each
outstanding share shall be entitled to one vote on each matter submitted to a
vote at a meeting of shareholders, unless otherwise provided under the
articles of incorporation or any amendment thereof or under Florida law. An
alphabetical list of shareholders entitled to notice of a shareholder's
meeting shall be available for inspection by any shareholder for a period of
ten (10) days prior to the meeting or such shorter time as exists between the
record date and the meeting and continuing through the meeting at a place as
permitted by Section 607.0720 of the Florida Statutes.
Section 8. Proxies. A shareholder entitled to vote at any meeting of
shareholders or any adjournment thereof may vote in person or by proxy. A
shareholder may appoint a proxy to vote or otherwise act for him by signing
an appointment form, either personally or by his attorney-in-fact. An
appointment of proxy is effective when received by the Secretary or other
officer or agent authorized to tabulate votes. If an appointment form
designates two or more persons to act as proxies, a majority of these persons
present at the meeting, or if only one is present, that one, has all of the
powers conferred by the instrument upon all the persons designated unless the
instrument provides otherwise. No appointment shall be valid for more than 11
months after the date of its execution unless a longer period is expressly
provided in the appointment form.
Section 9. Shareholder Action Without A Meeting. Any action required or
permitted to be taken at any shareholders' meeting may be taken without a
meeting, without prior notice and without a vote if the action is taken by
the holders of outstanding stock entitled to vote thereon having not less
than the minimum number of votes necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. In order to be effective, the action must be evidenced by one or more
written consents describing the action to be taken, dated and signed by
approving shareholders having the requisite number of votes entitled to vote
thereon, and delivered to the Secretary or other officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
the Corporation are recorded. Within ten (10) days after obtaining such
authorization by written consent, notice must be given to those shareholders
who have not consented in writing or who are not
<PAGE>
entitled to vote on the action, which notice shall comply with the provisions
of Florida law.
ARTICLE III
Directors
Section l. Powers. All corporate powers shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board of Directors. Directors must be
natural persons who are at least 18 years of age but need not be residents of
Florida or shareholders of the Corporation.
Section 2. Compensation. Unless specifically authorized by a resolution of
the Board of Directors, the directors shall serve in such capacity without
compensation. The directors may be paid their expenses, if any, of attendance
at each meeting of the Board of Directors. No such payments shall preclude
any director from serving in any other capacity and receiving compensation
therefor.
Section 3. Number, Election & Term. The number of directors of the
Corporation shall be fixed from time to time, within any limits set forth in
the Articles of Incorporation, by resolution of the Board of Directors. Any
decrease in the number of directors shall not shorten the term of an
incumbent director. Directors shall be elected annually, at the annual
meeting of shareholders of the Corporation, by a plurality of the votes cast
by the shares entitled to vote in the election at a meeting at which a quorum
is present. The terms of the initial directors of the Corporation expire at
the first shareholders' meeting at which directors are elected and when their
successors are elected and shall qualify, or upon their earlier resignation,
removal from office or death. The terms of all other directors expire at the
next annual shareholders' meeting following their election and when their
successors are elected and shall qualify, or upon their earlier resignation,
removal from office or death. The Chairman of the Board of Directors shall
preside at all meetings of directors and of shareholders.
Section 4. Vacancies. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining directors,
though less than a quorum of
<PAGE>
the Board of Directors, or by the shareholders at an annual or special
meeting called for that purpose. A director elected to fill a vacancy shall
hold office only until the next shareholders' meeting at which directors are
elected. If there are no remaining directors, any vacancy shall be filled by
the shareholders.
Section 5. Removal of Directors. The shareholders may remove one or more
directors with or without cause. A director may be removed by the
shareholders at a meeting of shareholders, provided the notice of the meeting
states that the purpose, or one of the purposes, of the meeting is the
removal of the director.
Section 6. Quorum and Voting. A majority of the number of directors fixed
by or in accordance with these Bylaws shall constitute a quorum for the
transaction of business at any meeting of directors. If a quorum is present
when a vote is taken, the affirmative vote of a majority of the directors
present shall be the act of the Board of Directors.
Section 7. Deemed Assent. A director who is present at a meeting of the
Board of Directors or a committee of the Board of Directors when corporate
action is taken is deemed to have assented to the action taken unless (i) the
director objects at the beginning of the meeting (or promptly upon his
arrival) to the holding of the meeting or transacting specified business at
the meeting, or (ii) the director votes against or abstains from the action
taken.
Section 8. Committees. The Board of Directors, by resolution adopted by a
majority of the full Board of Directors, may designate from among its members
an executive committee and one or more other committees each of which must
have at least two members and, to the extent provided in the designating
resolution, shall have and may exercise all the authority of the Board of
Directors, except such authority as may be reserved to the Board of Directors
under Florida law.
Section 9. Meetings. Regular and special meetings of the Board of Directors
shall be held at the principal place of business of the Corporation or at any
other place, within or without the State of Florida, designated by the person
or persons entitled to give notice of or otherwise call the meeting.
Meetings of the Board of Directors may be called by the Chairman of the Board
or by the President. A majority of the directors present,
<PAGE>
whether or not a quorum exists, may adjourn any meeting of the Board of
Directors to another time and place. Notice of an adjourned meeting shall be
given to the directors who were not present at the time of the adjournment
and, unless the time and place of the adjourned meeting are announced at the
time of the adjournment, to the directors who were present. Members of the
Board of Directors (and any committee of the Board) may participate in a
meeting of the Board (or any committee of the Board) by means of a telephone
conference or similar communications equipment through which all persons
participating may simultaneously hear each other during the meeting;
participation by these means constitutes presence in person at the meeting.
Section 10. Notice of Meetings. Regular meetings of the Board of Directors
may be held without notice of the date, time, place or purpose of the
meeting, so long as the date, time and place of such meetings are fixed
generally by the Board of Directors. Special meetings of the Board of
Directors must be preceded by at least two (2) days' written notice of the
date, time and place of the meeting. The notice need not describe either the
business to be transacted at or the purpose of the special meeting.
Section 11. Waiver of Notice. Notice of a meeting of the Board of Directors
need not be given to a director who signs a waiver of notice either before or
after the meeting. Attendance of a director at a meeting shall constitute a
waiver of notice of that meeting and a waiver of any and all objections to
the place of the meeting, the time of the meeting and the manner in which it
has been called or convened, except when a director states, at the beginning
of the meeting or promptly upon arrival at the meeting, any objection to the
transaction of business because the meeting is not lawfully called or
convened. The waiver of notice need not describe either the business to be
transacted at or the purpose of the special meeting.
Section 12. Director Action Without a Meeting. Any action required or
permitted to be taken at a meeting of the Board of Directors (or a committee
of the Board) may be taken without a meeting if the action is taken by the
written consent of all members of the Board of Directors (or of the committee
of the Board). The action must be evidenced by one or more written consents
describing the action to be taken and signed by each director (or committee
member), which consent(s) shall be filed in the minutes of the proceedings of
the Board. The action taken shall be deemed effective
<PAGE>
when the last director signs the consent, unless the consent specifies
otherwise.
ARTICLE IV
Officers
Section l. Officers. The Corporation shall have a President, a Secretary
and a Treasurer, each of whom shall be appointed by the Board of Directors.
Such other officers and assistant officers and agents as may be deemed
necessary or desirable may be appointed by the Board of Directors from time
to time. Any two or more offices may be held by the same person.
Section 2. Duties. The officers of the Corporation shall have the following
duties:
The President shall be the chief operating officer of the Corporation
and shall have general and active management of the business and affairs of
the Corporation subject to the direction of the Board of Directors. The
President shall see to it that all orders and resolutions of the Board are
carried into effect. The President shall preside at all meetings of the
Board of Directors and shareholders.
The Secretary shall have custody of and shall maintain all of the
corporate records (except the financial records), shall record the minutes of
all meetings of the shareholders and the Board of Directors, shall
authenticate records of the Corporation, shall send all notices of meetings
and shall perform such other duties as are prescribed by the Board of
Directors.
The Treasurer shall have custody of all corporate funds, securities
and financial records, shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositaries as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render an account of all his transactions as treasurer and of the
financial condition of the Corporation at regular meetings of the Board or
when the Board of Directors so requests. The Treasurer shall also perform
such other duties as are prescribed by the Board of Directors.
Each Assistant Secretary and Assistant Treasurer, if any, shall be
<PAGE>
appointed by the Board of Directors and shall have such powers and shall
perform such duties as shall be assigned by them by the Board of Directors.
Section 3. Resignation of Officer. An officer may resign at any time by
delivering notice to the Corporation. The resignation shall be effective
upon receipt, unless the notice specifies a later effective date. If the
resignation is effective at a later date and the Corporation accepts the
future effective date, the Board of Directors may fill the pending vacancy
before the effective date provided the Board of Directors provides that the
successor officer does not take office until the future effective date.
Section 4. Removal of Officer. The Board of Directors may remove any
officer at any time with or without cause. Any officer or assistant officer,
if appointed by another officer, may be removed by the appointing officer.
Section 5. Compensation. The compensation of officers shall be fixed from
time to time at the discretion of the Board of Directors. The Corporation
may enter into employment agreements with any officer of the Corporation.
ARTICLE V
Stock Certificates
Section 1. Issuance. Every holder of shares in this Corporation shall be
entitled to have a certificate representing all shares to which he is
entitled. No certificate shall be issued for any share until the
consideration therefor has been fully paid.
Section 2. Form. Certificates representing shares in this Corporation shall
be signed by the President and the Secretary of the Corporation, or by any
other two officers designated by the Board of Directors.
Section 3. Registered Shareholders. The Corporation shall be entitled to
treat the holder of record of shares as the holder in fact and, except as
otherwise provided by the laws of Florida, shall not be bound to recognize
any equitable or other claim to or interest in the shares.
Section 4. Transfer of Shares. Shares of the Corporation shall be
transferred on its books only after the surrender to the Corporation or the
transfer agent of the share certificates duly endorsed by the holder of
record or attorney-in-fact. If the surrendered
<PAGE>
certificates are canceled, new certificates shall be issued to the person
entitled to them, and the transaction recorded on the books of the
Corporation.
Section 5. Lost, Stolen or Destroyed Certificates. If a shareholder claims
that one or more of his certificates for shares issued by the Corporation
have been lost, stolen or destroyed, a new certificate shall be issued upon
delivery to the Corporation of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed, and, at
the discretion of the Board of Directors, upon the deposit of a bond or other
indemnity as the Board reasonably requires.
ARTICLE VI
Distributions
The Board of Directors may from time to time authorize and declare,
and the Corporation may pay, distributions (including but not limited to
dividends on, and redemptions and other acquisitions of shares of the
Corporation's stock) on its outstanding shares in cash, property, or its own
shares, provided any such distribution is in compliance with the applicable
restrictions and other provisions of Florida law.
ARTICLE VII
Corporate Records; Shareholder
Inspection Rights; Financial Information
Section l. Corporate Records.
(A) The Corporation shall keep as permanent records minutes of all
meetings of its shareholders and Board of Directors, a record of all actions
taken by the shareholders or Board of Directors without a meeting, and a
record of all actions taken by a committee of the Board of Directors in place
of the Board of Directors on behalf of the Corporation.
(B) The Corporation or its agent shall maintain accurate accounting
records and a record of its shareholders in a form that permits preparation
of a list of the names and addresses of all shareholders in alphabetical
order by class of shares showing the number and series of shares held by each.
(C) The Corporation shall keep a copy of: its articles or restated
articles of incorporation and all amendments to them currently in effect; its
Bylaws or restated Bylaws and all amendments currently in effect; resolutions
adopted by the Board of
<PAGE>
Directors creating one or more classes or series of shares and fixing their
relative rights, preferences, and limitations, if shares issued pursuant to
those resolutions are outstanding; the minutes of all shareholders' meetings
and records of all actions taken by shareholders without a meeting for the
past three years; written communications to all shareholders generally or all
shareholders of a class of series within the past three years, including the
financial statements furnished for the past three years; a list of names and
business street addresses of its current directors and officers; and its most
recent annual report delivered to the Department of State.
(D) The Corporation shall maintain its records in written form or in
another form capable of conversion into written form within a reasonable time.
Section 2. Shareholder Inspection Rights.
(A) A shareholder is entitled to inspect and copy, during regular business
hours at the Corporation's principal office, any of the corporate records
described in Section 1(C) of this Article if such shareholder gives the
Corporation written notice of the demand at least five (5) business days
before the date on which he wishes to inspect and copy the records.
(B) A shareholder is entitled to inspect and copy, during regular business
hours at a reasonable location specified by the Corporation, any of the
following records of the Corporation if the shareholder gives the Corporation
written notice of this demand at least five (5) business days before the date
on which he wishes to inspect and copy the records, provided (a) the demand
is made in good faith and for a proper purpose; (b) the shareholder describes
with reasonable particularity the purpose and the records he desires to
inspect; and (c) the records are directly connected with his purpose: (i)
excerpts from minutes of any meeting of the Board of Directors, records of
any action of a committee of the Board of Directors while acting in place of
the Board on behalf of the Corporation, minutes of any meeting of
shareholders, and records of any action taken by the shareholders or board of
directors without a meeting; (ii) accounting records of the Corporation;
(iii) the record of shareholders; and (iv) any other books and records of the
Corporation.
<PAGE>
(C) This Section 2 does not affect the right of a shareholder to inspect
the Corporation's list of shareholders pursuant to Article II, Section 7 of
these Bylaws or, if the shareholder is in litigation with the Corporation, to
the same extent as any other litigant or the power of a court to compel the
production of corporate records for examination.
(D) The Corporation may deny any demand for inspection made pursuant to
subsection (B) of this Section 2 if the demand was made for an improper
purpose, or if the demanding shareholder has within the two years preceding
his demand, sold or offered for sale any list of shareholders of the
Corporation or of any other corporation, has aided or abetted any person in
procuring any list of shareholders for that purpose, or has improperly used
any information secured through any prior examination of the records of this
Corporation or any other corporation.
Section 3. Financial Statements for Shareholders.
(A) Unless modified by resolution of the shareholders within 120 days
after the close of each fiscal year, the Corporation shall furnish its
shareholders with annual financial statements which may be consolidated or
combined statements of the Corporation and one or more of its subsidiaries,
as appropriate, that include a balance sheet as of the end of the fiscal
year, an income statement for that year, and a statement of cash flows for
that year. If financial statements are prepared for the Corporation on the
basis of generally accepted accounting principles, the annual financial
statements must also be prepared on that basis.
(B) If the annual financial statements are reported upon by a public
accountant, his report must accompany them. If not, the statements must be
accompanied by a statement of the President, the Treasurer or the person
responsible for the Corporation's accounting records stating his reasonable
belief whether the statements were prepared on the basis of generally
accepted accounting principles and, if not, describing the basis of
preparation and describing any respects in which the statements were not
prepared on a basis of accounting consistent with the statements prepared for
the preceding year.
(C) The Corporation shall mail the annual financial statements to each
shareholder within 120 days after the close of each fiscal year or within
such additional time thereafter as is reasonably necessary to enable the
Corporation to prepare its
<PAGE>
financial statements if, for reasons beyond the Corporation's control, it is
unable to prepare its financial statements within the prescribed period.
Thereafter, on written request from a shareholder who was not mailed the
statements, the Corporation shall mail him the latest annual financial
statements.
Section 4. Other Reports to Shareholders.
(A) If the Corporation indemnifies or advances expenses to any director,
officer, employee or agent otherwise than by court order or action by the
shareholders or by an insurance carrier pursuant to insurance maintained by
the Corporation, the Corporation shall report the indemnification or advance
in writing to the shareholders with or before the notice of the next
shareholders' meeting, or prior to the meeting if the indemnification or
advance occurs after the giving of the notice but prior to the time the
meeting is held. This report shall include a statement specifying the
persons paid, the amounts paid, and the nature and status at the time of such
payment of the litigation or threatened litigation.
(B) If the Corporation issues or authorizes the issuance of shares for
promises to render services in the future, the Corporation shall report in
writing to the shareholders the number of shares authorized or issued, and
the consideration received by the Corporation, with or before the notice of
the next shareholders' meeting.
ARTICLE VIII
Indemnification
Section 1. Indemnification. Each person (including here and hereinafter,
the heirs, executors, administrators, or estate of such person) (1) who is or
was a director, officer, agent or employee of the Corporation or (2) who is
or was serving at the request of the Corporation in the position of a
director, officer, trustee, partner, agent, or employee of another
corporation, partnership, joint venture, trust or other enterprise may be
indemnified by the Corporation as of right to the fullest extent permitted or
authorized by current or future legislation or by current or future
administrative decision (but, in the case of any future legislation or
decision, only to the extent that it permits the Corporation to provide
broader indemnification rights than permitted prior to the legislation or
decision), against all fines, liabilities, settlements, costs and expenses,
<PAGE>
including attorneys' fees, asserted against him or incurred by him in his
capacity as such director, officer, trustee, partner, agent or employee or
arising out of his status as such director, officer, trustee, partner, agent
or employee. The foregoing power of the Corporation to indemnify shall not
be exclusive of other rights to which those seeking indemnification may be
entitled. The Corporation may maintain insurance, at its expense, to protect
itself and any such person against any such fine, liability, cost or expense,
including attorneys' fees, whether or not the Corporation would have the
legal power to directly indemnify such person against such liability.
Section 2. Advances. Costs, charges and expenses (including attorneys'
fees) incurred by a person referred to in Section 1 of this Article in
defending a civil or criminal suit, action or proceeding may be paid (and, in
the case of directors of the Corporation, shall be paid) by the Corporation
in advance of the final disposition thereof upon receipt of an undertaking to
repay all amounts advanced if it is ultimately determined that the person is
not entitled to be indemnified by the Corporation as authorized by this
Article, and upon satisfaction of other conditions established from time to
time by the Board of Directors or required by current or future legislation
(but, with respect to future legislation, only to the extent that it provides
conditions less burdensome than those previously provided).
ARTICLE IX
Miscellaneous
Section 1. Corporate Seal. The corporate seal of the Corporation shall be
circular in form and shall include the name and jurisdiction of incorporation
of the Corporation.
Section 2. Fiscal Year. The fiscal year of the Corporation shall end on
December 31 of each calendar year, unless otherwise fixed by resolution of
the Board of Directors.
Section 3. Checks. All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
Corporation shall be signed by the President, the Treasurer or such other
officer(s) or agent(s) of the Corporation as shall be determined from time to
time by resolution of the Board of Directors.
ARTICLE X
<PAGE>
Amendment
These Bylaws may be altered, amended or repealed, and new Bylaws adopted, by
the Board of Directors or by the shareholders.
The foregoing Bylaws were adopted by the Board of Directors of the
Corporation by written consent duly executed on the _____ day of __________,
199__.
/s/ ERIC M. DEMARCO
--------------------------
Eric M. DeMarco, Secretary
<PAGE>
[COOLEY GODWARD LLP LETTERHEAD]
February 5, 1998
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121-1199
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by The Titan Corporation (the "Company") of a Registration
Statement on Form S-4 (the "Registration Statement") with the Securities and
Exchange Commission covering the offering of up to 6,551,784 shares of the
Company's Common Stock, $.01 par value (the "Shares") in connection with the
merger of Eagle Acquisition Sub, Inc., a wholly-owned subsidiary of the
Company, with and into DBA Systems, Inc. ("DBA") whereupon DBA will survive
as a wholly-owned subsidiary of the Company.
In connection with this opinion, we have examined the Registration Statement
and related Prospectus, your Certificate of Incorporation and Bylaws, as
amended, and such other documents, records, certificates, memoranda and other
instruments as we deem necessary as a basis for this opinion. We have assumed
the genuineness and authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies thereof and the due execution and delivery of all documents where due
execution and delivery are a prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when issued in the Merger and in accordance with the
Registration Statement and related Prospectus, will be validly issued, fully
paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
COOLEY GODWARD LLP
By: /s/ M. Wainwright Fishburn, Jr.
------------------------------------
M. Wainwright Fishburn, Jr.
<PAGE>
EXHIBIT 8.1
[COOLEY GODWARD LLP LETTERHEAD]
February 5, 1998
The Titan Corporation and
Eagle Acquisition Sub, Inc.
3033 Science Park Road
San Diego, CA 92121-1199
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Form S-4
Registration Statement (the "Registration Statement") filed pursuant to the
Agreement and Plan of Merger and Reorganization dated January 5, 1998, as
amended, (the "Reorganization Agreement") by and among The Titan Corporation,
Inc., a Delaware corporation ("Parent"); Eagle Acquisition Sub, Inc., a Florida
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"); and DBA
Systems, Inc., a Florida corporation (the "Company").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to Parent and Merger Sub in connection with the
Merger. As such, and for the purpose of rendering this opinion, we have
examined, and are relying upon (without any independent investigation or review
thereof) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in, the following documents
(including all exhibits and schedules attached thereto):
(a) the Reorganization Agreement;
(b) those certain tax representation letters dated February 5, 1998
delivered to us by Parent, Merger Sub and the Company containing certain
representations of Parent, Merger Sub and the Company (the "Tax Representation
Letters");
<PAGE>
The Titan Corporation
February 5, 1998
Page 2
(c) a Continuity of Interest certificate by a certain shareholder
of the Company in favor of Parent, Merger Sub and the Company (the "Continuity
of Interest Certificate"); and
(d) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and related to
the consummation of the Merger and the other transactions contemplated by the
Reorganization Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
1. Original documents submitted to us (including signatures
thereto) are authentic, documents submitted to us as copies conform to the
original documents, and that all such documents have been (or will be by the
Effective Time) duly and validly executed and delivered where due execution
and delivery are a prerequisite to the effectiveness thereof;
2. All representations, warranties and statements made or agreed
to by Parent, Merger Sub and the Company, their managements, employees,
officers, directors and shareholders in connection with the Merger,
including, but not limited to, those set forth in the Reorganization
Agreement (including the exhibits thereto) and the Tax Representation Letters
and the Continuity of Interest Certificate are true and accurate at all
relevant times;
3. All covenants contained in the Reorganization Agreement
(including exhibits thereto) and the Tax Representation Letters and the
Continuity of Interest Certificate are performed without waiver or breach of
any material provision thereof;
4. The "continuity of interest" requirement (the "Continuity of
Interest Requirement") as described in Treasury Regulation Section 1.368-1
(effective for transactions occurring on or prior to January 28, 1998,
discussed below) is satisfied;
5. Any representation or statement made "to the best of
knowledge" or similarly qualified is correct without such qualification; and
6. The opinion, dated February 5, 1998, from Arent Fox Kinter
Plotkin & Kahn, PLLC to the Company with respect to the qualification of the
Merger as a reorganization within the meaning of Section 368(a)(1) of the
Code has been delivered and has not been withdrawn.
<PAGE>
The Titan Corporation
February 5, 1998
Page 3
As noted in paragraph 4 above, one key assumption underlying this opinion is
that the Continuity of Interest Requirement will be satisfied in the Merger.
In order for this requirement to be met, shareholders of the Company must
not, pursuant to a plan or intent existing at or prior to the Merger, dispose
of so much of (i) their Company Common Stock in anticipation of the Merger,
plus (ii) the Parent Common Stock received in the Merger (collectively, the
"Planned Dispositions") such that the Company shareholders, as a group, would
no longer have a "significant equity interest" in the Company business being
conducted by Parent after the Merger. Company shareholders will generally be
regarded as having a significant equity interest as long as the Parent Common
Stock received in the Merger (after taking into account Planned
Dispositions), in the aggregate, represents a "substantial portion" of the
entire consideration received by the Company shareholders in the Merger.
The law is unclear as to what constitutes a "significant equity interest" or
a "substantial portion." For example, the case law appears to be more
liberal than the Internal Revenue Service ("IRS") ruling guidelines for
receiving advanced rulings that a merger is a reorganization within the
meaning of Section 368(a)(1) of the Code (the "IRS Ruling Guidelines"). In
fact, in one early case, the Supreme Court ruled that approximately 40%
continuity was sufficient. The IRS Ruling Guidelines, on the other hand,
require 50% continuity and for public companies, such as the Company,
representations regarding continuity ("Continuity Representations") from all
shareholders who own 5% or more of the Company Common Stock ("5%
Shareholders"). Parent and the Company have received Continuity
Representations from some but not all of the 5% Shareholders. Without all of
the Continuity Representations, the Merger would not meet the IRS Ruling
Guidelines for reorganizations. Accordingly, although the Merger has been
structured so that no cash consideration will be paid to Company shareholders
in exchange for their Company Common Stock (other than cash paid in lieu of
fractional shares), no assurance can be made that the Planned Dispositions
will not exceed the IRS's 50% continuity requirement. Consequently no
assurance can be made that the Continuity of Interest Requirement will be
satisfied, and if such requirement is not satisfied, the Merger will not be
treated as a reorganization within the meaning of Section 368(a)(1) of the
Code.
On January 23, 1998, the IRS issued new regulations that liberalize the
Continuity of Interest Requirement. The effective date of the new regulations
is January 28, 1998. The new regulations apply to all transactions that occur
after the effective date, except for transactions
<PAGE>
The Titan Corporation
February 5, 1998
Page 4
occurring pursuant to a binding written agreement that is entered into prior
to or on the effective date. Since the Reorganization Agreement was entered
into on January 5, 1998, the new regulations do not apply to the Merger, and
thus, the Merger is governed by the principles described above.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, for
federal income tax purposes, we are of the opinion that: assuming that the
Continuity of Interest Requirement is satisfied, the Merger will be a
reorganization within the meaning of Section 368(a)(1) of the Code.
In addition to your request for our opinion on this specific matter of
federal income tax law, you have asked us to review the discussion of federal
income tax issues contained in the Registration Statement. We have reviewed
the discussion entitled "Certain Federal Income Tax Matters" contained in the
Registration Statement and believe that such information fairly presents the
current federal income tax law applicable to the Merger and the material
federal tax consequences to Parent, Merger Sub, the Company and the Company's
shareholders as a result of the Merger.
We consent to the reference to our firm under the caption "Certain Federal
Income Tax Matters" in the Proxy Statement included in the Registration
Statement and to the filing of this opinion as an exhibit to the Proxy
Statement and to the Registration Statement.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as
specifically set forth herein, and this opinion may not be relied upon except
with respect to the consequences specifically discussed herein.
No opinion is expressed as to any transaction other than the Merger as
described in the Reorganization Agreement, or as to any other transaction
whatsoever, including the Merger, if all of the transactions described in the
Reorganization Agreement are not consummated in accordance with the terms of
the Reorganization Agreement and without waiver of any material provision
thereof. To the extent that any of the representations, warranties,
statements and assumptions material to our opinion and upon which we have
relied are not accurate and
<PAGE>
The Titan Corporation
February 5, 1998
Page 5
complete in all material respects at all relevant times, our opinion would be
adversely affected and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service
or any court of law, tribunal, administrative agency or other governmental
body. The conclusions are based on the Code, existing judicial decisions,
administration regulations and published rulings. No assurance can be given
that future legislative, judicial or administrative changes or
interpretations would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, by rendering this opinion, we undertake no
responsibility to advise you of any new developments in the application or
interpretation of the federal income tax laws.
<PAGE>
The Titan Corporation
February 5, 1998
Page 6
This opinion is being delivered in connection with the filing of the
Registration Statement. It is intended for the benefit of Parent, Merger
Sub, the Company and their respective shareholders and may not be relied upon
or utilized for any other purpose or by any other person and may not be made
available to any other person without our prior written consent.
Sincerely,
COOLEY GODWARD LLP
/s/ Susan Cooper Philpot
- ------------------------
Susan Cooper Philpot
<PAGE>
Exhibit 8.2
February 5, 1998
DBA Systems, Inc.
1200 S. Woody Burke Road
Melbourne, FL 32901-0550
Ladies and Gentlemen:
We have acted as counsel to DBA Systems, Inc., a Florida corporation (the
"Company") in connection with the transaction contemplated by the Agreement and
Plan of Merger and Reorganization dated as of January 5, 1998 as amended (the
"Reorganization Agreement") by and among The Titan Corporation, Inc. a Delaware
corporation ("Parent"); Eagle Acquisition Sub, Inc. ("Merger Sub"), a Florida
corporation and a wholly-owned subsidiary of Parent; and the Company (said
transaction is hereinafter referred to as the "Merger"). This opinion is being
delivered to you (i) for filing with the Securities and Exchange Commission in
connection with the filing of the Prospectus/Joint Proxy Statement with respect
to the Merger and (ii) in accordance with Section 8.7 of the Reorganization
Agreement.
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. Unless
otherwise indicated, all section references are to the Internal Revenue Code of
1986, as amended (the "Code").
For the purpose of rendering this opinion, we have examined, and are
relying upon (without any independent investigation or review thereof) the truth
and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in, the following documents (including
all exhibits and schedules attached thereto):
(a) the Reorganization Agreement;
(b) those certain tax representation letters dated February 5, 1998
delivered to us by Parent, Merger Sub and the Company containing certain
representations of Parent, Merger Sub and the Company (the "Tax Representation
Letters");
(c) those certain continuity of interest certificates signed by certain
shareholders of the Company; and
(d) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and related to
the consummation of the Merger and the other transactions contemplated by the
Reorganization Agreement as we have deemed necessary or appropriate.
<PAGE>
DBA Systems, Inc.
February 5, 1998
Page 2
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that:
1. For federal income tax purposes, the Merger will be a reorganization
within the meaning of Section 368(a)(1) of the Code, if the "continuity of
interest" condition is satisfied; however, as discussed below, because an
approximately 9% shareholder of the Company has not provided representation as
to whether she has knowledge of any plan of the Company's shareholders to
dispose of a substantial portion of the Parent stock, it is uncertain that the
continuity of interest condition will be satisfied.
2. The portion of the Prospectus/Joint Proxy Statement captioned "Certain
Federal Income Tax Matters" (in the Section titled "APPROVAL OF THE MERGER AND
RELATED TRANSACTIONS") accurately describes the material federal income tax
consequences of the Merger to a Company shareholder.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
1. Original documents submitted to us (including signatures thereto) are
authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Time) duly and validly executed and delivered where due execution and delivery
are a prerequisite to the effectiveness thereof;
2. All representations, warranties and statements made or agreed to by
Parent, Merger Sub and the Company, their managements, employees, officers,
directors and shareholders in connection with the Merger, including, but not
limited to, those set forth in the Reorganization Agreement (including the
exhibits thereto) and the Tax Representation Letters are true and accurate at
all relevant times;
3. All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof;
4. Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification; and
5. The opinion letter from Cooley Godward LLP to Parent and Merger Sub
relating to the classification of the Merger as a reorganization described in
Section 368(a)(1) and to be filed with the Registration Statement has been
delivered and has not been withdrawn.
CONTINUITY OF INTEREST. A transaction will not qualify as a reorganization
described in Section 368(a)(1) (a "Tax free Reorganization") unless the
shareholders of the acquired
<PAGE>
DBA Systems, Inc.
February 5, 1998
Page 3
corporation (in this case the shareholders of the Company) convert a
significant portion of their investment in the stock of the acquired
corporation into a proprietary interest in the acquiring corporation (that
is, Parent stock). The law does not clearly specify the percentage of the
acquired corporation's shareholder's equity investment which must be
converted into an equity investment in the acquiring corporation. The IRS
has required 50% as a condition for issuing advance rulings that a
transaction will be treated as a Tax Free Reorganization; however, there is
some limited judicial authority which indicates as little as 40% is
sufficient.
The law is similarly unclear as to the period of time, if any, during
which the shareholders of the acquired corporation must continue to hold
their proprietary interest in the acquiring corporation. The IRS has
traditionally taken the position (which there is judicial authority to
support) that the continuity of interest condition is not satisfied if, at
the time the transaction occurs, shareholders of the acquired corporation
plan or intend to dispose of an amount of acquiring corporation's stock which
would cause the shareholders of the acquired corporation to fail to hold a
significant portion of the consideration received for the acquired
corporation's stock in the form of stock of the acquiring corporation. As a
condition to issuing an advance ruling that a transaction will qualify as a
Tax Free Reorganization, the IRS has required (i) representations from the
managements of both the acquired and acquiring corporations that they know of
no plan or intention on the part of the shareholders of the acquired
corporation to sell an amount of the acquiring corporation's stock it would
cause the shareholders of the acquired corporation to hold less than 50% of
their consideration for the acquired corporation's stock in the form of stock
of the acquiring corporation and (ii) a representation from each major
shareholder (defined, in the case of a publicly-traded corporation such as
the Company, as any shareholder owning 5% or more of the acquired
corporation's stock) that they are not aware of any such plan or intention.
On January 23, 1998, the IRS issued a final regulation which provides, in
substance, that the continuity of interest test is met if (i) the shareholders
of the acquired corporation receive a substantial portion of their consideration
in the form of stock of the acquiring corporation and (ii) there is no formal or
informal agreement or understanding for the shareholders of the acquired
corporation to sell to the acquiring corporation (or parties related to the
acquiring corporation) an amount of acquiring corporation stock which would
cause the acquired corporation's shareholders to hold less than a substantial
portion of the consideration they received for the acquired corporation's stock
in the form of stock of the acquiring corporation. However, the regulation
only applies to transactions which (i) occur after January 28, 1998 and (ii) are
not consummated pursuant to a written agreement which was in effect on January
28, 1998. Because the Reorganization Agreement was signed on January 5, 1998,
the new regulation does not apply to the Merger.
There are two persons who own more than 5% of the Company's outstanding
shares ("5% Shareholders"). One owns approximately 25% of the outstanding
shares; the other owns
<PAGE>
DBA Systems, Inc.
February 5, 1998
Page 4
approximately 9%. While neither of the 5% Shareholders has indicated that he
or she has a plan or intention to dispose of a substantial portion of the
shares of Parent stock to be received in the Merger, to date only the 25%
shareholder has been willing to provide a written representation that he is
not aware of any plan or intention of the Company shareholders to dispose of
an amount of Parent stock which would cause the Company shareholders to own
Parent stock with a value which was less than 50% of the consideration paid
for the Company shares in the Merger.
In the absence of such a written representation from the 9% shareholder, we
cannot state that the continuity of interest test will be satisfied.
Specifically, if Company shareholders were to sell over a short period of time
(say less than two years) more than 50% of the Parent shares received in the
Merger, the Internal Revenue Service might challenge the Tax Free Reorganization
status of the transaction on the grounds that the sales were pursuant to plans
or intentions to sell which existed at the time of the Merger. Whether such a
challenge would be successful would depend on, among other things, (i) the
evidence, if any, that the Company shareholders had such plans or intentions to
sell at the time of the Merger and (ii) the percentage of the stock actually
disposed of (as noted above, there is judicial authority for the position that
40% continuing proprietary interest is sufficient to satisfy the continuity of
interest condition).
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein.
No opinion is expressed as to any transaction other than the Merger as
described in the Reorganization Agreement, or as to any other transaction
whatsoever, including the Merger, if all of the transactions described in the
Reorganization Agreement are not consummated in accordance with the terms of the
Reorganization Agreement and without waiver of any material provision thereof.
To the extent that any of the representations, warranties, statements and
assumptions material to our opinion and upon which we have relied are not
accurate and complete in all material respects at all relevant times, our
opinion would be adversely affected and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administration regulations and published rulings. No assurance can be given
that future legislative, judicial or administrative changes or interpretations
would not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this
<PAGE>
DBA Systems, Inc.
February 5, 1998
Page 5
opinion, we undertake no responsibility to advise you of any new developments
in the application or interpretation of the federal income tax laws.
This opinion is being delivered in connection with the filing of the
Registration Statement and the consummation of the Merger. It is intended for
the benefit of Parent, Merger Sub, the Company and their respective shareholders
for purposes of evaluating the transaction and may not be relied upon or
utilized for any other purpose or by any other person and may not be made
available to any other person without our prior written consent.
We hereby consent to the reference to our firm in the Prospectus/Joint
Proxy Statement under the caption "Certain Federal Income Tax Matters".
Very truly yours,
/s/ ARENT FOX KINTNER PLOTKIN & KAHN, PLLC
ARENT FOX KINTNER PLOTKIN & KAHN, PLLC
<PAGE>
February 4, 1998
EXHIBIT 10.38
DBA SYSTEMS, INC.
1200 SOUTH WOODY BURKE ROAD
MELBOURNE, FLORIDA 32901-0550
RE: AGREEMENT AND PLAN OF MERGER AND REORGANIZATION DATED JANUARY 5, 1998 BY AND
AMONG THE TITAN CORPORATION, EAGLE ACQUISITION SUB, INC. AND DBA SYSTEMS,
INC. (THE "MERGER AGREEMENT")
Gentlemen:
Terms used but not defined herein shall have the meaning given to such terms
in the Merger Agreement. The Titan Corporation ("Titan") hereby agrees that in
connection with the transactions contemplated by the Merger Agreement referenced
above, Titan shall promptly, and in no event later than 30 days following the
Effective Time, file with the Securities and Exchange Commission a Registration
Statement on Form S-3 (the "S-3 Registration Statement") registering the resale
of all shares of Titan Common Stock issued in the Merger and held immediately
following the Effective Time by persons (the "Subject Stockholders") who,
immediately prior to the Effective Time, beneficially held twenty percent (20%)
or more of the outstanding shares of DBA Systems, Inc's ("DBA") Common Stock,
and shall use its best efforts to cause such S-3 Registration Statement to be
declared effective as promptly as practicable, and to keep such S-3 Registration
Statement effective for a period of one year.
Titan shall pay all fees and expenses in connection with the preparation and
filing of such S-3 Registration Statement and the printing and delivery of
reasonable quantities of preliminary and final prospectuses contained therein
required for use by such Subject Stockholders; provided that Titan shall not be
responsible for any legal fees or expenses incurred by DBA or any Subject
Stockholder or any discounts or commissions payable in connection with the sale
of any such shares.
Titan further agrees that it shall enter into such further agreements, if
any, as may be required to evidence or further clarify the agreements set forth
herein. Titan further acknowledges that the Subject Stockholders are third party
beneficiaries of the agreements set forth herein and shall have the right to
enforce this Agreement against Titan as if such Subject Shareholders were a
party hereto.
Sincerely,
/s/ ERIC DE MARCO
------------------------
Senior Vice President and
Chief Financial Officer
<PAGE>
VOTING AGREEMENT
THIS VOTING AGREEMENT is entered into as of December 29, 1997 by and
between THE TITAN CORPORATION, a California corporation ("Parent"), and
((Name)) ("Shareholder").
RECITALS
A. Parent; EAGLE ACQUISITION SUB, INC., ("Merger Sub") a Florida
corporation and a wholly owned subsidiary of Titan Defense Systems
Corporation, a Delaware corporation and wholly owned subsidiary of Parent;
and DBA SYSTEMS, INC., a Florida corporation (the "Company"), are entering
into an Agreement and Plan of Merger and Reorganization of even date herewith
(as amended from time to time, the "Merger Agreement;" capitalized terms used
but not otherwise defined in this Voting Agreement have the meanings assigned
to such terms in the Merger Agreement), which provides (subject to the
conditions set forth therein) for the merger of Merger Sub into the Company
(the "Merger").
B. As of the date hereof, Shareholder owns in aggregate (including
shares held both beneficially and of record) the number of shares of Company
Common Stock set forth below Shareholder's name on the signature page hereof.
C. As a condition to the willingness of Parent and Merger Sub to enter
into the Merger Agreement, Parent and Merger Sub have required that
Shareholder agree, and in order to induce Parent and Merger Sub to enter into
the Merger Agreement Shareholder has agreed, to enter into this Voting
Agreement.
AGREEMENT
The parties to this Voting Agreement, intending to be legally bound,
agree as follows:
SECTION 1. NO TRANSFER OF SUBJECT SHARES
1.1 SUBJECT SHARES. The shares described above held by Shareholder,
together with any shares of Company capital stock that may hereafter be
acquired by Shareholder (whether upon exercise of options or otherwise), are
referred to herein as the "Subject Shares."
1.2 NO DISPOSITION OR ENCUMBRANCE OF SUBJECT SHARES.
(a) Shareholder hereby covenants and agrees that, prior to the
Expiration Date (as defined below), Shareholder will not, directly or
indirectly, (i) offer, sell, offer to sell, contract to sell, pledge, grant
any option to purchase or otherwise dispose of or transfer (or announce any
offer, sale, offer of sale, contract of sale or grant of any option to
purchase or other disposition or transfer of) any Subject Shares to any
Person other than Parent or Parent's designee, (ii) create or permit to exist
any Encumbrance with respect to any of the Subject Shares, (iii) reduce his
beneficial ownership of, interest in or risk relating to any of the Subject
Shares or (iv) commit or agree to do any of the foregoing.
1.
<PAGE>
(b) As used in this Voting Agreement, the term "Expiration Date"
shall mean the earlier of the date upon which the Merger Agreement is validly
terminated or the Effective Time of the Merger.
1.3 NO TRANSFER OF VOTING RIGHTS. Shareholder covenants and agrees
that, prior to the Expiration Date, Shareholder will not deposit any of the
Subject Shares into a voting trust or grant any proxy (except as provided
herein) or enter into any other voting agreement, or any other agreement or
arrangement with respect to the voting of any of the Subject Shares.
SECTION 2. VOTING OF SUBJECT SHARES
2.1 VOTING AGREEMENT. Shareholder hereby agrees that, prior to the
earlier to occur of the valid termination of the Merger Agreement or the
Effective Time, at any meeting of the shareholders of the Company, however
called, and in any written action by consent of shareholders of the Company,
unless otherwise directed in writing by Parent, Shareholder shall vote the
Subject Shares:
(i) in favor of (1) the adoption and approval of the Merger
Agreement and the Merger; and (2) each of the other actions contemplated by
the Merger Agreement and any action required in furtherance hereof and
thereof; and
(ii) against any action or agreement that would result in a
breach of any representation, warranty, covenant or obligation of the Company
in the Merger Agreement.
Prior to the earlier to occur of the valid termination of the Merger
Agreement or the Effective Time, Shareholder shall not enter into any
agreement or understanding with any Person to vote or give instructions in
any manner inconsistent with clause "(i)" or "(ii)" of the preceding sentence.
2.2 PROXY; FURTHER ASSURANCES.
(a) Contemporaneously with the execution of this Voting Agreement,
Shareholder shall deliver to Parent a proxy in the form attached hereto as
Exhibit A, which shall be irrevocable to the fullest extent permitted by law
prior to the Expiration Date, with respect to the Subject Shares (the
"Proxy").
(b) Shareholder shall perform such further acts and execute such
further documents and instruments as may reasonably be required to vest in
Parent the power to carry out and give effect to the provisions of this
Voting Agreement.
SECTION 3. WAIVER OF APPRAISAL RIGHTS.
Shareholder hereby waives any rights of appraisal and any dissenters'
rights that Shareholder may have in connection with the Merger.
2.
<PAGE>
SECTION 4. NO SOLICITATION.
Shareholder acknowledges that Shareholder is a Representative of the
Company. Shareholder covenants and agrees that, during the period commencing
on the date of this Voting Agreement and ending on the Expiration Date,
Shareholder shall not, directly or indirectly, or authorize or permit any
Representative of Shareholder, directly or indirectly, except to the extent
permitted by Section 4.4 of the Merger Agreement, to: (i) solicit, initiate,
encourage or induce the making, submission or announcement of any Acquisition
Proposal or take any action that could reasonably be expected to lead to an
Acquisition Proposal; (ii) furnish any nonpublic information regarding any of
the Acquired Corporations to any Person in connection with or in response to
an Acquisition Proposal or potential Acquisition Proposal; (iii) engage in
discussions with any Person with respect to any Acquisition Proposal or
potential Acquisition Proposal (iv) approve, endorse or recommend any
Acquisition Proposal; or (v) enter into any letter of intent or other similar
document or any Contract contemplating or otherwise relating to any
Acquisition Transaction. Shareholder acknowledges that breach of the
foregoing provision would cause the Company to breach its obligations set
forth in Section 4.4 of the Merger Agreement. The foregoing provisions of
this Section 4 shall not prevent Shareholder from acting, in respect of any
Acquisition Proposal, in accordance with Shareholder's fiduciary duties as a
director or officer, as applicable, of the Company, provided that such
actions are in compliance with the provisions of Section 4.4 of the Merger
Agreement and do not affect Shareholder's obligations, other than in such
capacities, under this Agreement. Shareholder shall immediately cease and
cause to be terminated any existing discussions with any Person that relate
to any Acquisition Proposal.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
Shareholder hereby represents and warrants to Parent as follows:
5.1 DUE AUTHORIZATION, ETC. Shareholder has all requisite power and
capacity to execute and deliver this Voting Agreement and the Proxy and to
perform his obligations hereunder and thereunder. This Voting Agreement has
been duly executed and delivered by Shareholder and constitutes a legal,
valid and binding obligation of Shareholder, enforceable against Shareholder
in accordance with its terms, subject to (i) laws of general application
relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules
of law governing specific performance, injunctive relief and other equitable
remedies.
5.2 NO CONFLICTS, REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Voting Agreement and the
Proxy by Shareholder do not, and the performance of this Voting Agreement by
Shareholder, and the actions taken pursuant to the terms of the Proxy, will
not: (i) conflict with or violate any order, decree or judgment applicable to
Shareholder or by which he or any of his properties is bound or affected; or
(ii) result in any breach of or constitute a default (with notice or lapse of
time, or both) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of an Encumbrance
on the Subject Shares pursuant to, any Contract to
3.
<PAGE>
which Shareholder is a party or by which Shareholder or any of his properties
is bound or affected.
(b) The execution and delivery of this Voting Agreement and the
Proxy by Shareholder do not, and the performance of this Voting Agreement by
Shareholder and the voting of the Subject Shares pursuant to the Proxy will
not, require any Consent of any Person.
5.3 TITLE TO SUBJECT SHARES. Shareholder owns of record and
beneficially the Subject Shares and rights to acquire shares of capital stock
of the Company set forth under Shareholder's name on the signature page
hereof and does not directly or indirectly own, either beneficially or of
record, any shares of capital stock of the Company, or rights to acquire any
shares of capital stock of the Company, other than the Subject Shares set
forth below Shareholder's name on the signature page hereof.
5.4 ACCURACY OF REPRESENTATIONS. The representations and warranties
contained in this Voting Agreement are accurate in all respects as of the
date of this Voting Agreement, will be accurate in all respects at all times
through the Expiration Date and will be accurate in all respects as of the
date of the consummation of the Merger as if made on that date.
SECTION 6. COVENANTS OF SHAREHOLDER
6.1 FURTHER ASSURANCES. From time to time and without additional
consideration, Shareholder will execute and deliver, or cause to be executed
and delivered, such additional or further arrangements, proxies, consents and
other instruments as Parent may reasonably request for the purpose of
effectively carrying out and furthering the intent of this Voting Agreement.
SECTION 7. MISCELLANEOUS
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements made by Shareholder and Parent in
this Voting Agreement shall promptly terminate upon the Expiration Date.
7.2 INDEMNIFICATION. Without in any way limiting any of the rights or
remedies otherwise available to Parent, Shareholder shall hold harmless and
indemnify Parent from and against any Damages (regardless of whether or not
such Damages relate to a third party claim) which are directly or indirectly
suffered or incurred at any time by Parent, or to which Parent otherwise
becomes subject and that arise from any breach of any representation,
warranty, covenant or obligation of Shareholder contained herein.
7.3 EXPENSES. All costs and expenses incurred in connection with the
transactions contemplated by this Voting Agreement shall be paid by the party
incurring such costs and expenses.
7.4 NOTICES. Any notice or other communication required or permitted
to be delivered to either party under this Voting Agreement shall be in
writing and shall be deemed
4.
<PAGE>
properly delivered, given and received when delivered (by hand, by registered
mail, by courier or express delivery service or by facsimile) to the address
or facsimile telephone number set forth beneath the name of such party below
(or to such other address or facsimile telephone number as such party shall
have specified in a written notice given to the other party hereto):
if to the Parent:
THE TITAN CORPORATION
with a copy to:
Cooley Godward LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121-2128
Attention: M. Wainwright Fishburn, Esq.
Facsimile: (619) 453-3555
if to Shareholder:
at the address set forth below Shareholder's signature on the
signature page hereto;
7.5 SEVERABILITY. Any term or provision of this Voting Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Voting Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Voting Agreement in
any other jurisdiction. If any provision of this Voting Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
7.6 ENTIRE AGREEMENT. This Voting Agreement and any documents
delivered by the parties in connection herewith, including the Proxy,
constitute the entire agreement between the parties with respect to the
subject matter hereof and thereof and supersede all prior agreements and
understandings between the parties with respect thereto. No addition to or
modification of any provision of this Voting Agreement shall be binding upon
either party hereto unless made in writing and signed by both parties hereto.
The parties hereto waive trial by jury in any action at law or suit in
equity based upon, or arising out of, this Voting Agreement or the subject
matter hereof.
7.7 ASSIGNMENT, BINDING EFFECT. Neither this Voting Agreement nor any
portion hereof shall be assignable (whether by operation of law or otherwise
and including, for this purpose, a change in control as an assignment).
Subject to the preceding sentence, this Voting
5.
<PAGE>
Agreement shall be binding upon and shall inure to the benefit of (i)
Shareholder and his heirs, successors and assigns and (ii) Parent and its
successors and assigns. Notwithstanding anything contained in this Voting
Agreement to the contrary, nothing in this Voting Agreement, expressed or
implied, is intended to confer on any Person other than the parties hereto or
their respective heirs, successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Voting Agreement.
7.8 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Voting
Agreement or the Proxy was not performed in accordance with its specific
terms or was otherwise breached. It is accordingly agreed that Parent shall
be entitled to an injunction or injunctions to prevent breaches of this
Voting Agreement and the Proxy and to enforce specifically the terms and
provisions hereof and thereof, this being in addition to any other remedy to
which Parent is entitled at law or in equity.
7.9 OTHER AGREEMENTS. Nothing in this Voting Agreement shall limit any
of the rights or remedies of Parent or any of the obligations of Shareholder
under any Affiliate Agreement between Parent and Shareholder.
7.10 GOVERNING LAW. This Voting Agreement shall be governed in all
respects by the laws of the State of Florida, as applied to contracts entered
into and to be performed entirely within the State of Florida.
7.11 COUNTERPARTS. This Voting Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument.
7.12 CONSTRUCTION.
(a) Headings of the Sections of this Voting Agreement are for the
convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
(b) For purposes of this Voting Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include masculine and feminine genders.
(c) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Voting Agreement.
(d) As used in this Voting Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
6.
<PAGE>
(e) Except as otherwise indicated, all references in this Voting
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of
this Voting Agreement and Exhibits to this Voting Agreement.
7.
<PAGE>
IN WITNESS WHEREOF, Parent and Shareholder have caused this Voting
Agreement to be executed as of the date first written above.
THE TITAN CORPORATION
By:
------------------------------------------------------------
Name:
Title:
SHAREHOLDER:
---------------------------------------------------------------
((Name))
Number of Shares of Company Common Stock owned as of the
date of this Voting Agreement:
------------------------------------------------------------
Description (including number of underlying shares) of
rights to acquire shares of capital stock of the Company:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
8.
<PAGE>
EXHIBIT A
FORM OF IRREVOCABLE PROXY
IRREVOCABLE PROXY
The undersigned Shareholder of DBA Systems, Inc., a Florida corporation (the
"Company"), hereby irrevocably (to the fullest extent permitted by law)
appoints and constitutes The Titan Corporation, a Delaware corporation
("Parent"), the attorney-in-fact and proxy of the undersigned, with full
power of substitution, with respect to (i) the shares of capital stock of the
Company owned by the undersigned as of the date of this proxy, which shares
are specified on the final page of this proxy and (ii) any and all other
shares of capital stock of the Company which the undersigned may acquire
after the date hereof. (The shares of the capital stock of the Company
referred to in clauses (i) and (ii) of the immediately preceding sentence are
collectively referred to as the "Shares.") Upon the execution hereof, all
prior proxies given by the undersigned with respect to any of the Shares are
hereby revoked, and no subsequent proxies will be given with respect to any
of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with the Voting Agreement, dated as of the date hereof, between
Parent and the undersigned (the "Voting Agreement"), and is granted in
consideration of Parent entering into the Agreement and Plan of Merger and
Reorganization, dated as of the date hereof, among Parent, Eagle Acquisition
Sub, Inc., a Florida corporation and wholly owned subsidiary of Titan Defense
Systems Corporation, a Delaware corporation and wholly owned subsidiary of
Parent, and the Company (the "Merger Agreement"). Capitalized terms used but
not otherwise defined in this proxy have the meanings ascribed to such terms
in the Merger Agreement.
The attorney and proxy named above will be empowered, and may exercise
this proxy, to vote the Shares at any time until the earlier to occur of the
valid termination of the Merger Agreement or the Effective Time at any
meeting of the Shareholders of the Company, however called, or in any written
action by consent of Shareholders of the Company:
(i) in favor of (1) the adoption and approval of
the Merger Agreement and the approval of the Merger; and (2) each of the
other actions contemplated by the Merger Agreement and any action
required in furtherance hereof and thereof; and
(ii) against any action or agreement that would
result in a breach of any representation, warranty, covenant or
obligation of the Company in the Merger Agreement.
The undersigned Shareholder may vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
heirs, successors and assigns of the undersigned (including any transferee of
any of the Shares).
1.
<PAGE>
This proxy shall terminate upon the Expiration Date.
Dated: December 29, 1997
SHAREHOLDER
----------------------------------------
((Name))
----------------------------------------
Number of Shares of Company Common
Stock:
----------------------------------
2.
<PAGE>
VOTING AGREEMENT
THIS VOTING AGREEMENT is entered into as of December 29, 1997 by and
between DBA SYSTEMS, INC., a Florida corporation (the "Company"), and
Name ("Stockholder").
RECITALS
A. THE TITAN CORPORATION, a Delaware corporation ("Parent"); EAGLE
ACQUISITION SUB, INC. ("Merger Sub") a Florida corporation and a wholly
owned subsidiary of Titan Defense Systems Corporation, a Delaware corporation
and wholly owned subsidiary of Parent; and the Company are entering into an
Agreement and Plan of Merger and Reorganization of even date herewith (as
amended from time to time, the "Merger Agreement"; capitalized terms used but
not otherwise defined in this Voting Agreement have the meanings assigned to
such terms in the Merger Agreement), which provides (subject to the
conditions set forth therein) for the merger of Merger Sub into the Company
(the "Merger").
B. As of the date hereof, Stockholder owns in aggregate (including
shares held both beneficially and of record) the number of shares of Parent
Common Stock set forth below Stockholder's name on the signature page hereof.
C. As a condition to the willingness of the Company to enter into the
Merger Agreement, the Company has required that Stockholder agree, and in
order to induce the Company to enter into the Merger Agreement Stockholder
has agreed, to enter into this Voting Agreement.
AGREEMENT
The parties to this Voting Agreement, intending to be legally bound,
agree as follows:
SECTION 1. NO TRANSFER OF SUBJECT SHARES
1.1 SUBJECT SHARES. The shares described above held by Stockholder,
together with any shares of Parent capital stock that may hereafter be
acquired by Stockholder (whether upon exercise of options or otherwise), are
referred to herein as the "Subject Shares."
1.2 NO DISPOSITION OR ENCUMBRANCE OF SUBJECT SHARES.
(a) Stockholder hereby covenants and agrees that prior to the
Expiration Date (as defined below), Stockholder will not, directly or
indirectly, (i) offer, sell, offer to sell, contract to sell, pledge, grant
any option to purchase or otherwise dispose of or transfer (or announce any
offer, sale, offer of sale, contract of sale or grant of any option to
purchase or other disposition or transfer of) any Subject Shares to any
Person, (ii) create or permit to exist any Encumbrance with respect to any of
the Subject Shares, (iii) reduce his beneficial ownership of, interest in or
risk relating to any of the Subject Shares or (iv) commit or agree to do any
of the foregoing.
1.
<PAGE>
(b) As used in this Voting Agreement, the term "Expiration Date"
shall mean the earlier of the date upon which the Merger Agreement is validly
terminated or the Effective Time of the Merger.
1.3 NO TRANSFER OF VOTING RIGHTS. Shareholder covenants and agrees
that, prior to the Expiration Date, Shareholder will not deposit any of the
Subject Shares into a voting trust or grant any proxy (except as provided
herein) or enter into any other voting agreement, or any other agreement or
arrangement with respect to the voting of any of the Subject Shares.
SECTION 2. VOTING OF SUBJECT SHARES
2.1 VOTING AGREEMENT. Stockholder hereby agrees that, prior to the
earlier to occur of the valid termination of the Merger Agreement or the
Effective Time, at any meeting of the Stockholders of Parent, however called,
and in any written action by consent of stockholders of Parent, unless
otherwise directed in writing by the Company, stockholder shall vote the
Subject Shares in favor of the adoption and approval of the Merger Agreement
and the Merger. Prior to the earlier to occur of the valid termination of the
Merger Agreement or the Effective Time, Stockholder shall not enter into any
agreement or understanding with any Person to vote or give instructions in
any manner inconsistent with the preceding sentence.
2.2 PROXY; FURTHER ASSURANCES.
(a) Contemporaneously with the execution of this Voting Agreement,
Stockholder shall deliver to the Company a proxy in the form attached hereto
as Exhibit A, which shall be irrevocable to the fullest extent permitted by
law prior to the Expiration Date, with respect to the Subject Shares (the
"Proxy").
(b) Stockholder shall perform such further acts and execute such further
documents and instruments as may reasonably be required to vest in the
Company the power to carry out and give effect to the provisions of this
Voting Agreement.
SECTION 3. WAIVER OF APPRAISAL RIGHTS.
Stockholder hereby waives any rights of appraisal and any dissenters'
rights that Stockholder may have in connection with the Merger.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Stockholder hereby represents and warrants to the Company as follows:
4.1 DUE AUTHORIZATION, ETC. Stockholder has all requisite power and
capacity to execute and deliver this Voting Agreement and the Proxy and to
perform his obligations hereunder and thereunder. This Voting Agreement has
been duly executed and delivered by Stockholder and constitutes a legal,
valid and binding obligation of Stockholder, enforceable against Stockholder
in accordance with its terms, subject to (i) laws of general application
2.
<PAGE>
relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules
of law governing specific performance, injunctive relief and other equitable
remedies.
4.2 NO CONFLICTS, REQUIRED FILINGS AND CONSENTS.
(c) The execution and delivery of this Voting Agreement and the
Proxy by Stockholder do not, and the performance of this Voting Agreement by
Stockholder, and the actions taken pursuant to the terms of the Proxy, will
not: (i) conflict with or violate any order, decree or judgment applicable to
Stockholder or by which he or any of his properties is bound or affected; or
(ii) result in any breach of or constitute a default (with notice or lapse of
time, or both) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of an Encumbrance
on the Subject Shares pursuant to, any Contract to which Stockholder is a
party or by which Stockholder or any of his properties is bound or affected.
(d) The execution and delivery of this Voting Agreement and the
Proxy by Stockholder do not, and the performance of this Voting Agreement by
Stockholder and the voting of the Subject Shares pursuant to the Proxy will
not, require any Consent of any Person.
4.3 TITLE TO SUBJECT SHARES. Stockholder owns of record and
beneficially the Subject Shares and rights to acquire shares of capital stock
of the Company set forth under Stockholder's name on the signature page
hereof and does not directly or indirectly own, either beneficially or of
record, any shares of capital stock of Parent, or rights to acquire any
shares of capital stock of Parent, other than the Subject Shares set forth
below Stockholder's name on the signature page hereof.
4.4 ACCURACY OF REPRESENTATIONS. The representations and warranties
contained in this Voting Agreement are accurate in all respects as of the
date of this Voting Agreement, will be accurate in all respects at all times
through the Expiration Date and will be accurate in all respects as of the
date of the consummation of the Merger as if made on that date.
SECTION 5. COVENANTS OF STOCKHOLDER
5.1 FURTHER ASSURANCES. From time to time and without additional
consideration, Stockholder will execute and deliver, or cause to be executed
and delivered, such additional or further arrangements, proxies, consents and
other instruments as the Company may reasonably request for the purpose of
effectively carrying out and furthering the intent of this Voting Agreement.
SECTION 6. MISCELLANEOUS
6.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements made by Stockholder and the
Company in this Voting Agreement shall promptly terminate upon the Expiration
Date.
3.
<PAGE>
6.2 INDEMNIFICATION. Without in any way limiting any of the rights or
remedies otherwise available to the Company, Stockholder shall hold harmless
and indemnify the Company from and against any damages suffered or incurred
by the Company and that arise from any breach of any representation,
warranty, covenant or obligation of Stockholder contained herein.
6.3 EXPENSES. All costs and expenses incurred in connection with the
transactions contemplated by this Voting Agreement shall be paid by the party
incurring such costs and expenses.
6.4 NOTICES. Any notice or other communication required or permitted to
be delivered to either party under this Voting Agreement shall be in writing
and shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail, by courier or express delivery service or by
facsimile) to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone
number as such party shall have specified in a written notice given to the
other party hereto):
if to Stockholder:
at the address set forth below Stockholder's signature on the
signature page hereto;
if to Company:
DBA Systems, Inc.
with a copy to:
Arent Fox
1050 Connecticut Avenue, N.W.
Washington, D.C., 20036
Attention: Jeffrey E. Jordan
Facsimile: (202) 857-6395
6.5 SEVERABILITY. Any term or provision of this Voting Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Voting Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Voting Agreement in
any other jurisdiction. If any provision of this Voting Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
6.6 ENTIRE AGREEMENT. This Voting Agreement and any documents delivered
by the parties in connection herewith, including the Proxy, constitute the
entire agreement between the parties with respect to the subject matter
hereof and thereof and supersede all prior agreements
4.
<PAGE>
and understandings between the parties with respect thereto. No addition to
or modification of any provision of this Voting Agreement shall be binding
upon either party hereto unless made in writing and signed by both parties
hereto. The parties hereto waive trial by jury in any action at law or suit
in equity based upon, or arising out of, this Voting Agreement or the subject
matter hereof.
6.7 ASSIGNMENT, BINDING EFFECT. Neither this Voting Agreement nor any
portion hereof shall be assignable (whether by operation of law or otherwise
and including, for this purpose, a change in control as an assignment).
Subject to the preceding sentence, this Voting Agreement shall be binding
upon and shall inure to the benefit of (i) Stockholder and his heirs,
successors and assigns and (ii) the Company and its successors and assigns.
Notwithstanding anything contained in this Voting Agreement to the contrary,
nothing in this Voting Agreement, expressed or implied, is intended to confer
on any Person other than the parties hereto or their respective heirs,
successors and assigns any rights, remedies, obligations or liabilities under
or by reason of this Voting Agreement.
6.8 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Voting
Agreement or the Proxy was not performed in accordance with its specific
terms or was otherwise breached. It is accordingly agreed that Parent shall
be entitled to an injunction or injunctions to prevent breaches of this
Voting Agreement and the Proxy and to enforce specifically the terms and
provisions hereof and thereof, this being in addition to any other remedy to
which Parent is entitled at law or in equity.
6.9 OTHER AGREEMENTS. Nothing in this Voting Agreement shall limit any
of the rights or remedies of the Company or any of the obligations of
Stockholder under any Affiliate Agreement between the Company and Stockholder
or any other agreement.
6.10 GOVERNING LAW. This Voting Agreement shall be governed in all
respects by the laws of the State of Delaware, as applied to contracts
entered into and to be performed entirely within the State of Delaware.
6.11 COUNTERPARTS. This Voting Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument.
6.12 CONSTRUCTION.
(e) Headings of the Sections of this Voting Agreement are for the
convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
(f) For purposes of this Voting Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include masculine and feminine genders.
5.
<PAGE>
(g) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Voting Agreement.
(h) As used in this Voting Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(i) Except as otherwise indicated, all references in this Voting
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of
this Voting Agreement and Exhibits to this Voting Agreement.
IN WITNESS WHEREOF, Parent and Stockholder have caused this Voting
Agreement to be executed as of the date first written above.
DBA SYSTEMS, INC.
By:
-------------------------------------
Name:
Title:
STOCKHOLDER:
----------------------------------------
Name
address
fax
Number of Shares of Parent Common Stock owned
as of the date of this Voting Agreement:
----------------------------------------
Description (including number of underlying shares) of
rights to acquire shares of capital stock of the
Company:
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
6.
<PAGE>
EXHIBIT A
FORM OF IRREVOCABLE PROXY
IRREVOCABLE PROXY
The undersigned Stockholder of The Titan Corporation, Inc., a Delaware
corporation ("Parent"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes DBA Systems, Inc., a Florida corporation
(the "Company"), the attorney-in-fact and proxy of the undersigned, with full
power of substitution, with respect to (i) the shares of capital stock of the
Company owned by the undersigned as of the date of this proxy, which shares
are specified on the final page of this proxy and (ii) any and all other
shares of capital stock of the Company which the undersigned may acquire
after the date hereof. (The shares of the capital stock of the Company
referred to in clauses (i) and (ii) of the immediately preceding sentence are
collectively referred to as the "Shares.") Upon the execution hereof, all
prior proxies given by the undersigned with respect to any of the Shares are
hereby revoked, and no subsequent proxies will be given with respect to any
of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with the Voting Agreement, dated as of the date hereof, between
the Company and the undersigned (the "Voting Agreement"), and is granted in
consideration of the Company entering into the Agreement and Plan of Merger
and Reorganization, dated as of the date hereof, among Parent, Eagle
Acquisition Sub, Inc., a Florida corporation and wholly owned subsidiary of
Titan Defense Systems Corporation, a Delaware corporation and wholly owned
subsidiary of Parent, and the Company (the "Merger Agreement"). Capitalized
terms used but not otherwise defined in this proxy have the meanings ascribed
to such terms in the Merger Agreement.
The attorney and proxy named above will be empowered, and may exercise
this proxy, to vote the Shares at any time until the earlier to occur of the
valid termination of the Merger Agreement or the Effective Time at any
meeting of the Stockholders of Parent, however called, or in any written
action by consent of Stockholders of Parent in favor of the adoption and
approval of the Merger Agreement and the Merger.
The undersigned Stockholder may vote the Shares on all other matters.
This proxy shall be binding upon the heirs, successors and assigns of the
undersigned (including any transferee of any of the Shares).
<PAGE>
Any obligation of the undersigned hereunder shall be binding upon the
heirs, successors and assigns of the undersigned (including any transferee of
any of the Shares).
This proxy shall terminate upon the Expiration Date.
Dated: December 29, 1997
STOCKHOLDER
-------------------------------
Name
Number of Shares of Parent Common Stock:
-------------------------------
2.
<PAGE>
SUBSIDIARIES OF
THE TITAN CORPORATION
1. Diversified Control Systems, Inc.
2. Eldyne, Inc.
3. Federal Services, Inc.
4. Pulse Sciences, Inc.
5. Titan Environmental Corporation
6. Linkabit Wireless, Inc.
7. TomoTherapeutics, Inc.
8. Unidyne Corporation
9. ServNow! NetTechnologies, Inc.
10. Titan Broadband Communications Corporation
11. Titan Software Systems Corporation
12. Linkabit Wireless, Ltd.
13. Titan Purification, Inc.
14. Titan Defense Systems Corporation
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
San Diego, California
February 5, 1998
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of The Titan
Corporation on Form S-4 of our report on the consolidated financial
statements of DBA Systems, Inc., dated August 20, 1997, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Orlando, Florida
February 5, 1998
<PAGE>
COMMON
THE TITAN CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 27, 1998
The undersigned hereby appoints Gene W. Ray and Eric M. DeMarco, and each
of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of The Titan Corporation
("Titan"), which the undersigned may be entitled to vote at a Special Meeting
of Shareholders of Titan to be held at the offices of Titan, 3033 Science
Park Road, San Diego, California 92121, on February 27, 1998 at 9:00 a.m.,
local time, and at any and all postponements, continuations and adjournments
thereof (the "Special Meeting"), with all powers that the undersigned would
possess if personally present, upon and in respect of the following matters
and in accordance with the following instructions, with discretionary
authority as to any and all other matters that may properly come before the
Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. UNLESS A CONTRARY DIRECTION IS
INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1, AS MORE SPECIFICALLY
DESCRIBED IN THE PROSPECTUS/JOINT PROXY STATEMENT TRANSMITTED IN CONNECTION
WITH THE SPECIAL MEETING. ANY HOLDER WHO WISHES TO WITHHOLD THE DISCRETIONARY
AUTHORITY REFERRED TO IN PROPOSAL 2 BELOW SHOULD MARK A LINE THROUGH THE
ENTIRE PROPOSAL.
(CONTINUED, AND TO BE DATED AND SIGNED ON OTHER SIDE)
<PAGE>
/ X / PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE USING DARK INK ONLY.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
FOR ABSTAIN AGAINST
Proposal 1 To (i) approve and adopt an / / / / / /
Agreement and Plan of Merger and
Reorganization, dated as of January 5, 1998,
among Titan, Eagle Acquisition Sub, Inc., a
newly formed, wholly owned Delaware subsidiary
of Titan ("Sub") and DBA Systems, Inc., a
Florida corporation ("DBA"), which is attached
as Appendix A to the Prospectus/Joint Proxy
Statement that has been transmitted in
connection with the Special Meeting, and (ii)
approve the merger of Sub with and into DBA,
pursuant to which, among other things, Sub will
cease to exist and DBA will survive as a wholly
owned subsidiary of Titan.
Proposal 2 In their discretion, to act upon any matters incidental to the
foregoing and such other business as may properly come before the Special
Meeting.
Dated: , 1998
- ----------------------- ------------------------ ------------
Signature Signature
Please sign exactly as your name appears hereon. If the stock is registered
in the names of two or more persons, each should sign. Executors,
administrators, trustees, guardians and attorneys-in-fact should add their
titles. If signer is a corporation, please give full corporate name and have
a duly authorized officer sign, stating title. If signer is a partnership,
please sign in partnership name by authorized person.
Receipt of the Prospectus/Joint Proxy Statement dated February _, 1998 is
hereby acknowledged.
Please vote, date and promptly return this proxy in the enclosed return
envelope which is postage prepaid if mailed in the United States.
<PAGE>
PREFERRED
THE TITAN CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 27, 1998
The undersigned hereby appoints Gene W. Ray and Eric M. DeMarco, and each
of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of The Titan Corporation
("Titan"), which the undersigned may be entitled to vote at a Special Meeting
of Shareholders of Titan to be held at the offices of Titan, 3033 Science
Park Road, San Diego, California 92121, on February 27, 1998 at 9:00 a.m.,
local time, and at any and all postponements, continuations and adjournments
thereof (the "Special Meeting"), with all powers that the undersigned would
possess if personally present, upon and in respect of the following matters
and in accordance with the following instructions, with discretionary
authority as to any and all other matters that may properly come before the
Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. UNLESS A CONTRARY DIRECTION IS
INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1, AS MORE SPECIFICALLY
DESCRIBED IN THE PROSPECTUS/JOINT PROXY STATEMENT TRANSMITTED IN CONNECTION
WITH THE SPECIAL MEETING. ANY HOLDER WHO WISHES TO WITHHOLD THE DISCRETIONARY
AUTHORITY REFERRED TO IN PROPOSAL 2 BELOW SHOULD MARK A LINE THROUGH THE
ENTIRE PROPOSAL.
(CONTINUED, AND TO BE DATED AND SIGNED ON OTHER SIDE)
<PAGE>
DBA SYSTEMS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 27, 1998
The undersigned hereby appoints John L. Slack and Charles B. Robertson,
and each of them, as attorneys and proxies of the undersigned, with full
power of substitution, to vote all of the shares of stock of DBA Systems,
Inc. which the undersigned may be entitled to vote at a Special Meeting of
Shareholders of DBA Systems, Inc. ("DBA") to be held at the offices of DBA's
Conference Facility, Granada Center, 1101 West Hibiscus Boulevard, Melbourne,
Florida, on February 27, 1998 at 10:00 a.m., local time, and at any and all
postponements, continuations and adjournments thereof (the "Special
Meeting"), with all powers that the undersigned would possess if personally
present, upon and in respect of the following matters and in accordance with
the following instructions, with discretionary authority as to any and all
other matters that may properly come before the Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. UNLESS A CONTRARY DIRECTION IS
INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1, AS MORE SPECIFICALLY
DESCRIBED IN THE PROSPECTUS/JOINT PROXY STATEMENT TRANSMITTED IN CONNECTION WITH
THE SPECIAL MEETING. ANY HOLDER WHO WISHES TO WITHHOLD THE DISCRETIONARY
AUTHORITY REFERRED TO IN PROPOSAL 2 BELOW SHOULD MARK A LINE THROUGH THE ENTIRE
PROPOSAL.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
PROPOSAL 1 To (i) approve and adopt an Agreement and Plan of Merger and
Reorganization, dated as of January 5, 1998, among DBA, The Titan
Corporation, a Delaware corporation ("Titan"), and Eagle Acquisition
Sub, Inc., a newly formed, wholly owned Delaware subsidiary of Titan
("Sub"), which is attached as Appendix A to the Prospectus/Joint
Proxy Statement that has been transmitted in connection with the
Special Meeting, and (ii) approve the merger of Sub with and into
DBA, pursuant to which, among other things, Sub will cease to exist
and DBA will survive as a wholly owned subsidiary of Titan, all as
described in said Prospectus/Joint Proxy Statement.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 2 In their discretion, to act upon any matters incidental to the
foregoing and such other business as may properly come before the
Special Meeting.
Receipt of the Prospectus/Joint Proxy Statement dated February __, 1998 is
hereby acknowledged.
Dated _____________, 1998 ___________________________________________
___________________________________________
SIGNATURE(S)
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF
THE STOCK IS REGISTERED IN THE NAMES OF TWO OR MORE
PERSONS, EACH SHOULD SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD
THEIR TITLES. IF SIGNER IS A CORPORATION, PLEASE GIVE
FULL CORPORATE NAME AND HAVE A DULY AUTHORIZED OFFICER
SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY AN AUTHORIZED
PERSON.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
