<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 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)
DELAWARE 8711 95-2588754
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Number) Number)
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. DONALD M. BARNES, ESQ.
JEREMY D. GLASER, ESQ. ANDREW C. LYNCH, ESQ.
COOLEY GODWARD LLP JENKENS & GILCHRIST
4365 Executive Drive, Suite 1100 A Professional Corporation
San Diego, California 92121 1919 Pennsylvania Avenue, N.W., Suite
600.
Telephone: (619) 550-6000 Washington, D.C.20006-3404
Telephone: (202) 326-1500
-----------
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 AMOUNT TO BE PROPOSED PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED(1) MAXIMUM OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED PER SHARE(2) PRICE FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 3,270,000 shares $6.28 $20,535,600 $4,107.12
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents an estimate of the maximum number of shares of Titan common
Stock that is issuable on consummation of the Merger, assuming a Titan
Designated Closing Price (as defined herein) of $6.00.
(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 Horizons Common Stock
and Horizon Series A Preferred Stock pursuant to the Merger is $6.28, which
is the average of the high and low sale prices of the Titan Common Stock as
reported on the NYSE on March 6, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
[TO BE RE-TYPED ON HORIZONS TECHNOLOGY, INC. LETTERHEAD]
Dear Stockholder:
You are invited to attend a Special Meeting of the stockholders (the
"Special Meeting") of Horizons Technology, Inc. ("Horizons") to be held on
Tuesday, March 31, 1998 at 9:00 a.m. at the offices of Jenkens & Gilchrist,
P.C., 1919 Pennsylvania Avenue N.W., Suite 600, Washington, D.C. 20006 (in
the Cabinet Room). This Special Meeting will be held to consider and vote
upon a proposal to adopt an Agreement and Plan of Merger and Reorganization
which, if approved, will result in Horizon becoming a wholly-owned subsidiary
of Titan Corporation ("Titan"). The proposed merger transaction is described
in detail in the enclosed Prospectus/Proxy Statement. You are encouraged to
carefully review and consider the important information set out in the
Prospectus/Proxy Statement.
If the proposed merger transaction is approved, you will be able to
exchange your stock for stock in Titan, a public company whose stock is
listed on the New York Stock Exchange under the symbol "TTN." As more fully
described in the enclosed Prospectus/Proxy Statement, each share of Horizons
Common Stock will be converted into the right to receive approximately $2.25
of Titan Common Stock and each outstanding share of Horizons Series A
Preferred Stock will be converted into the right to receive $5.00 of Titan
Common Stock.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED MERGER TRANSACTION IS
IN THE BEST INTEREST OF STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE TO APPROVE THE PROPOSAL.
Please complete, sign, date and return the enclosed proxy card promptly
in the accompanying envelope. You are, of course, welcome to attend the
Special Meeting and vote in person, even if you have previously returned your
proxy card.
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATE WITH YOUR PROXY. CERTIFICATES
SHOULD NOT BE SURRENDERED UNLESS THE MERGER IS APPROVED. IF THE MERGER PROPOSAL
IS APPROVED, SHAREHOLDERS WILL RECEIVE A LETTER OF TRANSMITTAL FROM THE
EXCHANGE AGENT WHICH WILL CONTAIN DIRECTIONS FOR EXCHANGE OF YOUR CERTIFICATES.
Thank you,
Dr. James T. Palmer
<PAGE>
[TO BE RE-TYPED ON HORIZONS TECHNOLOGY, INC. LETTERHEAD]
Dear Participant in the Employee Stock Ownership Plan ("ESOP" or "Plan"):
A Special Meeting of the stockholders (the "Special Meeting") of
Horizons Technology, Inc. ("Horizons") will be held on Tuesday, March 31,
1998 at 9:00 a.m. at the offices of Jenkens & Gilchrist, P.C., 1919
Pennsylvania Avenue N.W., Suite 600, Washington, D.C. 20006 (in the Cabinet
Room). This Special Meeting will be held to consider and vote upon a proposal
to adopt an Agreement and Plan of Merger and Reorganization which, if
approved, will result in Horizon becoming a wholly-owned subsidiary of Titan
Corporation ("Titan"). The proposed merger transaction is described in detail
in the enclosed Prospectus/Proxy Statement. You are encouraged to carefully
review and consider the important information set out in the Prospectus/Proxy
Statement.
If the proposed merger transaction is approved, the Trustees under the
Plan ("Trustees") will be able to exchange stock held in the Plan for stock
in Titan, a public company whose stock is listed on the New York Stock
Exchange under the symbol "TTN." As more fully described in the enclosed
Prospectus/Proxy Statement, each share of Horizons Common Stock will be
converted into the right to receive approximately $2.25 of Titan Common Stock
and each outstanding share of Horizons Series A Preferred Stock will be
converted into the right to receive $5.00 of Titan Common Stock.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED MERGER TRANSACTION IS
IN THE BEST INTEREST OF STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE TO APPROVE THE PROPOSAL.
Under the Plan, each Participant is entitled to direct the Trustees as
to the manner in which shares of Horizons common stock allocated to each
Participant's account shall be voted in connection with the proposed merger.
Please complete, sign, date and return the enclosed proxy card promptly to
the Plan Trustee in the accompanying envelope. If instructions are not
received by the Trustees with respect to any allocated shares of Horizon
within three (3) business days of the stockholders meeting, the Trustees will
vote such shares in the same proportions as the Trustees are instructed to
vote with respect to the allocated shares of Horizons stock for which
instructions are received. At the stockholders meeting, the Trustees will
vote all unallocated shares of stock in the manner which they determine to
be in the best interests of Plan Participants taking into account all facts
and circumstances. Please refer to the ESOP Plan documents for a more
detailed description of the voting procedure.
Thank you,
Dr. James T. Palmer
<PAGE>
HORIZONS TECHNOLOGY, INC.
3990 RUFFIN ROAD
SAN DIEGO, CA 92123
-----------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 31, 1998
-----------
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders (the
"Special Meeting") of Horizons Technology, Inc., a Delaware corporation
("Horizons"), will be held on March 31, 1998, at 9 o'clock a.m., local time, at
The offices of Jenkens & Gilchrist, P.C., located at 1919 Pennsylvania Avenue,
N.W., Suite 600, Washington, D.C.
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 February 26,
1998, (the "Merger Agreement"), among Horizons, The Titan Corporation,
a Delaware corporation ("Titan"), Sunrise Acquisition Sub, Inc.
("Titan Sub"), a newly formed, wholly-owned Delaware subsidiary of
Titan, and certain stockholders of Horizons; and (ii) approve and
consent to the merger of Titan Sub with and into Horizons (the
"Merger"), pursuant to which, among other things, Titan Sub will cease
to exist and Horizons will survive as a wholly-owned subsidiary of
Titan (collectively the "Merger Proposal"). As a result of the
Merger, each outstanding share of Horizons Common Stock will be
converted into the right to receive approximately $2.25 of Titan
Common Stock, and each outstanding share of Horizons Series A
Preferred Stock will be converted into the right to receive $5.00 of
Titan Common Stock, based on the average closing price (the "Titan
Designated Closing Price") of Titan Common Stock on the New York Stock
Exchange over the twenty trading days prior to the date of the Merger
(subject to certain limitations and potential adjustments). In
addition, options and warrants to acquire Horizons Common Stock will
be converted as a result of the Merger into equivalent options and
warrants to acquire Titan Common Stock, based upon the fraction
representing the ratio pursuant to which shares of Horizons Common
Stock convert in the Merger into shares of Titan Common Stock.
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/Proxy Statement accompanying this Notice.
The Board of Directors of Horizons recommends that you vote FOR all of the
proposals described above.
Only the holders of record of Horizons Common Stock and Horizons Series A
Preferred Stock at the close of business on March 6, 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
James T. Palmer
Chief Executive Officer
San Diego, California
March __, 1998
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 10, 1998
PROSPECTUS
THE TITAN CORPORATION
PROSPECTUS
-----------
HORIZONS TECHNOLOGY, INC.
PROXY STATEMENT
This Prospectus/Proxy Statement (the "Prospectus/Proxy Statement") is being
furnished to the stockholders of Horizons Technology, Inc., a Delaware
corporation ("Horizons"), on behalf of the Horizons Board of Directors (the
"Horizons Board") for use at the Special Meeting of stockholders of Horizons to
be held on March 31, 1998 at 9 o'clock a.m., local time, at The offices of
Jenkens & Gilchrist, P.C., located at 1919 Pennsylvania Avenue, N.W., Suite 600,
Washington, D.C. and at any adjournments or postponements thereof (the "Horizons
Meeting").
The Horizons Meeting is being called in connection with the proposed merger
of Sunrise Acquisition Sub, Inc. ("Titan Sub"), a newly formed, wholly-owned
Delaware subsidiary of Titan, with and into Horizons (the "Merger"), pursuant to
an Agreement and Plan of Merger and Reorganization (the "Merger Agreement"),
dated February 26, 1998, among Titan, Titan Sub, Horizons and certain
stockholders of Horizons (the "Designated Stockholders"). 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 Horizons
will survive as a wholly-owned subsidiary of Titan, and (ii) each outstanding
share of Horizons common stock, $.01 par value ("Horizons Common Stock"), will
be converted into the right to receive approximately $2.25 of Titan common
stock, $.01 par value ("Titan Common Stock"), and each outstanding share of
Horizons Series A Preferred Stock will be converted into the right to receive
$5.00 of Titan Common Stock, based on the average closing price of Titan Common
Stock (the "Titan Designated Closing Price") on the New York Stock Exchange
("NYSE") over the twenty trading days prior to the date of the Merger (subject
to certain limitations and potential adjustments). In addition, options and
warrants to acquire Horizons Common Stock will be converted as a result of the
Merger into equivalent options and warrants for Titan Common Stock, based upon
the fraction representing the ratio pursuant to which shares of Horizon Common
Stock convert in the Merger into shares of Titan Common Stock (the "Applicable
Fraction").
-----------
NO PERSON HAS BEEN AUTHORIZED BY TITAN OR HORIZONS TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS/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,
HORIZONS OR ANY OTHER PERSON. THIS PROSPECTUS/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/PROXY STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS/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 NYSE under
the symbols "TTN" and "TTNP," respectively. It is a condition of the
obligations of Titan and Horizons to consummation of the Merger that the shares
of Titan Common Stock to be issued in the Merger be approved for listing on the
NYSE.
------------------------------------------
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS MARCH __, 1998.
<PAGE>
This Prospectus/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 Horizons Common Stock and Horizons Series A
Preferred Stock. Based upon the capitalization of Horizons as of the close of
business on the Record Date, and based on the $6.375 closing price of Titan
Common Stock on the NYSE on March 6, 1998 (and assuming no potential
adjustments, explained herein, are made to the conversion ratio of the Horizons
Common Stock), an aggregate of approximately 3,035,760 shares of Titan Common
Stock (the "Merger Consideration") will be issued in the Merger, and Titan will
assume all outstanding Horizons options and warrants which will be converted
into options and warrants to acquire approximately 41,477 additional shares of
Titan Common Stock. Based upon the number of shares of Titan Common Stock issued
and outstanding as of March 6, 1998, and after giving effect to such issuance of
Titan Common Stock and the exercise of all such options and warrants to purchase
Horizons Common Stock assumed by Titan, the former holders of Horizons Common
Stock and Horizons Series A Preferred Stock and options and warrants to purchase
Horizons Common Stock would hold, and have voting power with respect to,
approximately 12.1% of the total issued and outstanding Titan Common Stock,
which would constitute approximately 11.7% 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 approval and consent of the stockholders of Horizons is
received and other conditions to the Merger are satisfied or waived, the Merger
is expected to be consummated on or promptly after March 31, 1998 (the
"Closing").
All information contained in this Prospectus/Proxy Statement relating to
Titan or Titan Sub has been supplied by Titan, and all information contained in
this Prospectus/Proxy Statement relating to Horizons has been supplied by
Horizons.
This Prospectus/Proxy Statement is first being mailed to stockholders of
Horizons on or about March 11, 1998.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROSPECTUS/PROXY
STATEMENT. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS OF
HORIZONS ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROSPECTUS/PROXY
STATEMENT IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO UNDER "RISK
FACTORS," BEGINNING ON PAGE 13.
------------------------------------------
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/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Meeting of Horizons Stockholders . . . . . . . . . . . . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Opinions of Horizons' Financial Advisor. . . . . . . . . . . . . . . . . . . . 3
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . 3
Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Certain Federal Income Tax Matters . . . . . . . . . . . . . . . . . . . . . . 3
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Appraisal Rights of Horizons Stockholders. . . . . . . . . . . . . . . . . . . 4
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Market Price Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SELECTED HISTORICAL FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . 8
SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA . . . . . . . . . . . . .11
COMPARATIVE PER SHARE DATA . . . . . . . . . . . . . . . . . . . . . . . . . .12
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Risks Related to the Merger. . . . . . . . . . . . . . . . . . . . . . . . . .13
Integration of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . .13
Additional Shares to be Issued by Titan; Shares Eligible for Future Sale . . .13
Potential Adjustment to Consideration to be Received by Holders of Horizons
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Risks Related to Titan's and Horizons' Businesses. . . . . . . . . . . . . . .14
Ability to Implement Spin-Out Strategy . . . . . . . . . . . . . . . . . . . .14
Acquisition of DBA; Risks Associated with Acquisition Strategy . . . . . . . .14
Dependence on Government Contracts . . . . . . . . . . . . . . . . . . . . . .15
Fluctuations in Results of Operations. . . . . . . . . . . . . . . . . . . . .15
Rapid Industry Change; Technological Obsolescence. . . . . . . . . . . . . . .16
Ability to Commercialize New Technologies. . . . . . . . . . . . . . . . . . .16
Market Acceptance of New Technologies. . . . . . . . . . . . . . . . . . . . .16
Risks of International Operations. . . . . . . . . . . . . . . . . . . . . . .16
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Reliance on Strategic Relationships. . . . . . . . . . . . . . . . . . . . . .17
Customer Concentration within Business Segments. . . . . . . . . . . . . . . .17
Government Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Dependence Upon Suppliers; Sole and Limited Sources of Supply. . . . . . . . .18
Limited Intellectual Property Protection; Dependence on Proprietary
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Risk of Budget Overruns in Fixed Price Contracts . . . . . . . . . . . . . . .19
Reliance on Key Personnel. . . . . . . . . . . . . . . . . . . . . . . . . . .19
Volatility of Stock Price. . . . . . . . . . . . . . . . . . . . . . . . . . .19
Impact of the Year 2000 Issue. . . . . . . . . . . . . . . . . . . . . . . . .19
Anti-Takeover Effects of Certain Charter Provisions; Rights Plan . . . . . . .20
THE HORIZONS MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS. . . . . . . . . . . . . . . .23
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Titan Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . .24
Horizons Reasons for the Merger. . . . . . . . . . . . . . . . . . . . . . . .25
Opinion of Slavitt Ellington . . . . . . . . . . . . . . . . . . . . . . . . .26
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . .28
Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Certain Federal Income Tax Matters . . . . . . . . . . . . . . . . . . . . . .29
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Appraisal Rights of Horizons Stockholders. . . . . . . . . . . . . . . . . . .31
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
TERMS OF THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Manner and Basis for Converting Shares . . . . . . . . . . . . . . . . . . . .32
Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Treatment of Employee Equity Benefit Plans . . . . . . . . . . . . . . . . . .33
Stock Ownership Following the Merger . . . . . . . . . . . . . . . . . . . . .33
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . .34
Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Conditions to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Termination of the Merger Agreement. . . . . . . . . . . . . . . . . . . . . .36
Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Break-Up Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Merger Expenses and Fees and Other Costs . . . . . . . . . . . . . . . . . . .37
Related Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Affiliates' Restrictions on Sale of Titan Common Stock . . . . . . . . . . . .38
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION . . . . . . . . .39
TITAN BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
TITAN MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Operating Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . . . . . .56
Forward Looking Information; Certain Cautionary Statements . . . . . . . . . .57
OWNERSHIP OF TITAN'S SECURITIES. . . . . . . . . . . . . . . . . . . . . . . .58
TITAN MANAGEMENT AND EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . .59
Executive Officers and Directors . . . . . . . . . . . . . . . . . . . . . . .59
Compensation Committee Interlocks and Insider Participation. . . . . . . . . .60
Summary Of Cash And Certain Other Compensation . . . . . . . . . . . . . . . .61
Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Option Exercises And Holdings. . . . . . . . . . . . . . . . . . . . . . . . .62
Agreements With Executive Officers . . . . . . . . . . . . . . . . . . . . . .63
HORIZONS BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
HORIZONS' MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . . . . . .69
OWNERSHIP OF HORIZONS' SECURITIES. . . . . . . . . . . . . . . . . . . . . . .71
COMPARISON OF RIGHTS OF TITAN STOCKHOLDERS AND HORIZONS STOCKHOLDERS . . . . .72
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . .F-1
------------
The following appendices also constitute part of this Prospectus/Proxy
Statement:
A - Agreement and Plan of Merger and Reorganization
B - Fairness Opinion of The Slavitt Ellington Group
C - Fair Market Value Opinion of The Slavitt Ellington Group
D - Section 262 of the General Corporation law of the State of Delaware
ii
<PAGE>
AVAILABLE INFORMATION
Titan is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files 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 stockholders of Horizons 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/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/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/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/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/Proxy Statement contains trademarks and registered trademarks of
Titan, Horizons and other companies.
i
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS/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/PROXY STATEMENT AND THE APPENDICES
HERETO. STOCKHOLDERS OF HORIZONS ARE URGED TO READ THIS PROSPECTUS/PROXY
STATEMENT AND THE APPENDICES IN THEIR ENTIRETY.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN
THIS PROSPECTUS/PROXY STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. TITAN'S, HORIZONS' 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/PROXY STATEMENT.
GENERAL
This Prospectus/Proxy Statement is being provided to stockholders of
Horizons in connection with the proposed Merger of Titan Sub with and into
Horizons, pursuant to which Titan Sub will cease to exist and Horizons 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
Information Technologies segment has recently grown significantly as a result of
Titan's acquisition of DBA Systems, Inc. ("DBA") in February 1998. 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 Delaware in January 1998 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.
HORIZONS
GENERAL DESCRIPTION OF BUSINESS
Horizons was founded in 1977 initially to conduct systems analysis and
software development for the Defense Nuclear Agency ("DNA"). Horizons' first
contract was to shrink supercomputer programs for calculating nuclear weapons
effect into applications hosted on first-generation hand-held computers. From
this beginning, Horizons has been
1
<PAGE>
predominantly involved in providing software, computer systems integration and
technical consulting services, primarily to the United States' defense
establishment.
The initial range of technical capabilities provided by Horizons
encompassed systems for aviation and operational mission planning, database
design, modeling and simulation, multimedia implementations and other
computer-based applications. In the technical consulting services area,
Horizons has developed a wide array of systems management experience and now
provides essential day-to-day technical and program management support to many
government offices. The technical consulting focus is on the development of
defense command and control ("C2") systems.
Unless otherwise indicated, "Horizons" refers to Horizons Technology, Inc.,
a Delaware corporation, and its subsidiaries. Horizons' executive offices are
located at 3990 Ruffin Road, San Diego, California, 92123. Its telephone number
is (619) 292-8331.
MEETING OF HORIZONS STOCKHOLDERS
DATE, TIME AND PLACE
The Horizons Meeting will be held on March 31, 1998 at 9 o'clock a.m.,
local time, at Horizons' headquarters located at 3990 Ruffin Road, San Diego,
California.
PURPOSE OF THE MEETING
At the Horizons Meeting, stockholders of Horizons will be asked to consider
and vote upon a proposal to: (i) approve and adopt an Agreement and Plan of
Merger and Reorganization dated February 26, 1998, (the "Merger Agreement"),
among Horizons, The Titan Corporation, a Delaware corporation ("Titan"), Sunrise
Acquisition Sub, Inc. ("Titan Sub"), a newly formed, wholly-owned Delaware
subsidiary of Titan, and certain stockholders of Horizons; and (ii) approve and
consent to the merger of Titan Sub with and into Horizons (the "Merger"),
pursuant to which, among other things, Titan Sub will cease to exist and
Horizons will survive as a wholly-owned subsidiary of Titan (collectively, the
"Merger Proposal"). As a result of the Merger, each outstanding share of
Horizons Common Stock will be converted into the right to receive approximately
$2.25 of Titan Common Stock, and each outstanding share of Horizons Series A
Preferred Stock will be converted into the right to receive $5.00 of Titan
Common Stock, based on the average closing price (the "Titan Designated Closing
Price") of Titan Common Stock on the New York Stock Exchange over the twenty
trading days prior to the date of the Merger (subject to certain limitations and
potential adjustments). In addition, options and warrants to acquire Horizons
Common Stock will be converted as a result of the Merger into equivalent options
and warrants to acquire Titan Common Stock, based upon the Applicable Fraction.
RECORD DATE; SHARES ENTITLED TO VOTE
Only stockholders of record of Horizons at the close of business on
March 6, 1998 (the "Record Date") are entitled to notice of and to vote at the
Horizons Meeting. At the close of business on the Record Date, there were
outstanding and entitled to vote 7,496,953 shares of Horizons Common Stock and
500,000 shares of Series A Preferred Stock ("Horizons Series A Preferred
Stock"), each of which will be entitled to one vote on each matter to be acted
upon at the Horizons Meeting.
VOTE REQUIRED
Approval of the Merger Proposal requires the affirmative vote of the
holders, entitled to vote on the Merger Proposal as of the Record Date, of a
majority of the Horizons Common Stock and the Horizons Series A Preferred Stock,
voting together as one class. As a group, all executive officers and directors
of Horizons and their respective affiliates beneficially owned approximately 65%
of the Horizons Common Stock as of the Record Date. The Designated Stockholders,
who are executive officers and directors of Horizons, have each agreed to vote
all shares of Horizons over which they have voting power or control in favor of
the Merger Agreement and the Merger.
Further, pursuant to the Certificate of Designations for the Horizons
Series A Preferred Stock, the consent of the holders of two-thirds (2/3) of the
outstanding shares of Horizons Series A Preferred Stock is required to
consummate the Merger.
RECOMMENDATION OF HORIZONS BOARD OF DIRECTORS
The Horizons Board has approved the Merger Agreement and the Merger and has
determined that the Merger is in the best interests of Horizons and its
stockholders. THE HORIZONS BOARD HAS UNANIMOUSLY RECOMMENDED APPROVAL OF THE
MERGER PROPOSAL BY THE HORIZONS STOCKHOLDERS. The primary factors
2
<PAGE>
considered and relied upon by the Horizons Board in reaching its recommendation
are described below under "Approval of the Merger and Related Transactions --
Horizons' 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 Horizons.
OPINIONS OF HORIZONS' FINANCIAL ADVISOR
The Slavitt Ellington Group ("Slavitt Ellington"), Horizons' financial
advisor, has delivered to Horizons its written opinion, dated February 26, 1998,
to the effect that, as of such date, the consideration to be received in the
Merger was fair, from a financial point of view, to Horizons stockholders. The
full text of such opinion of Slavitt Ellington, which sets forth the assumptions
made, matters considered and limitations on the review undertaken by Slavitt
Ellington, is attached as Appendix B to this Prospectus/Proxy Statement. Slavitt
Ellington has also provided to Horizons its written opinion, dated February 26,
1998, that the fair value of the Series A Preferred Stock is $5.00 per share.
The full text of such opinion of Slavitt Ellington, which sets forth the
assumptions made, matters considered and limitations on the review undertaken by
Slavitt Ellington, is attached as Appendix C to this Prospectus/Proxy Statement.
Horizons stockholders are urged to read these opinions in their entirety. See
"Approval of the Merger and Related Transactions -- Opinion of Slavitt
Ellington."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Horizons Board with respect to the
Merger Proposal, holders of Horizons Common Stock and Horizons Series A
Preferred Stock should be aware that certain members of the Horizons Board and
certain Horizons executive officers may have certain interests in the Merger
that are in addition to the interests of the holders of Horizons Common Stock
and Horizons Series A Preferred generally. The members of the Horizons Board
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 Horizons filed notification and report forms under the HSR Act with the FTC
and the Antitrust Division on March 3, 1998. These filings commenced a 30-day
waiting period under the HSR Act, with respect to which both Titan and Horizons
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 Horizons
stockholders on the exchange of Horizons Common Stock and Horizons Series A
Preferred for Titan Common Stock, except to the extent that Horizons
stockholders receive cash in lieu of fractional shares or in payment for shares
as to which appraisal rights have been perfected. Neither Horizons 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 Horizons'
obligations to consummate the Merger, Titan and Horizons 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 Horizons does not render such
opinion, this condition shall nonetheless be deemed to be satisfied with respect
to Horizons if counsel to Titan renders such opinion to Horizons. See "Approval
of the Merger and Related Transactions -- Certain Federal Income Tax Matters."
3
<PAGE>
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 has concluded that no conditions exist relating to
Horizons that would preclude Titan from accounting for the Merger as a pooling
of interests. See "Approval of the Merger and Related Transactions -- Accounting
Treatment."
APPRAISAL RIGHTS OF HORIZONS STOCKHOLDERS
Stockholders of record of Horizons capital stock may, by following certain
procedures prescribed by the Delaware General Corporation law (the "DGCL"),
demand appraisal rights and receive cash for their respective shares of Horizons
Common Stock and Horizons Series A Preferred Stock. The failure of any
dissenting stockholder of Horizons to follow the appropriate procedures may
result in the termination or waiver of such rights. To perfect any right of
appraisal a holder of shares must, prior to any stockholder vote on the Merger,
deliver a written demand for appraisal of such shares to Horizons. In addition,
any stockholder demanding an appraisal must not vote in favor of the Merger. If
a stockholder demands appraisal rights, such stockholder's shares shall not be
converted as described in the Merger Agreement, but shall only be entitled to
such rights and consideration as may be allowed by the DGCL. A copy of Section
262 of the DGCL is attached as Appendix D to this Prospectus. See "The Merger
- -- Appraisal Rights of Horizons Stockholders."
THE MERGER
TERMS OF THE MERGER; EXCHANGE OF STOCK. As a result of the Merger,
Horizons will become a wholly-owned subsidiary of Titan. Except as provided
below, each outstanding share of Horizons Common Stock will be converted into
the right to receive approximately $2.25 of Titan Common Stock, and each
outstanding share of Horizons Series A Preferred Stock will be converted into
the right to receive $5.00 of Titan Common Stock. Cash will be paid in lieu of
issuing fractional shares. The value of Titan common Stock to be issued in
connection with the Merger for each share of Horizons Common Stock may be
adjusted at the time of the Merger if either of the following occur: (i)
Horizons' working capital as of January 31, 1998 is determined to be more than
$200,000 greater than or less than $2,150,000 (in which case the aggregate value
to be received by all holders of Horizons Common Stock will be increased or
decreased, as appropriate, by an amount equal to the variance from $2,150,000);
or (ii) the Titan Designated Closing Price is determined to be less than $6.00
or greater than $8.00 (in which case the Titan Designated Closing Price will be
deemed to be $6.00 or $8.00, as appropriate, for purposes of determining the
Applicable Fraction). Neither Titan nor Horizons expect any such adjustment in
value will be necessary in connection with the Merger. Assuming no such
adjustments are made, based upon the capitalization of Horizons as of the close
of business on the Record Date, and based on the $6.375 closing price of Titan
Common Stock on the New York Stock Exchange on March 6, 1998, an aggregate of
approximately 3,035,760 shares of Titan Common Stock (the "Merger
Consideration") will be issued in the Merger. Further, Titan will assume all
outstanding Horizons options, which will be converted into options to acquire
approximately 9,767 additional shares of Titan Common Stock. Finally, all
outstanding Horizons warrants that do not terminate as of the Merger will be
substituted for warrants to acquire approximately 31,710 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
stockholders of Horizons 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 a properly executed Certificate of
Merger compliant with applicable law is duly filed with the Delaware Secretary
of State (the "Effective Time"). At the Effective Time, Titan Sub will merge
with and into Horizons, with the result that Horizons will be the surviving
corporation in the Merger and a wholly-owned subsidiary of Titan (the "Surviving
Subsidiary"). The stockholders of Horizons will become stockholders of Titan
(as described below), and their rights will be governed by Titan's Certificate
of Incorporation (the "Titan Certificate") and the Bylaws (the "Titan Bylaws").
See "Terms of the Merger -- Effect of the Merger" and "Comparison of Rights of
Stockholders of Titan and Horizons."
EXCHANGE OF HORIZONS 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 Horizons Common Stock or
Horizons Series A Preferred Stock, a letter of transmittal with 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 HORIZONS COMMON STOCK OR HORIZONS SERIES A
PREFERRED 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."
4
<PAGE>
HORIZONS OPTIONS AND WARRANTS. At the Effective Time, each unexpired
and unexercised option to purchase Horizons Common Stock in effect on the
date of the Merger Agreement that has been granted by Horizons to current or
former directors, officers or employees of Horizons (each, a "Horizons
Option"), and each warrant to purchase shares of Horizons Common Stock that
does not by its terms terminate in connection with the Merger (each a
"Horizons Warrant"), will be assumed by Titan (or substituted in the case of
Horizons Warrants) and will be automatically converted into an option (a
"Titan Exchange Option") or a warrant (a "Titan Exchange Warrant"), as
applicable, to purchase that number of shares of Titan Common Stock equal to
the number of shares of Horizons Common Stock issuable immediately prior to
the Effective Time upon exercise of the Horizons Option or Horizons Warrant,
as applicable (without regard to actual restrictions on exercisability),
multiplied by the Applicable Fraction, with an exercise price per share equal
to the exercise price per share that existed under the corresponding Horizons
Option or Horizons Warrant, as applicable, divided by the Applicable
Fraction, and with other terms and conditions (such as vesting) that are the
same as the terms and conditions of such Horizons Option or Horizons Warrant,
as applicable, immediately before the Effective Time. As of the Record Date,
27,700 shares of Horizons Common Stock were issuable upon the exercise of
outstanding Horizons Options, which options will be assumed by Titan and will
be converted into Titan Exchange Options to acquire approximately 9,767
shares of Titan Common Stock at the Effective Time. The weighted average
exercise price per share of all Horizons Options outstanding as of the Record
Date is approximately $2.355 per share. Following the Merger the weighted
average exercise price per share of all Titan Exchange Options will be
approximately $6.68 per share (based on the capitalization of Horizons, and
the closing price of Titan Common Stock, on the Record Date). The unvested
portion of each Horizons Option will continue to vest as a Titan Exchange
Option upon the same schedule as the corresponding Horizons Option. As of the
Record Date 89,927 shares of Horizons Common Stock were issuable upon the
exercise of outstanding Horizons Warrants that do not terminate as of the
Merger, which warrants will be substituted by Titan and will be converted
into Titan Exchange Warrants to acquire approximately 31,710 shares of Titan
Common Stock at the Effective Time (based on the capitalization of Horizons,
and the closing price of Titan Common Stock, on the Record Date). To the
extent any Horizons Options or Horizons Warrants are exercised from the date
of the Merger Agreement to the Effective Time, the issued Horizons Common
Stock will be converted at the Applicable Fraction. All outstanding warrants
of Horizons expire by their terms as a result of the Merger, except for
certain warrants held by Imperial Bank (certain of which expire by their
terms on April 1, 1998).
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
Horizons as of the close of business on the Record Date, and the closing price
per share of Titan Common Stock on March 6, 1998 ($6.375), an aggregate of
approximately 3,035,760 shares of Titan Common Stock will be issued to Horizons
stockholders in the Merger and Titan will assume all outstanding Horizons
Options and substitute all Horizons Warrants which will be converted into
options or warrants, as applicable, to acquire up to approximately
41,477 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 Titan Exchange Options and Titan Exchange Warrants, the former
holders of Horizons Common Stock and Horizons Series A Preferred Stock and
options and warrants to purchase Horizons Common Stock would have approximately
11.7% 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 Horizons 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 Horizons 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 Horizons (as the Surviving
Subsidiary) will be the same persons, holding the same offices, as immediately
prior to the Effective Time, except that James T. Palmer will resign as
Horizons' Chief Executive Officer, and the directors of Horizons will be Gene W.
Ray, Earl A. Pontius, John L. Slack and J.S. Webb. See "Terms of the Merger --
Effect of the Merger."
COVENANTS. Pursuant to the Merger Agreement, Horizons has agreed (on
behalf of itself and its 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, Horizons 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, Horizons 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. Horizons has further
agreed to take actions necessary to give notice of, convene and hold
5
<PAGE>
a meeting of stockholders, and solicit proxies with respect to the meeting.
Each of Horizons 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; and to provide certain documents to
the other and keep the other's information confidential. The Designated
Stockholders have also made certain covenants pursuant to the Merger Agreement.
See "Terms of the Merger -- Covenants."
NO SOLICITATION. Pursuant to the Merger Agreement, except under certain
limited circumstances, Horizons has agreed (on behalf of itself and each of its
subsidiaries) that it will not, and each of the Designated Stockholders has
agreed that he will not, directly or indirectly (i) solicit any alternate
acquisition, (ii) furnish any non-public information concerning Horizons in
connection with or in response to an alternative acquisition proposal, and
(iii) participate in any discussions or negotiations with any other parties with
respect to an alternate acquisition proposal.
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
stockholders of Horizons, (iii) absence of any material legal proceeding
relating to the Merger, (iv) receipt by Titan and Horizons of legal opinions
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 Horizons have agreed that,
if the Merger is not consummated under certain circumstances, including the
failure of Horizons' stockholders to approve the Merger Proposal, Titan or
Horizons, as the case may be, will pay to the other a sum of $250,000. See
"Terms of the Merger -- Termination of the Merger Agreement," " -- Effect of
Termination" and " -- Break-Up Fees."
STOCK VOTING AGREEMENT. In connection with the execution of the Merger
Agreement, all of the Designated Stockholders, owning in the aggregate
approximately 69% of the Horizons Common Stock, executed a Stock Voting
Agreement with Titan. Pursuant to such agreements, each of such persons agreed
to vote all shares of Horizons 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-Stock Voting Agreement."
AFFILIATE AGREEMENTS. As a condition to Titan's obligations to consummate
the Merger, each of the Designated Stockholders shall have, prior to 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.
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 shall pay all fees and expenses
incurred in connection with the printing and filing of the S-4 Registration
Statement and this Prospectus/Proxy Statement and any amendments or supplements
thereto, and in connection with forms and notifications required to be filed by
Horizons and Titan under the HSR Act (except that fees associated with any
filing by a Horizons stockholder shall be borne exclusively by Horizons). See
"Terms of the Merger -- Merger Expenses and Fees and Other Costs."
Titan estimates that Titan and Horizons will incur direct transaction
costs of approximately $1 million associated with the Merger. These
nonrecurring transaction costs are expected to be charged to operations
during the quarter ending March 31, 1998. See "Unaudited Pro Forma Combined
Condensed Financial Information" and "Risk Factors -- Integration of
Operations."
6
<PAGE>
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 ended 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
Fiscal year ending December 31, 1998:
1st Quarter (through March 6, 1998) $6.86 $5.50
<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 ended 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
Fiscal year ending December 31, 1998:
1st Quarter (through March 6, 1998) $13.44 $11.63
</TABLE>
There is no public trading market for Horizons' capital stock.
As of the Record Date, there were approximately 3,783 stockholders of
record of Titan Common Stock and approximately 684 stockholders of record of
Titan Public Preferred, as shown on the stock records of Titan.
As of the Record Date, there were approximately 85 stockholders of record
of Horizons Common Stock and approximately 11 stockholders of record of Horizons
Series A Preferred, as shown on the stock records of Horizons.
Titan has never 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.
7
<PAGE>
As of the Record Date there were 500,000 shares of Horizons Series A
Preferred Stock issued and outstanding. As of January 31, 1998 there were
accrued and unpaid dividends of, in aggregate, approximately $750,000 on the
Horizons Series A Preferred Stock, payable only as declared by the Horizons
Board. No dividends are expected to be declared by the Horizons Board prior to
the Merger; and in connection with the Merger, each outstanding share of
Horizons Series A Preferred Stock will be converted into the right to receive
$5.00 of Titan Common Stock.
On February 25, 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 were $5.75
per share and $11.81 per share, respectively. As of March 6, 1998, the
closing prices on the NYSE for Titan Common Stock and Titan Public Preferred
respectively, were $6.375 per share, and $12.50 per share respectively.
There can be no assurance as to the actual prices of Titan Common Stock or
Titan Public Preferred 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."
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, 1997, and with respect to Titan's consolidated
balance sheets at December 31, 1996 and 1997 are derived from the audited
consolidated financial statements of Titan included elsewhere in this
Prospectus/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 ended December 31, 1994 and with respect to Titan's
consolidated balance sheets at December 31, 1993, 1994 and 1995, are derived
from the audited consolidated financial statements of Titan not included
elsewhere in this Prospectus/Proxy Statement. The selected historical
financial data set forth below with respect to the consolidated statements of
operations of Horizons for each of the three years in the period ended
January 31, 1998 and with respect to Horizons' consolidated balance sheets at
January 31, 1997 and 1998 are derived from the audited consolidated financial
statements of Horizons included elsewhere in this Prospectus/Proxy Statement.
The selected historical financial data set forth below with respect to the
consolidated statements of operations of Horizons for each of the two years
in the period ended January 31, 1996 and with respect to Horizons'
consolidated balance sheets at January 31, 1994, 1995 and 1996 are derived
from the audited consolidated financial statements of Horizons not included
in this Prospectus/Proxy Statement.
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.
8
<PAGE>
<TABLE>
TITAN SELECTED HISTORICAL FINANCIAL DATA
(in thousands, except per share amounts)
YEARS ENDED DECEMBER 31
-----------------------------------------------------------
FY93 (1) FY94 FY95 FY96 FY97
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES $ 182,712 $ 160,522 $ 161,231 $ 155,954 $ 196,694
Gross Profit 17,887 37,729 37,317 31,477 45,554
Selling, general and administrative
expense 27,682 21,978 25,867 23,693 23,503
Research and development expense 2,257 4,420 5,113 3,576 6,138
Restructuring and other (income) expense - (1,200) 6,249 - -
Total costs and expenses 194,764 147,991 161,143 151,746 180,781
Operating profit (loss) (12,052) 12,531 88 4,208 15,913
Interest expense (2,039) (1,278) (1,353) (3,201) (5,179)
Interest income 197 389 392 639 802
Income (loss) from continuing operations
before income taxes and cumulative
effect of change in accounting principle (13,894) 11,642 (873) 1,646 11,536
Income tax provision (benefit) (6,497) 3,674 (540) 221 4,243
Income (loss) from continuing operations before (7,397) 7,968 (333) 1,425 7,293
cumulative effective of change in accounting
Cumulative effect of change in accounting
principle 1,700 - - - -
Loss from discontinued operation, net of tax 0 (1,178) (1,972) (3,642) (343)
Net income (loss) (5,697) 6,790 (2,305) (2,217) 6,950
Dividend requirements on preferred stock 695 695 695 803 875
Net income (loss) applicable to common stock (6,392) 6,095 (3,000) (3,020) 6,075
Basic earnings per share:
Income (loss) from continuing operations (0.37) 0.38 (0.05) 0.03 0.29
Loss from discontinued operation 0.00 (0.06) (0.10) (0.17) (0.02)
------ ------ ------ ------ ------
Net income per common share (0.37) 0.32 (0.15) (0.14) 0.27
Weighted average shares outstanding 17,050 19,042 19,438 21,418 22,267
Diluted earnings per share:
Income (loss) from continuing operations (0.37) 0.38 (0.05) 0.03 0.27
Loss from discontinued operation 0 (0.06) (0.10) (0.17) (0.01)
------ ------ ------ ------ ------
Net income per common share (0.37) 0.32 (0.15) (0.14) 0.26
Weighted average shares outstanding 17,050 19,042 19,438 21,418 27,506
Ratio of earnings to fixed charges (2) - 3.64 0.74 1.32 2.65
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents 9,465 8,780 9,035 4,751 10,612
Investments - - 5,000 9,888 4,499
Working capital 33,341 35,638 35,873 59,330 68,828
Property and equipment, net 21,421 24,862 29,411 26,445 23,936
Total assets 123,901 110,889 126,672 158,749 164,210
Total debt 23,575 4,052 16,426 42,081 50,764
Redeemable preferred stock - - - 3,000 3,000
Stockholders' equity 51,392 63,400 65,063 74,460 73,789
</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 year ended December 31, 1993 earnings were insufficient to cover
fixed charges by $8,722.
9
<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/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.
<TABLE>
<CAPTION>
HORIZONS SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
(UNAUDITED)
YEARS ENDED JANUARY 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 26,281 $ 31,679 $ 37,381 $ 33,784 $ 38,025
Cost of revenues 18,335 21,373 23,248 21,025 23,459
Gross Profit 7,946 10,306 14,133 12,759 14,566
Selling, general and administrative 4,699 5,127 8,061 8,636 9,885
Research and development expense 81 116 125 255 153
Total costs and expenses 23,115 26,616 31,434 29,916 33,498
Operating Profit 3,166 5,063 5,947 3,867 4,527
Gain on sale of division assets - 3,050 - - -
Interest Expense (519) (592) (546) (361) (234)
Income from continuing operations
before income taxes 2,647 7,521 5,401 3,506 4,293
Income tax provision 1,006 2,858 2,052 1,332 1,631
Income from continuing operations 1,641 4,663 3,349 2,174 2,662
Loss from discontinued operation
net of taxes (5,862) (3,719) (8,517) (3,286) (6,923)
Net income (loss) $ (4,221) $ 944 $ (5,168) $ (1,112) $ (4,261)
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Ratio of earnings to fixed charges (1) 4.84 10.49 7.99 6.71 9.42
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
--------------------------------------------------------------
HTI 1998 1997 1996 1995 1994
--- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents 523 416 194 411 820
Working capital (deficit) (5,862) (3,265) (4,803) 623 954
Property and equipment, net 305 700 1,505 1,349 1,501
Total assets 7,130 10,096 13,156 10,954 14,348
Total debt 5,511 6,001 8,965 2,935 4,847
Stockholders' equity (deficit) (6,007) (1,786) (2,730) 2,278 643
</TABLE>
- ------------------------
(1) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income before 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.
10
<PAGE>
<TABLE>
<CAPTION>
SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
YEARS ENDED DECEMBER 31,
-----------------------------------
PRO FORMA COMBINED STATEMENT OF INCOME DATA: 1997 1996 1995
- -------------------------------------------------------- -----------------------------------
<S> <C> <C> <C>
REVENUES $222,975 $187,633 $198,612
Costs and expenses:
Cost of revenues 169,475 145,850 147,162
Selling, general and administrative
expense 28,202 28,820 33,928
Research and development expense 6,219 3,692 5,238
Restructuring and other income (expense) - (3,050) 6,249
-------- -------- --------
total costs and expenses 203,896 175,312 192,577
OPERATING PROFIT 19,079 12,321 6,035
Interest expense (5,698) (3,793) (1,899)
Interest income 802 639 392
Income from continuing operations
before income taxes 14,183 9,167 4,528
Income tax provision 5,249 3,079 1,512
-------- -------- --------
Income from continuing operations 8,934 6,088 3,016
Loss from discontinued operation
net of taxes (6,205) (7,361) (10,489)
-------- -------- --------
Net income (loss) 2,729 (1,273) (7,473)
Dividend requirements on preferred stock 875 803 695
-------- -------- --------
Net income (loss) applicable to common stock $ 1,854 $ (2,076) $ (8,168)
-------- -------- --------
-------- -------- --------
Basic earnings per share
Income from continuing operations $ 0.31 $ 0.22 $ 0.10
Loss from discontinued operation (0.24) (0.30) (0.46)
-------- -------- --------
Net income (loss) $ 0.07 $ (0.08) $ (0.36)
-------- -------- --------
-------- -------- --------
Weighted average shares 25,492 24,643 22,663
-------- -------- --------
-------- -------- --------
Diluted earnings per share
Income from continuing operations $ 0.29 $ 0.22 $ 0.10
Loss from discontinued operation (0.20) (0.30) (0.46)
-------- -------- --------
Net income (loss) $ 0.09 $ (0.08) $ (0.36)
-------- -------- --------
-------- -------- --------
Weighted average shares 30,731 24,643 22,663
-------- -------- --------
-------- -------- --------
Ratio of earnings to fixed charges 3.16 3.10 2.85
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1997
------------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Cash and cash equivalents 11,135
Investments 4,499
Working capital 62,366
Property and equipment, net 24,241
Total assets 168,463
Total debt 56,226
Redeemable preferred stock 3,000
Stockholders' equity 67,182
</TABLE>
11
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Titan Common
Stock and Horizons 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 Horizons,
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, 1995, 1996 and 1997 have been combined with Horizons' financial
data at January 31, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,(1)
------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Historical-Titan:
Net income (loss) per share................................ $(.15) $(.14) $ .26
Book value per share(2).................................... 1.99 2.18 2.40
Historical-Horizons:
Net income (loss) per share................................ (.71) .13 (.61)
Book value per share(2).................................... (.37) (.24) (.80)
Pro Forma Combined Per Titan Share(3):
Net income per share....................................... (.36) (.08) .09
Book value per share(2).................................... 3.19 3.39 2.78
Equivalent Pro Forma Combined Per Horizons Share(3):
Net income per share....................................... (.31) (.07) .05
Book value per share(2).................................... 2.32 2.51 2.19
</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 estimates that Titan and Horizons will incur transaction-related
costs of approximately $1 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 $1 million,
net of tax, as if such costs had been incurred and charged to operations as
of December 31, 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 Horizons pro forma per share amounts are calculated by
dividing the Titan combined pro forma per share amounts by the Applicable
Fraction.
12
<PAGE>
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED BY HOLDERS OF TITAN CAPITAL
STOCK AND HORIZONS CAPITAL STOCK IN EVALUATING WHETHER TO APPROVE THE MERGER
PROPOSAL. THESE FACTORS SHOULD BE CONSIDERED IN CONJUNCTION WITH THE OTHER
INFORMATION INCLUDED IN THIS PROSPECTUS/PROXY STATEMENT.
THE DISCUSSION IN THIS PROSPECTUS/PROXY STATEMENT CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. TITAN'S, HORIZONS' 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/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. Such integration may
also be more difficult due to Titan's integration challenges as a result of its
recent acquisition of DBA or other acquisitions. See " -- Acquisition of DBA;
Risks Associated with Acquisition Strategy." 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 $1 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 Horizons as of the close of business on
the Record Date, and the closing price on the NYSE of Titan Common Stock on
March 6, 1998, $6.375, an aggregate of approximately 3,035,760 shares of
Titan Common Stock (the "Merger Consideration") will be issued in the Merger,
and Titan will assume all outstanding Horizons options and substitute all
Horizons Warrants which will be converted into options and warrants, as
applicable, to acquire approximately 41,477 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 Horizons and Titan, pursuant to Rules 144 and/or 145 under
the Securities Act. See "Terms of the Merger -- Affiliate Agreements." An
aggregate of approximately 60% of the shares issued in the Merger will be
beneficially owned by persons who may be deemed to be affiliates of Horizons
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 23,346,839 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 3,035,760 shares of Titan
Common Stock are issued as a result of the Merger, the current Titan
stockholders' ownership of Titan Common Stock will be reduced to 88% of the
outstanding Titan Common Stock. In addition, promptly following the Effective
Time, Titan may file a Form S-8 registering a total of approximately 41,477
shares of Titan Common Stock issuable as a result of the exercise of Titan
Exchange Options and Titan Exchange Warrants. 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.
POTENTIAL ADJUSTMENT TO CONSIDERATION TO BE RECEIVED BY HOLDERS OF HORIZONS
COMMON STOCK
The value of Titan common Stock to be issued in connection with the
Merger for each share of Horizons Common Stock may be adjusted at the time of
the Merger if either of the following occur: (i) Horizons' working capital
(deficit) as of January 31, 1998 is determined to be more than $200,000
greater than or less than ($2,150,000); or (ii) the Titan Designated Closing
Price is determined to be less than $6.00 or greater than $8.00. Neither
Titan nor Horizons expect any such adjustment in value to be received will be
necessary in connection with the Merger. As of the date of this
Prospectus/Proxy Statement, Titan and Horizons have not fully determined
whether any adjustment will be required due to Horizons' working capital
calculation.
13
<PAGE>
There can be no assurance that such calculations will not require an
adjustment to the Applicable Fraction, which could reduce (or increase) the
amount of consideration to be received by holders of Horizons Common Stock
for each share of such common stock. In the event such an adjustment is
required, the aggregate value to be received by all holders of Horizons
Common Stock will be increased or decreased, as appropriate, by an amount
equal to the variance from ($2,150,000). Consequently, holders of Horizons
Common Stock may receive less than (or greater than) $2.25 per share for each
share of Horizons Common Stock at the time of the Merger, depending upon the
result of such calculations. Similarly, because there can be no assurance
that the Titan Designated Stock Price will be greater than $6.00 and less
than $8.00, the consideration to be received by holders of Horizons Common
Stock is subject to adjustment in the event the Titan Designated Stock Price
is determined at the time of the Merger to be outside such parameters
(because in such a case the Titan Designated Closing Price will be deemed to
be $6.00 or $8.00, as appropriate, for purposes of determining the Applicable
Fraction). On March 6, 1998, the Closing Price for Titan Common Stock on the
NYSE was $6.375. The market price of Titan Common Stock has fluctuated
significantly in the past, and often has been near or below $6.00 over the
past few months. Although the parties expect holders of Horizons Common
Stock will be entitled in the Merger to approximately $2.25 of Titan Common
Stock per share of Horizons Common Stock, there can be no assurance that
there will not be an adjustment to such consideration required under the
terms of the Merger Agreement at the time of the Merger. Holders of Horizons
Common Stock are therefore strongly urged, in particular, to obtain current
market quotations for Titan Common Stock prior to the Horizons Meeting.
RISKS RELATED TO TITAN'S AND HORIZONS' 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, seeking to fund 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."
If Titan is unable to implement its spin-out strategy, Titan may 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 may 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 spin-out its subsidiaries would have a
material adverse effect on Titan's business, financial condition, results of
operations and market price.
ACQUISITION OF DBA; RISKS ASSOCIATED WITH ACQUISITION STRATEGY
In February 1998, Titan acquired DBA in a stock for stock merger. 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 recent acquisition of DBA and the proposed acquisition of
Horizons are examples 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. In
particular, there can be no assurance that Titan correctly assessed the business
of DBA, or that the acquisition by Titan of DBA will prove beneficial to Titan
and its stockholders.
14
<PAGE>
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." The integration of multiple acquisitions is likely to be
significantly more challenging than the integration of a single business.
Specifically, the integration of DBA and any other 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 DBA or any other
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 Horizons 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, 1996 and 1997, U.S. government business represented
approximately 78% and 75% of Titan's revenues, respectively; and for the fiscal
years ended January 31, 1997 and 1998, U.S. government business represented
substantially all of Horizons' 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. Further
significant reductions in the funding of U.S. government agencies or in the
funding areas targeted by Titan's or Horizons' business could materially and
adversely affect Titan's and Horizons' business, results of operations and
financial condition.
Titan's and Horizons' 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 Horizons 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 Horizons 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 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
Horizons.
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.
15
<PAGE>
RAPID INDUSTRY CHANGE; TECHNOLOGICAL OBSOLESCENCE
The industries in which Titan competes are characterized by rapid and
continuous technological change. Future technological changes in these
industries or the availability of new products could render Titan's products
noncompetitive or obsolete. Titan's success will depend in part upon the
success of new product introductions by Titan, 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 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 products noncompetitive or obsolete. Titan 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 products after commencement of deliveries, which could result in the
loss of or delay in market acceptance. Any failure by Titan to respond to
changing market conditions, technological developments, evolving industry
standards or changing customer requirements, or the development of competing
technology or products that render Titan's products noncompetitive or
obsolete could have a material adverse effect on Titan'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
Titan, through its Communications Systems segment, conducts 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, defaults 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 purchase agreements are governed by
foreign laws, which may differ significantly from U.S. laws. Therefore, Titan
may be
16
<PAGE>
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 Horizons operate are highly
competitive, and Titan and Horizons expect that competition will increase in
these markets. Titan's and Horizons' 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 Horizons, 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 Horizons. 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 Horizons. 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 Horizons' business, results of
operations and financial condition. There can be no assurance that Titan or
Horizons 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 Horizons' 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 segments, 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 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 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 Horizons' 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 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 Horizons, or their strategic partners or customers, to comply
with, applicable domestic and international regulations could have a material
adverse effect on Titan's and Horizons' business, financial condition and
results of operations.
17
<PAGE>
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.
LIMITED INTELLECTUAL PROPERTY PROTECTION; DEPENDENCE ON PROPRIETARY TECHNOLOGY
Titan's and Horizons' 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
Horizons 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 Horizons 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 Horizons to protect its intellectual property
will be adequate to deter misappropriation of Titan's or Horizons' technology or
to prevent others from independently developing or acquiring substantially
equivalent technologies or otherwise gaining access to Titan's or Horizons'
proprietary and confidential technological expertise or disclosing such
technologies or that Titan or Horizons 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 Horizons to protect its proprietary information
could have a material adverse effect on Titan's or Horizons' business, financial
condition and results of operations.
Litigation may be necessary to enforce Titan's or Horizons' 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 Horizons' business, financial
condition and results of operations. There can be no assurance that Titan's or
Horizons' products do not infringe the intellectual property rights of others or
that one or more parties will not make claims that Titan's or Horizons' 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
Horizons, Titan or Horizons 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
Horizons decide to litigate such claims, such litigation could be extremely
expensive and time consuming and could materially adversely affect Titan's or
Horizons' 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 Horizons would withstand claims brought by others in
such litigation. If Titan's or Horizons' products are found to infringe upon the
rights of third parties, Titan or Horizons may be prohibited from making and
selling the infringing products, ordered to pay monetary
18
<PAGE>
damages for past infringement or forced to incur substantial costs to develop
alternative products. There can be no assurance that Titan or Horizons 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 Titan management believes that it adequately
estimates costs for fixed-price contracts, no 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 Horizons' 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 Horizons' classified work
and computer programmers proficient in the C++ JAVA and other specialized
languages. The loss of the services of any of these individuals or group of
individuals could have a material adverse effect on Titan's or Horizons'
business, financial condition and results of operations. Although Titan's key
personnel are generally not subject to employment or noncompetition
agreements, Horizon's key personnel are generally covered by some form of
employment or limited non-competition agreement. 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 Horizons 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
19
<PAGE>
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 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 CERTAIN CHARTER PROVISIONS; RIGHTS PLAN
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.
20
<PAGE>
THE HORIZONS MEETING
DATE, TIME AND PLACE OF MEETING
The Horizons Meeting will be held on March 31, 1998 at 9 o'clock a.m.,
local time, at The offices of Jenkens & Gilchrist, P.C., located at 1919
Pennsylvania Avenue, N.W., Suite 600, Washington, D.C. Horizons intends to
mail this Prospectus/Proxy Statement on or about March 11, 1998, to all
Horizons stockholders entitled to vote at the Horizons Meeting.
RECORD DATE AND OUTSTANDING SHARES
Only stockholders of record at the close of business on March 6, 1998
(the "Record Date") are entitled to notice of and to vote at the Horizons
Meeting. As of the Record Date, there were 7,996,953 shares of Horizons
capital stock outstanding and entitled to vote, held of record by 96
stockholders. Each Horizons stockholder is entitled to one vote for each
share held of Horizons Common Stock and one vote for each share held of
Horizons Series A Preferred Stock.
VOTING OF PROXIES
The Horizons proxy accompanying this Prospectus/Proxy Statement is
solicited on behalf of the Horizons Board for use at the Horizons Meeting and
at any adjournment or postponement thereof. Horizons 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
Horizons 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 Horizons stockholders, as recommended by the
Horizons Board, as indicated herein. The Horizons Board is not currently
aware of any business to be brought before the Horizons Meeting other than
the specific proposal referred to in this Prospectus/Proxy Statement and
specified in the accompanying notice of the Horizons Meeting. As to any other
business that may properly come before the Horizons 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.
Beneficial owners of shares of Horizon Common Stock held by the Horizons
Employee Stock Ownership Plan ("ESOP") will be asked to submit executed and
completed proxies to the ESOP's trustees (the "Trustees") in order to direct
the Trustees as to the manner in which the shares of Horizon Common Stock
that they beneficially own shall be voted. If instructions are not received
by the Trustees with respect to any allocated shares of Horizons Common Stock
prior to three (3) business days before the Horizons Meeting, the Trustees
shall vote such shares in the same proportions as the Trustees are instructed
to vote with respect to the allocated shares of Horizons Common Stock for
which instructions are received.
REVOCABILITY OF PROXIES
A Horizons stockholder who has given a proxy may revoke it at any time
before it is exercised at the Horizons Meeting by (i) delivering to the
Secretary of Horizons (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 Horizons Meeting or (iii)
attending the Horizons Meeting and voting in person (although attendance at
the Horizons Meeting will not, by itself, revoke a proxy).
STOCKHOLDER VOTE REQUIRED; QUORUM; VOTING AGREEMENTS
The affirmative vote of the holders, as of the Record Date, of a
majority of the outstanding shares of Horizons Common Stock and Horizons
Series A Preferred Stock, voting together as one class, is required to
approve the Merger Proposal. Further, pursuant to the Certificate of
Designations for the Horizons Series A Preferred Stock, the consent of the
holders of two-thirds (2/3) of the outstanding shares of Horizons Series A
Preferred Stock is required to consummate the Merger. As a group, the
directors and executive officers of Horizons and their respective affiliates
beneficially owned 5,172,500 shares of Common Stock, or approximately 65% of
the voting power of Horizons capital stock as of the Record Date. Of the
500,000 shares of Horizons Series A Preferred Stock outstanding, 300,000
shares (or 60% of the outstanding shares) are owned by the Horizons
Retirement Plan (the "Retirement Plan"). The trustee of the Retirement Plan
is North American Trust Company, 225 Broadway, 4th Floor, San Diego, CA
92101.
The presence, in person or by proxy, of at least a majority of the
outstanding shares of each of the Horizons Common Stock and at least a
majority of the outstanding shares of Horizons Series A Preferred Stock, in
each case as of the Record Date, is necessary to constitute a quorum for the
transaction of business. Abstentions will be counted for purposes of
determining whether a quorum is present. For purposes of obtaining the
required votes for approval of the Merger Proposal, the effect of an
abstention will have the same effect as a vote against the proposal.
21
<PAGE>
Certain executive officers and directors of Horizons owning in the
aggregate approximately 69% of the outstanding shares of Horizons Common
Stock have each agreed to vote or direct the vote of all Horizons capital
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 --
Stock Voting Agreement."
SOLICITATION OF PROXIES; EXPENSES
Titan will bear the cost of the solicitation of votes of Horizons
stockholders, including printing, assembly and mailing of this
Prospectus/Proxy Statement, the proxy and any additional information
furnished to its stockholders. Original solicitation of proxies by mail may
be supplemented by telephone, telegram, letter or personal solicitation by
directors, officers or other employees of Horizons.
BOARD RECOMMENDATION
THE HORIZONS BOARD HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE
BEST INTERESTS OF HORIZONS AND ITS STOCKHOLDERS AND THEREFORE UNANIMOUSLY
RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
22
<PAGE>
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 HORIZONS' 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/PROXY STATEMENT.
BACKGROUND OF THE MERGER
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.
On November 18, 1997, Dr. Gene Ray, Titan's President and Chief
Executive Officer, contacted by telephone Mr. J.P. (Pat) Boyce of Horizons to
discuss the possibility of Titan's acquisition of Horizons. On that day,
Titan and Horizons entered into a confidentiality agreement, and Horizons
provided certain financial information to Titan.
On November 21, 1997, Dr. Ray and Mr. Boyce met and discussed the
operations of Horizons and Titan and the possibility of a business
combination between Horizons and Titan.
On December 4, 1997, at a meeting of the Horizons Board, Dr. Ray and
Eric DeMarco met with the Horizons Board to discuss a proposed business
combination of Titan and Horizons. Titan's management made a presentation to
the Horizons 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 Horizons Board discussed
the presentation and although no vote was taken at the time, it was the
consensus of the Horizons Board members present that Horizons should continue
discussions with Titan.
In late 1997, in regular and special meetings, the Titan Board discussed
the general terms of the proposed acquisition of Horizons, including various
financial aspects of the proposed acquisition. The Titan Board authorized the
officers of Titan to proceed with discussions with Horizons.
On December 18, 1997, the Horizons Board held a special meeting and
authorized the execution of a term sheet between Titan and Horizons.
During early 1998, representatives of Titan conducted a due diligence of
Horizons and Titan's legal counsel prepared a draft merger agreement.
Horizons' and Titan's legal counsel engaged in negotiations with respect to
the terms of the merger agreement. Horizons also conducted a due diligence
review of Titan.
On January 20, 1998, Horizons engaged Slavitt Ellington to render an
opinion as to the fairness, from a financial point of view, of the proposed
merger consideration to be received by Horizons' stockholders.
On February 17, 1998, a meeting of the members of the Horizons Board was
held. All of the members of the Horizons Board 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.
The terms of the proposed merger, including the proposed ratios by which
shares of Titan Common Stock would be exchanged for each share of Horizons
Common Stock and Horizons Series A Preferred Stock were discussed. Prior to
the meeting, Horizons' officers and employees made presentations to the
Horizons Board members on their due diligence investigation with respect to
Titan, and Horizons' legal counsel made a presentation to the Horizons Board
with respect to certain responsibilities of the directors in connection with
considering and acting upon a merger proposal. In addition, Slavitt
Ellington made a financial presentation to the Horizons Board and delivered
to the Horizons Board its oral opinion as to the fairness, from a financial
point of view, of the Merger Consideration to be received by the stockholders
of Horizons in the Merger. See " -- Opinion of Slavitt Ellington."
On February 20, 1998 at a regular meeting of the Titan Board, the Titan
Board considered the agreed upon terms of the draft merger agreement and the
Merger and related arrangements. All directors were in attendance in person, as
were representatives of Titan's legal counsel. Prior to the meeting, near-final
versions of the draft merger agreement and related agreements had been made
available. Following discussion among the directors concerning the proposed
terms of the Merger and the Merger Agreement, and the business and management of
Horizons, 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,
23
<PAGE>
Titan and its stockholders and (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. 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."
On February 26, 1998, a final draft Merger Agreement was considered and
the Horizons Board (i) approved Horizons' 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 Horizons' stockholders, (iii) approved
the transactions contemplated thereby and (iv) resolved to recommend that the
holders of the Horizons Common Stock and Horizons Series A Preferred Stock
adopt the Merger Agreement and the transactions contemplated therein,
including the Merger. See " -- Horizons Reasons for the Merger." Prior to
such approval, the Horizons Board received the written fairness opinion of
Slavitt Ellington. See "-- Opinion of Slavitt Ellington."
On February 26, 1998, the Merger Agreement was executed, and the parties
issued a press release announcing the execution thereof on February 27, 1998,
prior to the opening of the NYSE trading session.
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;
- 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; and
- The Merger may result in increased earnings per share for the combined
company.
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 Horizons' respective
businesses, prospects, financial performances, financial conditions and
operations; (ii) an analysis of the respective contributions to revenues,
operating profits and net profits of the combined company; (iii) the
compatibility of the managements of Titan and Horizons; (iv) potential
synergies and alternatives for growth within the combined company; and (v)
reports from management and legal advisors on the results of Titan's due
diligence investigation of Horizons.
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 $1 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, and approved the Merger, the Merger Agreement, the issuance by
Titan of shares of Titan Common Stock in connection therewith, and the
transactions contemplated thereby.
24
<PAGE>
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.
HORIZONS REASONS FOR THE MERGER
As part of its review, the Horizons Board considered, among other
things, (i) information concerning the financial performance, condition,
business operations and prospects of each of Horizons and Titan, (ii) the
proposed terms and structure of the Merger, (iii) the marketability and value
of Horizons Common and Preferred 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 discussions held with other
companies), (vi) the Slavitt Ellington opinion relating to the fairness, from
a financial point of view, to the Horizons stockholders of the consideration
to be received in the Merger by the Horizons stockholders and (vii) the
business advantages expected to result from the combination of Horizons and
Titan.
The Horizons board believes that the Merger is in the best interests of
Horizons stockholders for the following reasons:
GROWTH POTENTIAL. The Horizons Board believes that the Merger will
constitute a strategic combination, accelerating the ability of Horizons 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 and government
market segments, (ii) complementary management and technical teams, as well
as little redundancy and greater overall management depth and (iii) the
potential to pursue larger business opportunities through the combination of
the two companies. The Horizons Board considered the risks associated with
Titan's business and its recent financial results and concluded that the
prospective benefits of the combination of Titan and Horizons outweighed the
risks.
STOCKHOLDER VALUE AND LIQUIDITY. The Horizons Board believes that the
consideration to be received in the Merger by the Horizons stockholders is
fair to the Horizons stockholders and that the Titan Common Stock has
prospects for positive long-term performance. The Titan Common Stock, which
is listed on the NYSE, will also provide liquidity to the Horizons
stockholders not currently available to them to realize the value of their
shareholdings.
ALTERNATIVE TRANSACTIONS. The Horizons Board considered that the Merger
Agreement provides that Horizons may not solicit any alternate transaction.
The Horizons Board reviewed the status of other acquisition discussions and
expressed the view that other acquisition proposals were speculative at this
time. Additionally, the Horizons Board noted that such alternatives could be
more disruptive to Horizons' established operations and, thus, less likely to
achieve the strategic values desired. The Horizons Board noted that the
Merger Agreement provides that Horizons may furnish information to and enter
into discussions or negotiations with, any party that makes an unsolicited
bona fide written proposal to acquire Horizons or substantially all of its
assets on terms which, in an exercise of the Horizons Board's fiduciary duty
after the consideration of advice from Horizons' legal advisors, a majority
of Horizons' directors determines is likely to be more beneficial to Horizons
stockholders than the Merger. The Horizons Board also noted that the Merger
Agreement provides for the payment of a termination fee of $250,000 if
Horizons enters into an alternate transaction with another party and was
aware that Titan would not have entered into the Merger Agreement without
this provision. The Horizons Board concluded that, while the existence of
the termination fee provision might reduce the likelihood that a third party
would propose an alternative transaction, the increased cost to a third party
would not be material and the benefits of the Merger to Horizons outweighed
the risks.
In considering the Merger, the Horizons 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 prevent the Merger
from having a negative effect on Titan's earnings per share, (iii) the risk
that the other benefits sough 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 upon the operations and financial position of
Horizons. Notwithstanding these risks, the Horizons Board concluded that the
positive factors described above outweighed the negative consideration.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger Agreement, the Horizons 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 decision.
25
<PAGE>
For the reasons discussed above, the Horizons Board has determined that
the Merger is advisable and in the best interests of Horizons and its
stockholders and has recommended a vote for approval of the Merger Proposal.
OPINION OF SLAVITT ELLINGTON
(CAPITALIZED TERMS DEFINED IN THIS SECTION RELATING TO THE OPINION OF
THE SLAVITT ELLINGTON GROUP ARE INTENDED TO APPLY TO THIS SECTION ONLY.)
On February 17, 1998, THE SLAVITT ELLINGTON GROUP, Inc. ("SEG")
delivered its oral opinion to the Horizons Technology, Inc. Board of
Directors ("Horizons Board") that as of that date the amount of Titan common
stock to be received by the shareholders of the common shares and the Series
A Preferred Shares (collectively the "Shareholders") of Horizons Technology,
Inc. ("Horizons" or the "Company"), in connection with a merger between
Horizons and The Titan Corporation ("Titan") (" Proposed Transaction") is
fair to the Shareholders from a financial point of view. On February 26,
1998, SEG updated its opinion and confirmed it in written form (the "SEG
Fairness Opinion"). All of the financial data delivered to SEG by Horizons
in connection with its opinions, however, did not include adjustments
relating to Horizon's discontinued operations, and the following information
should be considered accordingly. However, SEG reviewed the reported
financial statements of Horizons as of January 31, 1998 (which include the
effect of the discontinuance of the Information Systems Group) subsequent to
the issuance of its opinions, and determined that its opinions would not have
been materially different had the information been available prior to their
issuance.
The full text of the SEG Fairness Opinion, which sets forth assumptions
made, matters considered and limitations on the review undertaken in
connection with such opinion, is attached as Appendix B. Shareholders are
urged to read the SEG Fairness Opinion in its entirety. No limitations were
imposed by Horizons or the Horizons Board with respect to the investigations
made or procedures followed by SEG in rendering its opinion. The summary of
the opinion of SEG set forth in this Proxy Statement is qualified in its
entirety by reference to the full text of the SEG Fairness Opinion.
In connection with its opinion, SEG has, among other things, (a)
reviewed the Merger Agreement dated February 26, 1998, by and among Horizons
and Titan (the "Merger Agreement") and related documents; (b) reviewed
certain publicly available information concerning Titan which SEG believes to
be relevant to its analysis; (c) reviewed certain internal financial
statements and other financial and operating data concerning Horizons
prepared by the management of Horizons; (d) analyzed certain financial
assumptions prepared by Horizons; (e) conducted discussions with members of
management of Horizons and Titan concerning current and future business
operations; (f) reviewed the reported prices and trading activity for the
common stock of Titan; (g) reviewed the historical market prices and trading
activity for Titan's shares and compared them with those of certain publicly
traded companies which SEG deemed to be reasonably similar to Horizons and
Titan; (h) compared the results of operations and present financial condition
of Horizons and Titan with those of certain publicly traded companies which
SEG deemed to be reasonably similar to Horizons and Titan, respectively; (i)
performed certain financial analyses with respect to Horizons' projected
future operating performance, including discounted cash flow analyses; and
(j) reviewed such other financial studies and analyses and performed such
other investigations and taken into account such other matters as SEG deemed
necessary.
In preparing its opinion, SEG 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 SEG by Horizons and/or Titan. SEG has not been engaged to, and
therefore has not, verified the accuracy or completeness of any such
information.
With respect to the financial forecasts for the years 1998 through 2002,
SEG assumed that the assumptions provided by Horizons' management were
reasonably prepared and reflect the best currently available estimates and
judgment of Horizons' management. In arriving at its opinion, SEG did not
conduct an extensive physical inspection of the properties or facilities of
Horizons or Titan. SEG did not make or obtain any evaluations or appraisals
of the assets or liabilities of Horizons or Titan. SEG's opinion is
necessarily based upon market, economic and other conditions as they exist
and can only be evaluated as of the date of its opinion. In addition, SEG
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 common shares and the Series A Preferred Shares of
Horizons or its constituent businesses.
The following is a summary of the analysis performed by SEG in
connection with its February 26, 1998 fairness opinion. The analyses
performed were based upon an implied merger consideration (the "Implied
Merger Consideration") for the common shares and the Series A Preferred
Shares of Horizons of approximately $19.4 million, as outlined in the
Merger Agreement.
VALUATION OF THE PREFERRED STOCK. In order to issue its fairness
opinion, SEG was required to determine the value of the Series A Preferred
Shares of Horizons. The full text of the SEG Fair Market Value
Opinion of the Series A Preferred Shares of Horizons, which sets
forth matters considered and limitations on the review undertaken in
connection with such opinion, is attached as Appendix C. This analysis
entailed a review of the financial condition and performance of Horizons, the
terms and conditions of the Series A Preferred Shares of Horizons,
the historical payment (or lack thereof) of dividends on
26
<PAGE>
the Series A Preferred Shares of Horizons, and Horizons' ability to pay
dividends on the Series A Preferred Shares of Horizons in the future, among
other things. SEG made certain assumptions regarding the timing of the
payment of dividends in the future, as well as the payment of the dividends
in arrears. SEG also made certain assumption regarding the value of the
conversion option of the Series A Preferred Shares of Horizons. In its
analysis, SEG discounted the expected future dividend payments using various
discount rates, and valued the conversion option, where each share of the
Series A Preferred Shares of Horizons is converted into one share of Horizons
Common Stock, using various options pricing models including the
Black-Scholes Model. SEG's analysis resulted in an opinion of the fair market
value of the Series A Preferred Shares of Horizons of $5.00 per share, or a
total value of consideration of $2.5 million based on 500,000 shares
outstanding.
CALCULATION OF CONSIDERATION FOR SHAREHOLDERS. The applicable fraction
pertaining to each preferred share is defined as the fraction having the
numerator equal to $5.00 per share and the denominator equal to the "Designated
Parent Stock Price," as defined in the Merger Agreement. The Applicable
Fraction pertaining to Horizons common stock is defined as the fraction (A)
having the numerator equal to the amount by which (x) $23,850,000 minus the
"Balance Sheet Deduction" plus $65,240 exceeds (y) the Average Preferred Stock
Valuation and (B) having a denominator equal to the amount determined by
multiplying (1) the "Adjusted Company Share Amount" by (2) the "Designated
Parent Stock Price."
The "Balance Sheet Deduction" is defined as (A) $4,500,000 plus or
minus, as described below, (B) the amount by which Horizons' Working Capital
(determined prior to the Closing as set forth in the Merger Agreement) is
less than (in which case such amount shall be added to the amount determined
in (A) above) or greater than (in which case such amount shall be subtracted
from the amount determined in (A) above) negative $2,150,000; provided,
however, no such adjustment shall be made unless Horizons' Working Capital
is at least $200,000 less than or greater than, as the case may be, negative
$2,150,000 (and in such case such adjustment shall be made with respect to
the entire amount less than or greater than, as appropriate, negative
$2,150,000).
ANALYSIS OF HORIZONS TECHNOLOGY, INC.
SUMMARY OF SELECTED COMPARABLE PUBLICLY TRADED COMPANIES. SEG reviewed
and compared certain fundamental financial information of Horizons to the
following publicly traded companies, among others, in the defense
contractor/information technology industry: Advanced Communication Systems,
Inc., Analysis & Technology, Inc., CACI International, Inc., Dynamics
Research Corp., GRC International, Inc., Nichols Research Corp. and VSE Corp.
(the "Comparable Companies"). The group consisted of companies who derive a
significant portion of their revenues from government (Department of Defense)
contracts, and/or are engaged in providing information technology-related
services. SEG calculated, among other things, the recent market price of
those companies as a multiple of their earnings before interest and taxes
("EBIT"), net income, and book value. SEG reviewed those multiples, excluding
the outlying observations, in order to apply those multiples to the
historical and projected financial results of Horizons. SEG excluded
outlying observations because it believes that the outlying values for
certain companies reflect temporary market aberrations and can skew the
analysis.
With respect to the EBIT multiples, SEG considered the market price of
the invested capital (total market capitalization plus book value of
long-term debt) as a multiple of EBIT estimated for the last fiscal year.
For the Comparable Companies reviewed, these multiples ranged from 9.6x to
18.1x (eliminating the high and low), and had a mean less extremes of 16.9x.
Based upon the estimated last fiscal year (January 31, 1998) and projected
fiscal 1999 EBIT provided by Horizons, the Implied Merger Consideration (plus
the long-term debt) is equal to 21.8x 1998 estimated EBIT and 8.9x projected
1999 EBIT. Based upon reported EBIT for fiscal 1998 (provided to SEG
subsequent to the date of its opinion), the Implied Merger Consideration
(plus the long-term debt) is equal to 7.6 x 1998 reported EBIT. With
consideration given to the differences between private company multiples and
public company multiples, and the fundamentals of Horizons versus the
Comparable Companies, SEG believes that the implied multiples are equal or in
excess of those that one would normally expect in the valuation of a private
company such as Horizons.
With respect to the net income multiples, SEG considered the market
price of the common stock as a multiple of net income reported by the
Comparable Companies for the last fiscal year. For the Comparable Companies
reviewed, those multiples ranged from 11.6x to 34.8x (eliminating the high
and low), and had a mean less extremes of 27.8x. Based upon the estimated
last fiscal year and projected fiscal 1999 net income provided by Horizons,
based upon reported net income for fiscal 1998 (provided to SEG subsequent to
the date of its opinion), the Implied Merger Consideration is equal to 11.8 x
1998 reported net income from continuing operations, the Implied Merger
Consideration is equal to 36.0x 1998 estimated net income, and 9.5x projected
1999 net income. With consideration given to the differences between private
company multiples and public company multiples, and the fundamentals of
Horizons versus the Comparable Companies, SEG believes that the implied
multiples are equal or in excess of those that one would normally expect in
the valuation of a private company such as Horizons.
With respect to the book value multiples, SEG considered the market
price of the common stock as a multiple of book value reported by the
Comparable Companies for the last fiscal year. For the Comparable Companies
reviewed, those multiples ranged from 1.4x to 4.4x (eliminating the high and
low), and had a mean less extremes of 2.1x. Based upon the estimated last
fiscal year and projected fiscal 1999 book value provided by Horizons, the
Implied Merger Consideration is equal to 61.4x 1998 estimated book value, and
7.9x projected 1999 book value. Based upon the reported book value for
fiscal 1998 (provided to SEG subsequent to the date of its opinion), the
Implied Merger Consideration is not meaningful as a multiple of book value
due to the negative book value reported by Horizons for fiscal 1998. With
consideration given to the differences between private company multiples and
public company multiples, and the fundamentals of Horizons versus the
Comparable
27
<PAGE>
Companies, SEG believes that the implied multiples are equal or in excess of
those that one would normally expect in the valuation of a private company
such as Horizons.
DISCOUNTED CASH FLOW ANALYSIS. SEG performed a discounted cash flow
analysis using financial forecasts provided by Horizons management. SEG
estimated the present value of the future cash flows set forth in these
forecasts and estimated the terminal value as forth in these forecasts. The
estimated present value of the future cash flows and the estimated terminal
value added together yield an estimate of the market value of Horizons. SEG
derived the net present value of free cash flow (defined as net income plus
depreciation and amortization less any increases in required working capital
and less capital expenditures) for the fiscal years 1999 through 2002, using
various discount rates ranging from 18.0% to 23.0%. SEG estimated Horizons'
terminal values in the year 2002 based on capitalization rates derived by
subtracting long-term sustainable growth from the estimated discount rates.
These assumptions resulted in value conclusions ranging from 14.3 million to
12.1 million for the total equity of Horizons (common shares and the Series A
Preferred Shares of Horizons), all equal to or less than the Implied
Merger Consideration.
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 SEG's opinion. In arriving at its fairness
determination, SEG considered the results of all such analyses. SEG did not
separately consider the extent to which any one of the analyses supported or
did not support SEG's Fairness Opinion. No company or transaction used in
the above analyses as a comparison is identical to Horizons or Titan. The
analyses were prepared solely for purposes of SEG in providing its opinion to
the Horizons Board as to the fairness of the Implied Merger Consideration to
be received by the Shareholders in the Proposed Transaction, and do not
purport to be appraisals or necessarily 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 SEG or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, SEG's opinion to the Horizons Board was one of the
many factors taken into consideration by the Horizons Board in making its
determination to approve the Proposed Transaction. The foregoing summary
does not purport to be a complete description of the analysis performed by
SEG and is qualified by reference to the written SEG Fairness Opinion set
forth in Appendix B hereto.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Horizons Board with respect to
the Merger Proposal, holders of shares of Horizons Common Stock and Horizons
Series A Preferred Stock should be aware that certain directors and executive
officers of Horizons have certain interests in the Merger that are in
addition to the interests of holders of Horizons Common Stock and Series A
Horizons Preferred Stock generally. The Horizons Board has considered these
interests, among other matters, in approving the Merger Agreement and the
Merger.
EMPLOYMENT ARRANGEMENTS. Except as described in the following sentence,
Titan expects to employ Horizons' 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 Horizons' officers
following the Merger will be the same persons, holding the same offices, as
the officers of Horizons immediately prior to the Merger, except to the
extent otherwise agreed in writing by Titan and Horizons, and except for the
resignation of Horizons' Chief Executive Officer, Dr. James T. Palmer.
Titan and Earl A. Pontius have agreed to an employment arrangement,
pursuant to which Titan will continue to employ Mr. Pontius following the
Merger as President of Horizons and Senior Vice President of the Titan
Technologies and Information Systems Corporation, a wholly-owned subsidiary
of Titan. Titan and Dr. James T. Palmer have entered into a two year
Consulting Agreement, pursuant to which Dr. Palmer will perform certain
consulting services for Titan. Further, Titan expects that J.P. (Pat) Boyce,
for a short time following the Merger, will remain an officer and employee of
Horizons. Titan and Mr. Boyce have entered into a Consulting Agreement to
become effective upon the termination of such employment, which Consulting
Agreement will have an initial term of six months, following which Titan may
obtain Mr. Boyce's services as requested from time to time by Titan in its
discretion.
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
28
<PAGE>
waiting period requirements have been satisfied. Titan and Horizons filed
notification and report forms under the HSR Act with the FTC and Antitrust
Division on March 3, 1998. These filings commenced a 30-day waiting period
under the HSR Act, with respect to which Titan and Horizons 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 Horizons 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 Horizons 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
Horizons Common Stock and Horizons Series A Preferred Stock. This discussion
assumes that holders of shares of Horizons Common Stock and Horizons Series A
Preferred 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 Horizons' stockholders.
Horizons stockholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to particular
Horizons stockholders in light of their particular circumstances, such as
stockholders 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).
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 Horizons of an opinion from Jenkens & Gilchrist ("Jenkens &
Gilchrist"), confirming that the Merger will constitute a Reorganization
(collectively, the "Tax Opinions"); provided, however, that if Jenkens &
Gilchrist does not render such opinion to Horizons, the condition to
Horizons' obligations shall nonetheless be deemed to be satisfied with
respect to Horizons if Cooley Godward renders such opinion to Horizons. See
"Terms of the Merger -- Conditions to 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, as well as
representations received from Titan, Titan Sub and Horizons, (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 Horizons has requested, or
will request, a ruling from the IRS with regard to any of the federal income
tax consequences of the Merger.
The description below assumes that the Merger will qualify as a
Reorganization, based on the Tax Opinions. The tax description set forth
below has been prepared and reviewed by Cooley Godward and Jenkens &
Gilchrist, 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 Horizons Common Stock and Horizons Series A
Preferred Stock upon the receipt of Titan Common Stock solely in
29
<PAGE>
exchange for such Horizons Common Stock and Horizons Series A
Preferred Stock in the Merger (except to the extent, if any, that
(i) cash is received in lieu of fractional shares, or (ii) Titan
Common Stock received by a Horizons Series A Preferred Stock holder is
attributable to any dividends in arrears (see below)).
- The aggregate tax basis of the Titan Common Stock so received by
Horizons stockholders in the Merger (including any fractional shares
of Titan Common Stock and Horizons Series A Preferred Stock not
actually received) will be the same as the aggregate tax basis of the
Horizons Common Stock and Horizons Series A Preferred Stock
surrendered in exchange therefor.
- The holding period of the Titan Common Stock so received by each
Horizons stockholder in the Merger will include the holding period of
the shares of Horizons Common Stock and Horizons Series A Preferred
Stock surrendered in exchange therefor.
- Cash payments received by holders of Horizons Common Stock and
Horizons Series A Preferred Stock in lieu of fractional shares of
Titan Common Stock will be treated as if such fractional shares had
been issued in the Merger and then redeemed by Titan. A Horizons
stockholder receiving such cash will recognize gain or loss upon such
payment, measured by the difference (if any) between the amount of
cash received and the basis allocated to such fractional share. The
gain or loss should be capital gain or loss, provided that each such
fractional share of Titan Common Stock was held as a capital asset at
the Effective Time of the Merger.
- A holder of Horizons Common Stock and Horizons Series A Preferred
Stock who exercises appraisal rights with respect to a share of
Horizons Common Stock or Horizons Series A Preferred Stock and
receives a cash payment for such shares generally should recognize
capital gain or loss (if such share was held as a capital asset at the
Effective Time of the Merger) measured by the difference between the
stockholder's basis in such share and the amount of cash received,
provided that such payment is not "essentially equivalent to a
dividend" within the meaning of Section 302 of the Code nor has the
effect of a distribution of a dividend within the meaning of
Section 356(a)(2) of the Code after giving effect to the constructive
ownership rules of the Code (collectively, a "Dividend Equivalent
Transaction"). A sale of shares pursuant to an exercise of appraisal
rights generally will not be a Dividend Equivalent Transaction if, as
a result of such exercise, the stockholder exercising the appraisal
rights owns no shares of capital stock of Titan (either actually or
constructively within the meaning of Section 318 of the Code)
immediately after the Merger. 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 shares is 1 year or less,
at a maximum federal tax rate of 28% if the holder's holding period in
the shares 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 the shares is more than 18 months. For corporate holders, capital
gain will continue to be subject to tax at the ordinary income tax
rates applicable to corporations.
A successful IRS challenge to the Reorganization status of the Merger
could result in significant adverse tax consequences to Horizons
stockholders. A Horizons stockholder would recognize gain or loss with
respect to each share of Horizons Common Stock and Horizons Series A
Preferred Stock surrendered equal to the difference between the stockholder'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
stockholder's aggregate basis in the Titan Common Stock so received would
equal its fair market value, and the stockholder'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 Horizons
Common Stock or Horizons Series A Preferred Stock surrendered. In addition,
to the extent that a Horizons stockholder were treated as receiving (directly
or indirectly) consideration other than Titan Common Stock in exchange for
such stockholder's Horizons Common Stock or Horizons Series A Preferred
Stock, gain, if any, would have to be recognized. Moreover, to the extent,
if any, Titan Common Stock received by a Horizons Series A Preferred Stock
holder is deemed to be attributable to any Horizons Series A Preferred Stock
dividends in arrears ("Preferred Stock Dividend"), such a holder would
recognize dividend income to the extent of Horizons' current or accumulated
earnings and profits ("E & P"). For noncorporate taxpayers, the dividend
income would be taxable as ordinary income at a maximum federal tax rate of
39.6%. For corporate holders, the dividend income would be eligible for the
dividends received deduction and would be taxable at ordinary income tax
rates applicable to corporations. To the extent that the deemed value of a
Preferred Stock Dividend exceeds E & P, a holders' basis in his, her or its
stock will be reduced and any excess value will be treated as capital gain.
30
<PAGE>
Certain noncorporate Horizons stockholders 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 stockholder 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 stockholder who fails to provide
the correct TIN on Form W-9 may be subject to a $50 penalty imposed by the
IRS.
Each Horizons stockholder 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 HORIZONS COMMON STOCK AND HORIZONS SERIES A PREFERRED 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 Horizons as a "pooling
of interests" pursuant to generally accepted accounting principles. Titan
management and Horizons management have concluded that no conditions exist
relating to Horizons that would preclude Titan from accounting for the Merger
as a pooling of interests.
APPRAISAL RIGHTS OF HORIZONS STOCKHOLDERS
THE FOLLOWING SUMMARY OF APPRAISAL RIGHTS UNDER THE DGCL IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SECTION 262 OF THE DGCL, THE COMPLETE TEXT OF
WHICH IS ATTACHED HERETO AS APPENDIX C.
FAILURE TO STRICTLY FOLLOW THE PROCEDURES SET FORTH IN SECTION 262 OF
THE DGCL MAY RESULT IN THE LOSS, TERMINATION OR WAIVER OF APPRAISAL RIGHTS.
A HORIZONS STOCKHOLDER WHO FAILS TO ABSTAIN FROM VOTING OR WHO VOTES HIS OR
HER SHARES IN FAVOR OF THE MERGER WILL NOT HAVE A RIGHT TO EXERCISE HIS OR
HER APPRAISAL RIGHTS. A HORIZONS STOCKHOLDER WHO DESIRES TO EXERCISE
APPRAISAL RIGHTS MUST ALSO SUBMIT A WRITTEN DEMAND FOR APPRAISAL OF HIS OR
HER SHARES PRIOR TO THE DATE OF THE HORIZONS MEETING.
Under Section 262 of the DGCL, each Horizons stockholder as of the
Record Date who has not voted in favor of the Merger and who submits a
written demand for appraisal of his or her shares prior to the date of the
Horizons Meeting is entitled to receive payment of the fair value of all
shares of Horizons Common Stock and Horizons Series A Preferred Stock owned
by such holder if the Merger is consummated. Such notice must be sufficient
for Horizons to identify the stockholder. A proxy or vote by a holder of
Horizons Common Stock or Horizons Series A Preferred Stock abstaining or
against the Merger shall not constitute a sufficient notice or demand.
Thereafter, the stockholder who has demanded appraisal rights must
continuously hold the shares of Horizons Common Stock through the Effective
Time and must not vote for the Merger at the Horizons Meeting to perfect
their appraisal right. Notwithstanding the foregoing, at any time within 60
days after the Effective Time any holder of Horizons Common Stock and
Horizons Series A Preferred Stock who has demanded and perfected appraisal
rights may withdraw such demand and accept the conversion terms offered in
the Merger Agreement (without interest). Within 120 days after the Effective
Time a holder of Horizons Common Stock and Horizons Series A Preferred Stock
who has perfected appraisal rights or Horizons may file a petition in the
Court of Chancery of the State of Delaware demanding a determination of the
fair value of all Horizons Common Stock and Horizons Series A Preferred Stock
for all holders who have perfected appraisal rights. From and after the
Effective Time no stockholder who has demanded and perfected their appraisal
rights shall be entitled to vote, or receive any payments or dividends with
respect to, the Horizons Common Stock and Horizons Series A Preferred Stock
or the Titan Common Stock.
31
<PAGE>
TERMS OF THE MERGER
This section of the Prospectus/Proxy Statement describes certain aspects
of the proposed Merger. The Merger Agreement provides for the merger of Titan
Sub, a newly formed, wholly-owned Delaware subsidiary of Titan, with and into
Horizons. The discussion in this Prospectus/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/Proxy Statement as Appendix A and
incorporated herein by reference. All stockholders of Titan and Horizons are
urged to read the Merger Agreement in its entirety.
EFFECTIVE TIME
The Merger will be consummated on March 31, 1998, or as the parties may
otherwise agree, but in no event later than the second business day following
the satisfaction or waiver of all other conditions to consummation of the
Merger. The Merger will become effective on the date the Certificate of
Merger is duly filed with the Delaware Secretary of State (the "Effective
Time"). At the Effective Time, Titan Sub will merge with and into Horizons,
with the result that Horizons will be the Surviving Subsidiary in the Merger
and will be wholly-owned by Titan. As described below, the stockholders of
Horizons will become stockholders of Titan, and their rights will be governed
by the Titan Certificate and the Titan Bylaws. See "Comparison of Rights of
Titan Stockholders and Horizons Stockholders."
MANNER AND BASIS FOR CONVERTING SHARES
EXCHANGE OF STOCK. Except as provided below, at the Effective Time, each
outstanding share of Horizons Common Stock will be converted into the right
to receive approximately $2.25 of Titan Common Stock and each outstanding
share of Horizons Series A Preferred Stock will be converted into the right
to receive $5.00 of Titan Common Stock, based on the average closing price of
Titan Common Stock on the NYSE over the twenty trading days prior to the
Closing Date. The value of Titan common Stock to be issued in connection
with the Merger for each share of Horizons Common Stock may be adjusted at
the time of the Merger if either of the following occur: (i) Horizons'
working capital as of January 31, 1998 is determined to be more than $200,000
greater than or less than a deficit of $2,150,000 (in which case the
aggregate value to be received by all holders of Horizons Common Stock will
be increased or decreased, as appropriate, by an amount equal to the variance
from a deficit of $2,150,000); or (ii) the Titan Designated Closing Price is
determined to be less than $6.00 or greater than $8.00 (in which case the
Titan Designated Closing Price will be deemed to be $6.00 or $8.00, as
appropriate, for purposes of determining the Applicable Fraction). Neither
Titan nor Horizons expect any such adjustment in value to be received will be
necessary in connection with the Merger. See "Risk Factors -- Potential
Adjustment to Consideration to be Received by Holders of Horizons Common
Stock."
Based upon the capitalization of Horizons as of the close of business on
the Record Date, and based upon the $6.375 closing price of Titan Common
Stock on the NYSE for March 6, 1998 (and assuming no price adjustments as
described above), an aggregate of approximately 3,035,760 shares of Titan
Common Stock (the "Merger Consideration") will be issued in the Merger, and
Titan will assume all outstanding Horizons options and substitute all
outstanding Horizons warrants (except for warrants that expire by their terms
in connection with the Merger), which will be converted into options and
warrants, as applicable, to acquire approximately 41,477 additional shares of
Titan Common Stock.
At the Effective Time, all options to purchase Horizons Common Stock
then outstanding under Horizons' 1988 Amended Stock Option Plan (the
"Horizons Option Plan") (each a "Horizons Option" and, collectively, the
"Horizons Options") will be assumed by Titan and all warrants to purchase
Horizons Common Stock then outstanding (except for warrants that expire by
their terms in connection with the Merger) (each a "Horizons Warrant" and,
collectively, the "Horizons Warrants") will be substituted 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 Horizons Common Stock and Horizons Series A
Preferred 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 HORIZONS COMMON STOCK AND HORIZONS SERIES A
PREFERRED STOCK UNTIL SUCH HOLDERS RECEIVE THE LETTER OF
32
<PAGE>
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 Horizons stockholder 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 Horizons will remain as the Surviving Subsidiary.
Pursuant to the Merger Agreement, the Certificate of Incorporation and
the Bylaws of Titan Sub immediately prior to the Effective Time will be the
Certificate of Incorporation and the Bylaws of the Surviving Subsidiary. The
officers of the Surviving Subsidiary will be the respective individuals who
are serving as officers of Horizons immediately prior to the Effective Time,
except Dr. James T. Palmer will resign as Chief Executive Officer at the
Effective Time. The directors of the Surviving Subsidiary will be Gene W.
Ray, Earl A. Pontius, John L. Slack and J.S. Webb. 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 $1 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 AND WARRANTS. As of the Effective Time, each Horizons Option
and Horizons Warrant, whether or not exercisable, will be assumed or
substituted by Titan, as applicable, 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 or
Horizons Warrant, as applicable, by which it is evidenced. From and after the
Effective Time, (i) each Horizons Option and Horizons Warrant will be or
become exercisable for Titan Common Stock rather than Horizons Common Stock,
(ii) the number of shares of Titan Common Stock subject to each Horizons
Option and Horizons Warrant shall be equal to the number of shares of
Horizons Common Stock subject to such option or warrant, as applicable
immediately prior to the Effective Time multiplied by the Applicable
Fraction, 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 Horizons Option and Horizons Warrant
shall be adjusted by dividing the per share exercise price under such option
and warrant, as applicable, by the Applicable Fraction and rounding up to the
nearest cent and (iv) any restriction on the exercise of any such option or
warrant, as applicable, shall continue in full force and effect and the term,
exercisability, vesting schedule and other provisions of each such option or
warrant, as applicable, 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 Horizons Options.
STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the capitalization of Horizons as of the close of business on
the Record Date, and the closing price per share of Titan Common Stock on March
6, 1998 ($6.375) (and assuming no price adjustment as provided above), an
aggregate of approximately 3,035,760 shares of Titan Common Stock will be issued
to Horizons stockholders in the Merger and Titan will assume options and
substitute warrants to acquire up to approximately 41,477 additional shares of
Horizons Common Stock. Based upon the number of shares of Titan Common Stock
issued and outstanding as of the Record Date, and after
33
<PAGE>
giving effect to the issuance of Titan Common Stock as described in the
previous sentence and the exercise of all options and warrants to purchase
Horizons Common Stock assumed by Titan, the former holders of Horizons Common
Stock and Horizons Series A Preferred Stock and options and warrants to
purchase Horizons Common Stock would hold, and have voting power with respect
to, approximately 11.7% of the total voting power of Titan's 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 Horizons 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 Horizons 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, Horizons, Titan Sub and
the Designated Stockholders made certain representations and warranties
relating to its respective business and various other matters. None of the
representations and warranties made by Titan, Horizons and Titan Sub will
survive the Merger. The representations and warranties made by the Designated
Stockholders shall survive the Merger and shall expire on the first
anniversary of the Effective Time.
COVENANTS
Pursuant to the Merger Agreement, Horizons 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, Horizons
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 Horizons may issue Horizons Common Stock upon the valid exercise of
Horizons Options (and make certain other limited grants and issuances);
(c) amend or permit the adoption of any amendment to its certificate
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 that exceeds (when aggregated with
other capital expenditures during the Pre-Closing Period) in the aggregate
$150,000;
(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 that Titan may make routine borrowings) or waive
or relinquish any material right except in compliance with clause (e)
above;
(h) lend money to any person or entity, or incur or guarantee any
indebtedness (except that Titan may make routine borrowings in the ordinary
course of business under its line of credit);
(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");
34
<PAGE>
(j) make any tax election;
(k) commence or settle any legal proceeding; or
(l) agree or commit to take any of the actions described in clauses
(a) through (l) above.
Horizons has 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 Horizons' 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 indirect
employee whose aggregate annual compensation is expected to exceed $40,000.
Horizons has further agreed to take actions necessary to give notice of,
convene and hold a meeting of stockholders and solicit proxies with respect
to the meeting. Finally, Horizons has made certain covenants with respect to
its Employee Stock Ownership Plan.
Each of Horizons 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; and to provide certain
documents to the other and keep the other's information confidential.
NO SOLICITATION
Under the terms of the Merger Agreement, each of Horizons and the
Designated Stockholders has agreed that, during the Pre-Closing Period,
neither Horizons nor the Designated Stockholders will directly or indirectly,
(i) solicit or encourage the initiation of any inquiry proposal or offer from
and person other than Titan) relating to an Acquisition Transaction (as
defined below), (ii) participate in any discussions or negotiations or enter
into any agreement with, or provide any non-public information or afford
access to the properties, books or records of Horizons to any person, entity
or group; or (iii) consider, entertain or accept any proposal or offer from
any person, entity or group. An "Acquisition Transaction" means any
transaction not contemplated by this Merger Agreement involving: (a) any
sale, license, disposition or acquisition of all or a material portion of
Horizons' business assets; or (b) the issuance, disposition or acquisition of
(i) any capital stock or other equity security of Horizons (other than common
stock issued to employees of Horizons, upon exercise of Horizons Options or
otherwise, in routine transactions in accordance with Horizons' past
practices), (ii) any option, call, warrant or right (whether or not
immediately exercisable) to acquire any capital stock or other equity
security of Horizons (other than stock options granted to employees of
Horizons in routine transactions in accordance with Horizons' past
practices), or (iii) any security, instrument or obligation that is or may
become convertible into or exchangeable for any capital stock or other equity
security of Horizons; or (c) any merger, consolidation, business combination,
reorganization or similar transaction involving Horizons. Pursuant to the
Merger Agreement, Horizons further agreed that it will promptly advise Titan
in writing of any material inquiry, proposal or offer relating to a possible
Acquisition Transaction received by Horizons or any of the Designated
Stockholders.
Notwithstanding the foregoing, but subject to the restrictions on the
conduct of Horizons' business described above, prior to the Effective Time,
to the extent the Horizons 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, Horizons may participate in
discussions or negotiations with, and furnish nonpublic information and
afford access to the properties, books or records of Horizons to, any person,
entity or group after such person, entity or group has delivered to Horizons
in writing an unsolicited bona fide proposed Acquisition Transaction which
the Horizons Board in its good faith reasonable judgment determines, could
reasonably be expected to result in a transaction more favorable than the
Merger to the stockholders of Horizons (a "Superior Proposal").
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 stockholders of Horizons; (ii) the Commission
shall have declared the Registration Statement of which this Prospectus/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/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;
35
<PAGE>
(v) Titan and Horizons shall have received a legal opinion from Jenkens &
Gilchrist P.C. and Cooley Godward LLP, respectively, dated as of the Closing
Date, reasonably satisfactory in form and substance to the receiving party;
(vi) Titan and Horizons shall each have received written opinions from their
respective tax counsel (Cooley Godward LLP and Jenkens & Gilchrist P.C.,
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 Horizons does not render such
opinion, this condition shall nonetheless be deemed to be satisfied with
respect to Horizons if counsel to Titan renders such opinion to Horizons;
(vii) the shares of Titan Common Stock issuable to stockholders of Horizons
in the Merger shall have been authorized for listing on the NYSE upon
official notice of issuance; (iv) Titan shall have received a certificate
from Horizons' Chief Executive Officer and Horizons shall have received a
certificate from Titan's Chief Executive Officer confirming that certain
conditions have been duly satisfied; or (v) 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.
In addition, the obligation of Horizons 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 Horizons: (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 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 Horizons 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 Horizons; and (ii)
Horizons 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 Horizons and its
majority-owned subsidiaries as requested by Titan; (ii) a letter from Arthur
Andersen LLP, Titan's independent accountants, relating to the applicability
of pooling of interests treatment to the Merger; and (iii) Affiliate
Agreements in the form attached to the Merger Agreement, executed by each
person who is reasonably determined to be an "affiliate" of Horizons (as that
term is used in Rule 145 promulgated under the Act). See "Approval of the
Merger and Related Transactions -- Certain Federal Income Tax Matters."
Finally, each of Titan and Horizons has a condition to its obligation to
consummate the Merger concerning the Titan Designated Closing Price. In the
event the Titan Designated Closing Price is less than $5.25, Horizons has no
obligation to consummate the Merger. Further, in the event the Titan
Designated Closing Price is greater than $8.75 per share, Titan has no
obligation to consummate the Merger.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement provides that it may be terminated at any time
prior to the Effective Time without either party incurring any termination
fee as follows:
(a) by Titan if Titan reasonably determines that the timely
satisfaction of any condition to Titan's performance under the
Merger Agreement has become impossible (other than as related to
Horizons' Stockholders' Meeting covered by Section 7.2 of the
Merger Agreement or as a result of any failure on the part of
Titan or Titan Sub to comply with or perform any covenant or
obligation of Titan or Titan Sub set forth in the Merger
Agreement);
(b) by Horizons if Horizons reasonably determines that the timely
satisfaction of any condition to Horizons' performance under the
Merger Agreement has become impossible other than as a result of
any failure on the part of Horizons or any of the Designated
Stockholders to comply with or perform any covenant or obligation
set forth in the Merger Agreement or in any other agreement or
instrument delivered to Titan;
36
<PAGE>
(c) by either Titan or Horizons, if the Merger is not consummated by
June 30, 1998 for any reason, provided that the right to
terminate the Merger Agreement as provided in this clause (c) is
not available to any party whose failure to comply with or
perform any covenant or obligation set forth in the Merger
Agreement 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; and
(d) by mutual written consent of Titan and Horizons.
In addition, Horizons may terminate the Merger Agreement if Horizons and
its Board of Directors conclude in good faith that Horizons must accept a
Superior Proposal; PROVIDED, HOWEVER, that Horizons shall pay Titan a
nonrefundable fee of $250,000 in cash upon Titan's election to accept such
Superior Proposal.
Titan may terminate the Merger Agreement and Horizons shall pay to Titan
a termination fee of $250,000 payable upon termination of the Merger
Agreement if at any time prior to the Merger Horizons accepts a Superior
Proposal or Horizons fails to hold the Horizons Meeting or the Horizons
stockholders fail to approve the Merger.
EFFECT OF TERMINATION
If the Merger Agreement is terminated by Titan or Horizons 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 Horizons or by Horizons to
Titan under certain circumstances, will survive such termination, and Titan,
Horizons 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 Horizons shall be obligated to pay to
Titan a termination fee of $250,000 if the Merger Agreement is terminated
under certain circumstances described above. Further, the Merger Agreement
provides that a termination fee of $250,000 will be incurred by Titan or
Horizons, as applicable, if the Merger Agreement is terminated by either
party other than as permitted in the Merger Agreement.
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 shall pay all fees
and expenses incurred in connection with the printing and filing of the
Registration Statement and this Prospectus/Proxy Statement and any amendments
or supplements thereto. See " -- Termination of the Merger Agreement."
Pursuant to the Slavitt Ellington engagement letter, Horizons has agreed
to pay Slavitt Ellington for its services a fee of $25,000 in connection with
the delivery of the opinion of Slavitt Ellington. In addition, Horizons may
pay Slavitt Ellington for additional services beyond the scope of the
original engagement letter up to an additional $25,000. Horizons also has
agreed to indemnify Slavitt Ellington against certain liabilities, including
liabilities under the federal securities laws arising in connection with its
engagement by Horizons.
Titan estimates that Titan and Horizons will incur direct transaction
costs of approximately $1 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
STOCK VOTING AGREEMENT
In connection with the execution of the Merger Agreement, the Designated
Stockholders entered into a Stock Voting Agreement with Titan pursuant to
which each Designated Stockholder agreed that he will vote all shares of
Horizons held by him in favor of the Merger Proposal and each of the other
actions contemplated by the Merger Agreement.
37
<PAGE>
AFFILIATE AGREEMENTS
To help ensure that its stockholders comply with applicable securities
laws, each of the Designated Stockholders has entered into an agreement
pursuant to which he has agreed not to sell, pledge or otherwise transfer
such shares except to the extent covered by and in compliance with Rule 145.
Such agreements also restrict such persons rights to transfer shares of
Horizons Common Stock and Horizons Series A Preferred 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 Horizons. 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 Horizons Common Stock and
Horizons Series A Preferred Stock who (i) are not deemed to be affiliates of
Horizons at the time of the Horizons 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 Horizons, certain officers and certain
significant stockholders of Horizons may be deemed to be affiliates of
Horizons at the time of the Horizons Meeting.
The Designated Stockholders have entered into agreements not to make any
public sale of any Titan Common Stock received upon conversion of Horizons
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 Horizons 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 Horizons. 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).
38
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements
give effect to the Merger of Titan and Horizons 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 December 31,
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
fiscal years ended December 31, 1995, 1996 and 1997, 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, 1997 have been combined
with Horizons' consolidated financial statements for the three fiscal years
ended January 31, 1996, 1997 and 1998.
The pro forma combined condensed statements of operations for each of the
three years in the period ended December 31, 1997 are derived from the audited
historical consolidated financial statements of Titan and historical
consolidated financial statements of Horizons, and should be read in conjunction
with historical financial statements and accompanying notes for Titan and
Horizons included elsewhere in this Prospectus/Proxy Statement.
39
<PAGE>
THE TITAN CORPORATION AND HORIZONS TECHNOLOGY, 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 HTI (NOTE 2) COMBINED
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 161,231 $ 37,381 $ - $ 198,612
Costs and expenses:
Cost of revenues 123,914 23,248 - 147,162
Selling, general and administrative
expense 25,867 8,061 - 33,928
Research and development expense 5,113 125 - 5,238
Restructuring and other (income) expense 6,249 - - 6,249
---------- --------- ----------- -----------
Total costs and expenses 161,143 31,434 - 192,577
Operating profit 88 5,947 - 6,035
Interest expense (1,353) (546) - (1,899)
Interest income 392 - - 392
Income from continuing operations
before income taxes (873) 5,401 - 4,528
Income tax provision (540) 2,052 - 1,512
---------- --------- ----------- -----------
Income from continuing operations (333) 3,349 - 3,016
Loss from discontinued operation
net of taxes (1,972) (8,517) - (10,489)
---------- --------- ----------- -----------
Net income (loss) (2,305) (5,168) - (7,473)
Dividend requirements on preferred stock 695 - - 695
---------- --------- ----------- -----------
Net income applicable to common stock $ (3,000) $ (5,168) - $ (8,168)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Basic earnings per share
income from continuing operations $ (0.05) $ 0.46 $ - $ 0.10
loss from discontinued operation (0.10) (1.17) - (0.46)
---------- --------- ----------- -----------
Net income $ (0.15) $ (0.71) $ - $ (0.36)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Weighted average shares 19,438 7,300 (4,075) 22,663
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Diluted earnings per share
Income from continuing operations $ (0.05) $ 0.46 $ - $ 0.10
Loss from discontinued operation (0.10) (1.17) - (0.46)
---------- --------- ----------- -----------
Net income $ (0.15) $ (0.71) $ - $ (0.36)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Weighted average shares 19,438 7,300 (4,075) 22,663
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
40
<PAGE>
THE TITAN CORPORATION AND HORIZONS TECHNOLOGY, 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 HTI (NOTE 2) COMBINED
----- --- -------- --------
<S> <C> <C> <C> <C>
REVENUES $ 155,954 $ 31,679 $ - $ 187,633
Costs and expenses:
Cost of revenues 124,477 21,373 - 145,850
Selling, general and administrative
expense 23,693 5,127 - 28,820
Research and development expense 3,576 116 - 3,692
Restructuring and other (income) expense - (3,050) - (3,050)
---------- --------- ----------- -----------
Total costs and expenses 151,746 23,566 - 175,312
Operating profit 4,208 8,113 - 12,321
Interest expense (3,201) (592) - (3,793)
Interest income 639 - - 639
Income from continuing operations
before income taxes 1,646 7,521 - 9,167
Income tax provision 221 2,858 - 3,079
---------- --------- ----------- -----------
Income from continuing operations 1,425 4,663 - 6,088
Loss from discontinued operation
net of taxes (3,642) (3,719) - (7,361)
---------- --------- ----------- -----------
Net income (loss) (2,217) 944 - (1,273)
Dividend requirements on preferred stock 803 - - 803
---------- --------- ----------- -----------
Net income applicable to common stock $ (3,020) $ 944 - $ (2,076)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Basic earnings per share
Income from continuing operations $ 0.03 $ 0.63 $ - $ 0.22
Loss from discontinued operation (0.17) (0.50) - (0.30)
---------- --------- ----------- -----------
Net income $ (0.14) $ 0.13 $ - $ (0.08)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Weighted average shares 21,418 7,497 (4,272) 24,643
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Diluted earnings per share
Income from continuing operations $ 0.03 $ 0.63 $ - $ 0.22
Loss from discontinued operation (0.17) (0.50) - (0.30)
---------- --------- ----------- -----------
Net income $ (0.14) $ 0.13 $ - $ (0.08)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Weighted average shares 21,418 7,497 (4,272) 24,643
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
41
<PAGE>
THE TITAN CORPORATION AND HORIZONS TECHNOLOGY, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
TITAN HTI (NOTE 2) COMBINED
----- --- -------- --------
<S> <C> <C> <C> <C>
REVENUES $ 196,694 $ 26,281 $ - $ 222,975
Costs and expenses:
Cost of revenues 151,140 18,335 - 169,475
Selling, general and administrative
expense 23,503 4,699 - 28,202
Research and development expense 6,138 81 - 6,219
Restructuring and other income (expense) - - - -
---------- --------- ----------- -----------
Total costs and expenses 180,781 23,115 - 203,896
Operating profit 15,913 3,166 - 19,079
Interest expense (5,179) (519) - (5,698)
Interest income 802 - - 802
Income from continuing operations
before income taxes 11,536 2,647 - 14,183
Income tax provision 4,243 1,006 - 5,249
---------- --------- ----------- -----------
Income from continuing operations 7,293 1,641 - 8,934
Loss from discontinued operation
net of taxes (343) (5,862) - (6,205)
---------- --------- ----------- -----------
Net income (loss) 6,950 (4,221) - 2,729
Dividend requirements on preferred stock 875 - - 875
---------- --------- ----------- -----------
Net income applicable to common stock 6,075 (4,221) - 1,854
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Basic earnings per share
Income from continuing operations $ 0.29 $ (0.01) $ - $ 0.31
Loss from discontinued operation (0.02) (0.60) - (0.24)
---------- --------- ----------- -----------
Net income $ 0.27 $ (0.61) $ - $ 0.07
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Weighted average shares 22,267 7,496 (4,271) 25,492
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Diluted earnings per share
Income from continuing operations $ 0.27 $ 0.22 $ - $ 0.29
Loss from discontinued operation (0.01) (0.60) - (0.20)
---------- --------- ----------- -----------
Net income $ 0.26 $ (0.38) $ - $ 0.09
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Weighted average shares 27,506 7,496 (4,271) 30,731
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
42
<PAGE>
THE TITAN CORPORATION AND HORIZONS TECHNOLOGY, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
TITAN HTI (NOTE 2) COMBINED
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 10,612 $ 523 $ - $ 11,135
Investments 4,499 - - 4,499
Accounts receivable - net 58,108 6,064 - 64,172
Inventories 15,980 - - 15,980
Net assets of discontinued operation 11,512 (3,277) - 8,235
Prepaid expenses and other 2,160 238 - 2,398
Deferred income taxes 6,845 - 400 7,245
---------- --------- ----------- -----------
Total Current Assets 109,716 3,548 400 113,664
Property and equipment - net 23,936 305 - 24,241
Goodwill - net 20,367 - - 20,367
Other assets 7,905 - - 7,905
Net assets of discontinued operation 2,286 - - 2,286
---------- --------- ----------- -----------
Total assets $ 164,210 $ 3,853 $ 400 $ 168,463
---------- --------- ----------- -----------
---------- --------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit 12,350 5,327 - 17,677
Accounts payable 11,258 1,403 - 12,661
Current portion of long-term debt 1,104 - - 1,104
Accrued compensation and benefits 8,899 2,561 - 11,460
Other accrued liabilities 7,277 119 1,000 8,396
---------- --------- ----------- -----------
Total current liabilities 40,888 9,410 1,000 51,298
---------- --------- ----------- -----------
Long-term debt 37,310 184 - 37,494
Other non-current liabilities 9,223 266 - 9,489
Series B Cumulative convertible redeemable
Preferred stock, $3,000 liquidation preference,
6% cumulative annual dividend, 500,000 shares
issued and oustanding 3,000 - - 3,000
Stockholders' equity:
Preferred stock; $1 par value; authorized 5 (5) -
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:
23,804,809 shares) 238 75 (45) 268
Capital in excess of par value 50,936 3,762 50 54,748
Retained earnings 24,511 (9,849) (600) 14,062
Treasury stock: (971,894 shares, at cost) (2,591) - - (2,591)
---------- --------- ----------- -----------
Total stockholders' equity 73,789 (6,007) (600) 67,182
---------- --------- ----------- -----------
Total liabilities and stockholders' equity $ 164,210 $ 3,853 $ 400 $ 168,463
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
43
<PAGE>
THE TITAN CORPORATION AND HORIZONS TECHNOLOGY, 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 for The Titan Corporation ("Titan") for
the years ended December 31, 1997, 1996 and 1995 with the historical
statements of operations of Horizons Technology, Inc. ("Horizons") for the
years ended January 31, 1998, 1997 and 1996.
NOTE 2. MERGER COSTS
Titan estimates that Titan and Horizons will incur direct transaction costs
of approximately $1 million associated with the Merger, consisting primarily of
investment banking, filings with regulatory agencies, accounting, legal,
financial printing and other related costs.
These estimates are preliminary and are therefore subject to change.
These 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 December 31, 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 Horizons outstanding for each period at the exchange ratio of
approximately $2.25 of Titan Common Stock for each share of Horizons Common
Stock. The effect of the assumed conversion of Titan's convertible
subordinated debentures was antidilutive with the exception of the year ended
December 31, 1997, for the periods presented.
44
<PAGE>
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. 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
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. There can be no assurance that the proposed public
offering will be consummated. The Software Systems segment, through Titan's
wholly owned subsidiary Titan Software Systems, is a systems integrator that
provides a broad range of information technology services and solutions. The
Information Technologies segment, through Titan's wholly owned subsidiary
Titan Technologies and Information Systems Corporation, provides information
systems solutions to defense-related government customers with large data
management, information manipulation, information fusion, knowledge-based
systems and communications requirements, and develops and manufacturers
digital imaging products, electro-optical systems and threat
simulation/training systems primarily used by the defense and intelligence
communities. The Medical Sterilization and Food Pasteurization segment,
through Titan's wholly owned subsidiary Titan Purification, Inc., utilizes
its linear accelerator technology to provide sterilization systems and
services for medical device manufacturers and for the reduction of
contamination from E. coli, salmonella and other microorganisms in food. 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 February 1998, Titan merged with DBA, in a stock for stock transaction.
Titan issued approximately 6,100,000 shares of common stock in exchange for all
the outstanding common shares of DBA. The merger has been accounted for as a
pooling of interests. Accordingly, all information and/or other disclosures
included in this registration statement, including the consolidated financial
statements of The Titan Corporation and its subsidiaries, have been restated to
include DBA for all periods presented.
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 Demand Assigned
Multiple Access ("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' 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. 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 service to vast unserved areas.
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, with delivery to begin immediately and be completed by May 1999. 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 Telspace ("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 telephone, facsimile, and high speed Internet access to
homes and businesses in suburban and rural areas initially
45
<PAGE>
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
Linkabit Wireless' 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. 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. In October 1997, Linkabit Wireless
was awarded an $8.2 million production option to its ongoing U.S. Navy contract
for Mini-DAMA UHF satellite communications terminals for delivery through
February 1999.
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.
Titan Software provides integration services and solutions for companies
with distributed computing environments. 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 and development, and electronic commerce solutions.
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 systems
interfaced with PointCast, to add value to PointCast's push technology.
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. Additionally,
Information Technologies develops and manufactures digital imaging products,
electro-optical systems and threat simulation/training systems primarily used by
the defense and intelligence communities.
46
<PAGE>
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 plans to further support this segment's growth through active
participation in the on-going defense industry consolidation, taking
advantage of synergistic acquisition opportunities. As discussed previously,
in February 1998, Titan acquired DBA, a defense contractor specializing in
imaging and electro-optical systems.
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.
During 1997, Titan Information Technologies was awarded four contracts with
an aggregate potential value exceeding $145 million. These contracts provide
for communications systems integration, engineering and technical support
services for the U.S. Government over a five-year period.
Titan Information Technologies' newly acquired subsidiary, DBA, provides
specialized products and services in two 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. Applications 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 encompasses the design, development and manufacture of electronic
products and systems. 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.
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, Anteon
Corp., Raytheon/E-Systems, General Dynamics, Intergraph, Lockheed-Martin, TRW,
Contraves, Morpho, Autometrics and Metric. 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 984
employees.
MEDICAL STERILIZATION AND FOOD PASTEURIZATION SEGMENT
Titan's Medical Sterilization and Food Pasteurization Segment ("Titan
Purification") utilizes its linear accelerator technology to provide
sterilization systems and services for medical device manufacturers.
Titan Purification has developed a proprietary electronic beam
sterilization process that utilizes linear accelerator technology. Titan
believes its E-Beam sterilization system offers a reliable, environmentally
acceptable and efficient alternative to both Gamma sterilization and EtO
sterilization. Titan Purification E-Beam sterilization process disrupts the DNA
structure of microorganisms on or within the product rendering them sterile.
47
<PAGE>
Titan Purification provides an on-site system which is a compact, low-cost,
turnkey system currently available for customers' in-house manufacturing use.
In February 1997, Titan Purification 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 Purification also provides contract
sterilization services through its facilities in Denver and San Diego. Titan
Purification has been providing such contract services since 1993.
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 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
Purification, until recently, has focused its efforts in the area of medical
device products, Titan Purification believes it is well-positioned to take
advantage of the food pasteurization market if it develops.
Although Titan Purification believes that it is the only provider of
small, low-cost, turnkey systems for in-house manufacturers, Titan
Purification 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 sterilization services. Certain of Titan Purification's competitors
and potential competitors have substantially greater financial, marketing,
distribution, technical and other resources than Titan Purification, 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 Purification had a total of 28 employees.
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 technologies and 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.
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, 1997, 1996 and 1995, U.S. government business represented approximately
75%, 78% and 67% 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.
48
<PAGE>
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.
The following table gives the percentage of revenues realized by Titan from
the three primary types of Government contracts during the years indicated.
<TABLE>
<CAPTION>
CONTRACT TYPE 1997 1996 1995
------------- ----- ----- -----
<S> <C> <C> <C>
Cost Reimbursement . . . . . . . . 56.4% 55.7% 49.7%
Fixed Price. . . . . . . . . . . . 36.8 39.0 46.3
Time and Materials . . . . . . . . 6.8 5.3 4.0
----- ----- -----
100.0% 100.0% 100.0%
----- ----- -----
----- ----- -----
</TABLE>
INDUSTRY SEGMENTS, SIGNIFICANT CUSTOMERS AND EXPORT REVENUES
Reference is made to Note 6 to the accompanying consolidated financial
statements.
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.
In connection with the sale of various products, Linkabit Wireless enters
into supplier agreements with various contract manufacturers to purchase certain
components incorporated into certain of the segment's products. As of
December 31, 1997 Linkabit Wireless has non-cancelable commitments of
$4,354,000, primarily with two vendors, for purchases through 1998. Titan
believes that the loss of one or more of these agreements would not have a
material adverse impact on Titan's operations.
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 45 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 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.
49
<PAGE>
Titan's commercial backlog, by segment, is approximately $28.0 million,
$11.5 million, $4.3 million, $2.5 million and $1.2 million for Communications
Systems, Medical Sterilization and Food Pasteurization, Information
Technologies, Emerging Technologies and Businesses, and Software Systems,
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
December 31:
<TABLE>
<CAPTION>
BACKLOG 1997 1996
------- ---- ----
<S> <C> <C>
Commercial backlog . . . . . . . . $ 48,512,000 $ 33,193,000
U.S. Government funded backlog . . 95,448,000 60,368,000
U.S. Government unfunded backlog . 206,001,000 115,722,000
------------ ------------
$349,961,000 $209,283,000
------------ ------------
------------ ------------
</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 35% 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 $11,279,000,
$8,082,000 and $15,876,000 in 1997, 1996 and 1995, respectively. These
expenditures included company funded research and development of $6,138,000,
$3,576,000 and $5,113,000, and customer sponsored research and development of
$5,141,000, $4,506,000 and $10,763,000, in 1997, 1996 and 1995, respectively.
The majority of Titan's customer sponsored research and development activity is
funded under contract to the U.S. Government.
EMPLOYEES
At the end of fiscal 1997, Titan employed approximately 1,400 employees,
predominantly located in the United States.
PROPERTIES
Titan's operations occupy approximately 786,100 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. For lease
commitment information, reference is made to Note 9 to the accompanying
financial statements.
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.
Substantially all of the machinery and equipment employed by Titan in its
business is owned by Titan.
50
<PAGE>
The locations of the principal operating facilities of Titan and its
consolidated subsidiaries at the end of 1997 were as follows:
COMMUNICATIONS SYSTEMS SOFTWARE SYSTEMS
San Diego, California San Diego, California
Reston, Virginia
INFORMATION TECHNOLOGIES Washington, D.C.
Reston, Virginia Colorado Springs, Colorado
Norfolk, Virginia Tampa, Florida
Hanover, Maryland Dallas, Texas
San Leandro, California Dublin, California
Vallejo, California
San Diego, California MEDICAL STERILIZATION AND
Heathrow, Florida FOOD PASTEURIZATION
Denver, Colorado San Diego, California
Westborough, Massachusetts Denver, Colorado
Akron, Ohio Dublin, California
Huntsville, Alabama
Niantic, Connecticut EMERGING TECHNOLOGIES AND BUSINESSES
Chatsworth, California Tempe, Arizona
Albuquerque, New Mexico Phoenix, Arizona
Middleton, Rhode Island San Diego, California
National City, California Dublin, California
Port Huenome, California Richmond, Virginia
Gates Ferry, Connecticut Albuquerque, New Mexico
Melbourne, Florida
Fairfax, Virginia
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.
51
<PAGE>
TITAN MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(Dollar amounts are expressed in thousands.)
COMPANY OVERVIEW
Titan provides state-of-the-art information technology, electronic systems,
digital imaging products 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. In 1991, Titan
implemented a market-driven strategy to leverage the technologies and expertise
developed through its defense businesses into targeted commercial markets.
Initially, Titan made the investments necessary to commercialize its core
technologies.
A substantial portion of Titan's revenues is 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,
1997, 1996 and 1995, U.S. government business represented approximately 75%, 78%
and 67% 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.
Several of Titan's businesses conduct substantial business in foreign
countries, primarily within Asia. 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. Titan attempts to mitigate credit risk relative to sales to
foreign customers through its policy of generally requiring payment in the form
of stand-by letters of credit, advance deposits or wire transfers prior to
shipment.
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. Titan now 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. This realignment conforms to the provisions of Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." All segment data for prior years have been
restated to conform to the 1997 presentation.
Throughout 1997, Titan closely followed its well-defined strategy designed
to create value for Titan's stockholders, and positioned itself to continue
successfully executing this strategy in the future. Titan expanded and improved
upon its existing products and services in each of its five business segments
and continued to successfully leverage its technologies and expertise into
additional targeted markets.
In December 1997, Titan filed a registration statement with the Commission
in connection with a proposed public offering of approximately 26% of its
Linkabit Wireless common stock. Linkabit Wireless, which constitutes Titan's
Communications Systems segment, 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. Its market-driven product development efforts have resulted in
products which are particularly well-suited for rural telephony and secure
defense communications. There can be no assurance that the proposed public
offering will be consummated.
In 1997, Linkabit Wireless successfully completed its initial contract with
PSN to deliver 2,000 rural telephony terminals, was awarded a $27 million
purchase agreement for delivery of an additional 10,000 Xpress Connection
terminals to PSN, and was awarded a subcontract from Alcatel to participate in a
consortium formed to supply the ground segment for the Multi Media Asia
Satellite Telecommunications System. Linkabit Wireless also received an $8.2
million production option to its ongoing Navy contract for Mini-DAMA UHF
satellite communications terminals and, in December 1997, achieved U.S. Navy
certification for its Mini-DAMA products. Through Linkabit Wireless, Titan's
Communications Systems segment also expanded the number of its strategic
relationships, and the breadth of such relationships, which now include
Motorola, Alcatel and PSN.
52
<PAGE>
Titan's Software Systems segment continued to diversify its customer base
and significantly improved its operating performance in 1997. Software Systems
is a systems integrator that provides system integration services and solutions
for commercial and non-defense government clients with distributed computing
environments. The services provided in this business include systems
integration, business process re-engineering, data warehousing and database
administration, client/server application development, Year 2000 solutions, and
intranet/internet infrastructure design and development.
During 1997, an operating entity in the Software Systems segment was
awarded master service agreements to provide a complete menu of Year 2000
services for four domestic telecommunications companies. A contract for the
design and installation of a fully integrated back-up system for the FAA is
nearing successful completion, and efforts to increase activities with the FAA
have shown positive results.
This segment's customer base expanded throughout the year. Its revenues,
however, continue to be dependent on a limited number of customers, and the
recruitment of specially qualified software engineers and software code writers
continues to be a challenge.
Record revenues and operating profits were achieved by Titan's Information
Technologies segment in 1997. This segment provides information systems
solutions primarily to government customers with large data management,
information manipulation, information fusion, knowledge-based systems, and
communications requirements. This segment also supports high priority
government programs by providing system integration, information systems
engineering services, development of systems and specialized products, as well
as systems research, development and prototyping. Other services provided
include research and development under government funded contracts for the DoD
and other customers.
During 1997, operating entities in the Information Technologies segment
were awarded four contracts with an aggregate potential value exceeding $145
million. These contracts provide for communications systems integration,
engineering and technical support services for the U.S. government over a
five-year period. Titan plans to further support this segment's growth through
active participation in the on-going defense industry consolidation, taking
advantage of synergistic acquisition opportunities. In February 1998, Titan
merged with DBA, a defense contractor specializing in imaging products,
electro-optical systems and threat simulation/training systems.
Titan's Medical Sterilization and Food Pasteurization segment achieved
record revenues and significantly improved its operating performance during
1997. This segment currently provides medical product sterilization services at
two Titan facilities and manufactures and sells turnkey electron beam
sterilization and food pasteurization systems to customers for use in their own
facilities.
1997 operating results for this segment include the sale of an in-house
sterilization system to Baxter Healthcare as well as the design and
near-complete installation of a compact turnkey sterilization system to Guidant
Corporation. More than a dozen new customers for medical product sterilization
services were added to this segment's customer base during 1997, and, at
December 31, 1997, each of its two facilities achieved record utilization
levels.
The Emerging Technologies and Businesses segment experienced a decline
in revenues and approximately break even operating results in 1997. Revenues
and profitability can vary widely in this segment as a result of both the
number of business ventures within this segment and their start-up nature.
This segment applies Titan's proprietary knowledge and core competencies to
industrial and commercial opportunities. Titan views this segment as an
incubator for potential new businesses which can be developed with minimal
Titan investment by leveraging off of market resources and capital to develop
products and bring them to market. Titan's strategy is to ultimately maintain
less than a majority interest in these businesses, thereby reducing financial
risk while maintaining the potential to achieve a significant return on these
investments. During 1997, Titan spun-off a majority interest in an emerging
technologies business which has developed an internet software product which
significantly reduces server bottlenecks. One Emerging Technologies operating
entity was awarded several contracts to provide specialized system
integration. Titan believes that it will continue to generate valuable
technology in this segment and plans to pursue development and licensing of
these technologies, joint ventures, spin-offs, and other transactions which
may ultimately add value to Titan stockholders.
53
<PAGE>
OPERATING RESULTS
In February 1998, Titan acquired DBA, in a stock for stock transaction.
The merger has been accounted for as a pooling of interests. Accordingly, the
operating results and related discussion that follow reflect the restatement
of the consolidated operating results of The Titan Corporation and its
subsidiaries to include DBA for all periods presented.
The table below sets forth Titan's operating results for each of the three
years in the period ended December 31, 1997:
<TABLE>
<CAPTION>
1997 1996 (1) 1995 (1)
---- ---- ----
<S> <C> <C> <C>
Revenues $196,694 $155,954 $161,231
Operating profit 15,913 4,208 88
Interest expense, net 4,377 2,562 961
Income (loss) from continuing operations,
before income taxes 11,536 1,646 (873)
Income tax provision (benefit) 4,243 221 (540)
Loss from discontinued operation, net (343) (3,642) (1,972)
Net income (loss) 6,950 (2,217) (2,305)
</TABLE>
The following table sets forth, as a percentage of total revenues, certain
operations data for the periods indicated.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Operating profit 8.1 2.7 0.1
Interest expense, net 2.2 1.7 0.6
Income (loss) from continuing operations,
before income taxes 5.9 1.0 (0.5)
Income tax provision (benefit) 2.2 0.1 (0.3)
Loss from discontinued operation, net (0.2) (2.3) (1.2)
Net income (loss) 3.5 (1.4) (1.4)
</TABLE>
As noted above, Titan's consolidated revenues were $196,694, $155,954 and
$161,231 in 1997, 1996 and 1995, respectively. Increased revenues were reported
in the Communications Systems, Information Technologies, and Medical
Sterilization and Food Pasteurization segments in 1997. Revenue growth in 1997
was primarily attributable to increased deliveries of rural telephony units and
Mini-DAMA units in the Communications Systems segment, and from the revenues
generated by Eldyne and Unidyne, which were acquired in May 1996 in the
Information Technologies segment.
Titan's consolidated operating profit has been significantly impacted by a
number of factors in each of the three years shown above. The primary factor in
the lower performance in operations for 1996 and 1995 compared to 1997 was
Titan's continuing investment in and funding of its commercial ventures.
Selling, general and administrative ("SG&A") expenses were $23,503, $23,693 and
$25,867 in 1997, 1996 and 1995, respectively. The 1997 and 1996 decreases in
both absolute dollars and as a percentage of revenues reflect cost cutting
efforts, economies of scale and efficiencies that have been achieved. Since
1996, Titan has taken actions to reduce administrative costs commensurate with
changes in revenue volumes. Most notably, reductions were made in the Software
Systems segment in 1996 when revenues were significantly impacted by reduced
demand from a major telecommunications customer. In addition, Titan eliminated
many duplicate functions and costs as part of its process of integrating the
Eldyne and Unidyne businesses. In early 1997, Titan implemented a reengineering
process of its administrative functions. This reengineering focused on the
elimination of redundancies, resulting in increased efficiencies and reduced
infrastructures, and ultimately resulted in reduced costs. Titan intends to
continue this process though 1998. As such, general and administrative expenses
are not expected to increase as a percentage of revenues in 1998.
Research and development ("R&D") expenses were $6,138, $3,576 and $5,113,
in 1997, 1996 and 1995, respectively, primarily reflecting the significant
development of satellite communications products in Titan's Communications
Systems segment. An increased level of R&D spending in 1997 was planned, though
not at the magnitude incurred, as certain development and certification efforts
in Linkabit Wireless took longer than expected to complete. The level of R&D
expense incurred, though anticipated to remain significant, is expected to
decrease as a percentage of revenues in 1998 as demand increases for existing
developed products.
Net interest expense has increased over the three-year period ended
December 31, 1997, primarily as a direct result of the level of Titan's
borrowings. In 1997, the principal component of interest expense is related to
the convertible subordinated debentures issued by Titan in November 1996. In
1996 and 1995, the principal component of interest expense is related to Titan's
borrowings under its bank lines of credit. Borrowings from Titan's bank lines of
credit averaged $10,803, $12,315 and
54
<PAGE>
$6,400 at weighted average interest rates of 8.1%, 8.2% and 8.8% during 1997,
1996 and 1995, respectively. Also included in interest expense is interest
on Titan's deferred compensation and retiree medical obligations. Interest
expense related to these items was $767, $801 and $726 for 1997, 1996 and
1995, respectively. Increased interest income from 1995 to 1996 resulted
from increasing levels of cash available for investment.
Income taxes reflect effective rates of 37%, 13% and 62% in 1997, 1996
and 1995, respectively. The difference between the actual provision and the
effective rate (based on the United States statutory tax rate) in 1997 was
due primarily to state income taxes. The 1996 and 1995 tax rates reflect
variation in timing of utilization of net operating losses by Titan and DBA,
due to the inability to file a consolidated tax return in prior periods.
Titan expects its effective income tax rate to remain stable in the
foreseeable future.
Early in 1997, Titan announced its decision to divest its broadband
communications business in order to focus on businesses that are better
aligned with Titan's available resources and offer a greater opportunity to
add stockholder value. At that time Titan took actions to significantly
reduce the broadband communications business operating costs. Revenues for
the broadband communications business were $551, $2,238 and $2,432 in 1997,
1996 and 1995, respectively. Included in the loss from discontinued
operation is a tax benefit of $177, $1,876 and $625 for 1997, 1996 and 1995,
respectively. Titan deferred losses from the discontinued operation of
$9,271 in 1997, which primarily represented amortization costs of intangible
assets, and to a lesser degree, wind-down costs of the business. Titan
continues to identify potential strategic investors for the broadband
communications business. To date, however, an appropriate strategic investor
has not been identified.
COMMUNICATIONS SYSTEMS
Revenues in this segment were $48,980, $27,850 and $25,506 in 1997, 1996
and 1995, respectively. Revenues increased over 75% in 1997 from 1996,
primarily reflecting the fulfillment of Titan's initial contract for Xpress
Connection units with PSN, increased market acceptance for certain of Titan's
modem and networking products, and an increase in deliveries of Mini-DAMA,
LSM-1000 and the LST-5D products. Revenues increased slightly from 1995 to
1996, primarily as a result of growth in defense related production
contracts, mostly associated with Titan's Mini-DAMA and other defense
communications products.
Segment operating income was $1,074 in 1997 compared to operating losses
of $4,187 and $578 in 1996 and 1995, respectively. Operating income was
achieved in 1997 primarily due to increased revenue volume. Despite an
increase in SG&A and R&D expenses on an absolute dollar basis, these costs
decreased as a percentage of revenues. The operating losses in 1996 compared
to 1995 reflect the ramp up of operations in this segment, including the
addition of sales, marketing and customer service personnel required to
support the revenue growth. R&D efforts increased in 1997 as the business
completed development and certification of certain products. In addition,
R&D expenses increased from 1995 to 1996, reflecting the increased labor and
related costs associated with the ongoing development of the Mini-DAMA,
Xpress Connection and other products during the period. Revenues and
operating profit for 1995 included approximately $1,400 received in
settlement of a termination for convenience claim with the U.S. Government
for work performed in prior years.
SOFTWARE SYSTEMS
Revenues in this segment were $17,374, $18,505 and $33,175 in 1997, 1996
and 1995, respectively. One federal agency accounted for approximately $8,900
of this segment's revenue in 1997, $6,800 in 1996, and $4,600 in 1995, and
one telecommunications customer accounted for approximately $4,500 of this
segment's revenue in 1997, $8,300 in 1996 and $24,500 in 1995. In the second
half of 1995, this segment experienced reduced demand from the aforementioned
telecommunications customer. This trend continued in 1996 and 1997,
resulting in an overall revenue decline. Reduced revenues from this customer
in 1997 were substantially offset by revenues from several new and existing
customers. During 1997, significant efforts were made to diversify this
segment's customer base so that operating performance will become less
dependent on a few customers.
Segment operating income was $4,580 in 1997 compared to an operating
loss of $137 in 1996, and operating income of $3,803 in 1995. The 1997
results reflect the impact of cost reductions achieved, offset somewhat by
additional costs associated with a negotiated conclusion of certain
contracts. The 1996 operating loss was due primarily to reduced sales from
the previously mentioned telecommunications customer, the timing of
corresponding decreases in SG&A, and additional costs associated with the
aforementioned contract conclusion.
INFORMATION TECHNOLOGIES
Revenues in this segment were $113,733, $94,874, and $90,487 for 1997, 1996
and 1995, respectively. The increase in 1997 reflects a full year's results from
Eldyne and Unidyne, which were acquired in May 1996, and increased revenues
generated by DBA resulting from a contract awarded in 1996, offset partially by
the loss of revenue from a division sold in mid
55
<PAGE>
1996 and the wind-down of work subcontracted to the buyer of a business unit
sold in April 1994. These subcontracted revenues amounted to $300, $6,100 and
$18,300, in 1997, 1996 and 1995, respectively. The increase in revenues from
1995 to 1996 reflects the revenues of $31,700 generated from the acquired
companies Eldyne and Unidyne, offset by the decline in subcontract revenue
and loss of revenue from the division sold in mid 1996 as noted above.
Segment operating income in 1997 was $11,739, compared to $9,191 in
1996, and $4,402 in 1995. The increases in 1997 and 1996 are primarily
attributable to the revenue growth discussed previously. No operating income
was recognized on the above mentioned subcontract revenue for any period
presented. Furthermore, 1997 and 1996 revenues and operating income include
certain non-recurring credits resulting from the reevaluation of estimates of
contract costs based upon favorable developments with certain government
audit agencies, as well as changes in the carrying value of assets being
disposed of.
MEDICAL STERILIZATION AND FOOD PASTEURIZATION
Revenues in this segment were $5,983, $2,818 and $3,459 in 1997, 1996
and 1995, respectively. The increase in 1997 was directly related to
increased processing of medical products at Titan's two facilities, and to
sales of Titan's turnkey sterilization systems to Guidant Corporation and
Baxter Medical.
Segment operating income increased to $189, compared to operating losses
of $1,080 in 1996 and $1,340 in 1995. The achievement of operating income is
directly related to the increase in revenues mentioned above.
EMERGING TECHNOLOGIES AND BUSINESSES
Revenues in this segment were $10,624, $11,907 and $8,604 in 1997, 1996
and 1995, respectively. The decrease in 1997 was primarily due to the
completion of certain contracts in Titan's linear electron accelerator and
environmental consulting businesses, offset partially by the inclusion of a
full year's revenues generated from a division acquired in May 1996. The
revenue growth in 1996 compared to 1995 primarily reflects the impact of the
division acquired in 1996.
Segment operating loss was $25 in 1997, compared to operating income of
$964 in 1996 and $151 in 1995. The change in operating results reflects the
fluctuation in revenue volume, combined with reduced margins in this
segment's various businesses.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, Titan generated $1,667 cash from its continuing operations.
Titans income from continuing operations of $7,293 was offset partially by
increases in receivables and inventories of $5,799 and $1,101, respectively,
principally related to commercial rural telephony products and to government
satellite communications products. Significant funding requirements included
liabilities of continuing operations of $5,359, which included approximately
$1,500 in payments of certain accrued costs related to Titan's acquisition of
Eldyne and Unidyne in 1996. Additionally, $5,573 of cash was used by
discontinued operations.
Cash was also provided by Titan's line of credit ($12,350). 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%. As of December 31, 1997, there was
$12,350 of borrowings outstanding under this agreement, at a weighted average
interest rate of 8.02%. Titan also had commitments under letters of credit
under this agreement of $1,368, which reduced availability under the line of
credit to $10,282. 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 $1,196 at December 31, 1997, remains outstanding with Crestar
Bank. At December 31, 1997 Titan was in compliance with all financial
covenants under its various debt agreements.
Funding for the advancement of Titan's strategic goals, including
continued investment in targeted commercial businesses and start-up ventures,
is expected to continue in 1998. Titan plans to finance these requirements
from a combination of sources, which include cash generation from Titan's
core businesses and continuation and expansion of Titan's bank line of
credit. Titan is negotiating to extend its current line of credit past its
expiration date of May 1998. Furthermore, Titan anticipates selling its
broadband communications business in 1998, and is also exploring several
equity alternatives as potential sources of capital. As previously noted, one
of Titan's primary strategies is the funding of growth in specific
subsidiaries through spin-out transactions. If Titan is unable to implement
this strategy, whether in whole or in part, then Titan may need to complete
additional equity or debt financings to fund the continued expansion of its
operations and potential acquisitions of new technologies. Any additional
equity or convertible debt financings could, however, result in substantial
dilution to Titan's stockholders. Management is continually monitoring and
reevaluating its level of investment in all of its operations and the
financing sources available to achieve Titan's goals in each business area.
56
<PAGE>
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 based upon a
number of factors, including without limitation, those described herein
under "Risk Factors." 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.
57
<PAGE>
OWNERSHIP OF TITAN'S SECURITIES
The following table sets forth certain information as to the number of
shares beneficially owned as of March 6, 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>
Norman J. Wechsler Common Stock 1,607,092 7.18%
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 521,474(2) 2.33%
J. S. Webb Common Stock 112,037(2) *
Louis L. Fowler Common Stock 29,884(2) *
Ronald B. Gorda Common Stock 112,203(2) *
Cornelius L. Hensel Common Stock 53,516(2)(3) *
Frederick L. Judge Common Stock 66,645(2) *
John L. Slack Common Stock 355,672(2) 1.59%
All Directors and Officers as a Group (15 Persons) Common Stock 1,076,295(2) 10.9%
</TABLE>
- --------------
* Less than 1%
(1) The address of each owner other than Mr. Wechsler is c/o The Titan
Corporation, 3033 Science Park Road, San Diego, California 92121.
Mr. Wechsler's address is: 39 Broadway, New York, NY 10006.
(2) Including (A) 16,250; 11,250; 16,250; 8,750; 10,000; 230,000; 40,000;
13,500; 95,000; 51,250; 50,000; 88,833; and 659,708 shares subject to
outstanding options held by Messrs. Allen, Caligiuri, Fink, La Blanc,
Pownall, Ray, Webb, Fowler, Gorda, Hensel, Judge, Slack and all directors
and officers as a group, respectively, which are currently exercisable or
may become exercisable within 60 days after March 6, 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) 83,552;
25,140; 16,271; 14,703; 2,166; 2,358; and 157,428 shares held by the
trustees of Titan's 401(k) Retirement Plan and Employee Stock Ownership
Plan for the accounts of Messrs. Ray, Webb, Fowler, Gorda, Hensel, Judge
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.
58
<PAGE>
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 34 1997
Financial Officer
Louis L. Fowler Vice President and Assistant Secretary 59 1989
Ira Frazer Senior Vice President, General 43 1998
Counsel and Secretary
Ronald B. Gorda Senior Vice President 42 1994
Frederick L. Judge Senior Vice President 64 1994
John L. Slack President, Titan Technologies and 59 1998
Information Systems Corporation
Deanna H. Petersen Corporate 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. Frazer has been Senior Vice President, General Counsel and Secretary
of Titan since February 1998. From August 1995 through January 1998 he
served as General Counsel for California Steel Industries, Inc. a joint
venture Japanese/Brazilian steel company. From June 1994 to August 1995 he
had a private legal and consulting practice. From 1989 until June 1994 he
was General Counsel and Chief Administrative Officer of Daihatsu America,
Inc., an automotive distributor.
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
59
<PAGE>
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.
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.
Mr. Slack became President of Titan Technologies and Information Systems
Corporation, a wholly-owned subsidiary of Titan, in February 1998, upon the
acquisition of DBA by Titan. Mr. Slack is also President and Chief Executive
Officer of DBA and is a director of the DBA Board, both of which positions he
has held since 1989.
Ms. Petersen has been Corporate 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.
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.
60
<PAGE>
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) 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
been finally determined.
(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; (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) $11,681.
(E) Mr. Hensel resigned from Titan in January 1998.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options made during fiscal 1997 under Titan's long-term incentive program to the
Named Executive Officers:
61
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR (A)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF STOCK
GRANTED TO PRICE APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OPTION TERM (F)
GRANTED IN FISCAL PRICE EXPIRATION -----------------------
NAME (B) YEAR (C) ($/Sh)(D) DATE (E) 5% ($) 10% (S)
- ------------------------------------- --------- ---------- --------- ------------ ---------- ----------
<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.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR,
AND FY-END OPTION VALUE (A)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
SHARES NUMBER OF UNEXERCISED MONEY OPTIONS AT FY-END
ACQUIRED VALUE OPTIONS AT FY-END (#) ($)(C)
ON 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.
62
<PAGE>
(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.
63
<PAGE>
HORIZONS BUSINESS
OVERVIEW
Founded in San Diego, California in 1977, Horizons initially
conducted computer systems analysis and software development for the DNA.
Horizons' first contract was to modify the supercomputer programs used for
calculating nuclear weapons effects into applications that could be run on
first-generation hand-held computers. From this beginning, Horizons has been
predominantly involved in providing software, computer systems integration
and technical consulting services, primarily for the United States' defense
establishment.
Horizons' Systems Engineering Group ("SEG") segment was started
in 1984 to address the growing defense engineering and technical services
market and continues today. Another segment, the Information Systems Group
("ISG"), was formed in 1993 to convert Horizons' proprietary technologies
into software products for commercial markets. In December 1997, the Horizons
Board adopted a plan to wind down and exit ISG. See "Horizons Management's
Discussion and Analysis of Results of Operations and Financial Condition."
SEG is an engineering management consulting organization
primarily serving agencies of the United States government. SEG is retained
by various government entities to assist in the acquisition, development,
testing and fielding of major defense communications, surveillance and
information systems. SEG is both a prime and subcontractor, at times
managing multi-million dollar contracts with large subcontractor teams.
Principal clients include the United States Air Force (the "Air Force"),
certain other military services; and the Federal Aviation Administration (the
"FAA"). SEG presently employs 250 people at 22 offices and work sites
worldwide. SEG's technical focus is on the design, development, management
and support of C2 systems, including integration of these systems into an
inter-operable architecture.
Horizons has multi-disciplined technical teams that support all
phases of the systems acquisition and development process, including program
management, requirements analysis, system and facility engineering, testing
and evaluation, integrated logistics and information systems. The technical
staff includes engineers and systems integration management experts;
architectural and civil engineering personnel who perform site surveys and
installation preparation; computer scientists and systems analysts who
configure and operate computer networks, write data reduction programs and
analyze data; logistics professionals who complete system logistics tasks;
and program management experts who plan and assist in the management of
programs in order to meet performance, cost and schedule objectives. Horizons
also performs information systems software and hardware services.
PROGRAM MANAGEMENT
For the past fifteen years, SEG has provided program management
services to government program managers, including consulting services and
software tools.
Examples of SEG's program management support include
comprehensive program management plans for the Joint Surveillance and Target
Attack Radar System (the "Joint STARS") program, a technologically advanced
airborne sensor C2 platform with a unique capability to see and communicate
the ground battlefield picture. In addition, SEG provides services related to
the United States government's Joint Tactical Information Distribution System
and Automated Weather Distribution Systems. SEG also provides support in the
area of technical specifications, risk assessments, industrial base analyses
and manufacturing plans for the Airborne Warning and Control System
("AWACS"). Furthermore, SEG works on Advanced Entry Control Systems,
Tactical Automated Security Systems and integrated Engineering programs. SEG
also specializes in program planning and scheduling.
The technical challenges of program management have changed
dramatically over the past few years, particularly those relating to C2
program. Such engineering challenges focus on defining C2 architecture in
place and subsequently integrating commercial "off-the-shelf" solutions
consistent with the standards and specifications of the government's Defense
Information Infrastructure, Common Operating Environment and the Global
Command and Control System. In addition to systems engineering and systems
integration, SEG provides specialized software development services necessary
for the software-intensive C2 systems currently under development.
SEG also provides financial analyses of program cost performance
in order to provide management with insight into the program progress. In
connection with the analysis, SEG performs cost estimates, "earned-value
analysis" and analyses of the cost of operational effectiveness.
64
<PAGE>
TESTING AND EVALUATION
SEG has broad experience in designing and conducting test
programs designed to enhance technical specification compliance and the
operational effectiveness of a variety of programs. SEG personnel design and
conduct detailed test programs for the purpose of maximizing design
specification compliance. Many of these programs involve multi-service
developmental testing and joint operations on a worldwide basis.
Horizons and the SEG staff have supported the Joint STARS
government developmental testing and evaluation program of the Department of
Defense (the "DoD") since 1987. SEG supports both the air and ground
segments of the test program.
SEG has also participated in the testing and evaluation of many
strategic and tactical military radar communications and command center
systems, as well as radar systems used in air traffic control and weather
monitoring. At the Sacramento Air Logistics Center (an "ALC"), SEG engineers
and analysts plan and test modifications to long-range radar, air traffic
control systems and weather equipment.
SEG also assists the DoD joint services in updating and deploying
fully tested software for the Tri-Service Joint Tactical Information
Distribution System. Horizons developed and staffed the central software
support facility at Robins Air Force Base in Georgia and helped to achieve a
Level 3 software process capability certification, as defined by the Software
Engineering Institute of Carnegie Mellon University.
SURVEILLANCE SYSTEMS
Horizons and SEG provide systems engineering support to a wide
variety of government surveillance programs. Certain C2 infrastructure
relies on airborne radar technology programs developed at the Air Force's
Electronic System Center, most notably Joint STARS and AWACS. SEG's staff
tests radar performance and analyzes the results and SEG engineers design
radar data reduction programs designed to give the Air Force rapid feedback
on how well the radar meets operational requirements. Horizons also works
with ground-based radar systems. Horizons' activities in this area include
hardware and software design evaluation, facilities design criteria, site
activation, performance testing and problem resolution.
Horizons currently provides hardware and software engineering
support, as well as facility and long-term logistics support for the
FAA's/Air Force's Air Route Surveillance Radar ("ARSR-4" system). SEG
currently assists the FAA's program office in the testing and evaluation of
ARSR-4 installations and provides site surveys at various ARSR-4 locations
within the FAA's Western Pacific region. SEG is also presently modifying and
updating the AN/TPS-117 long range radar system in direct support of the
Sacramento ALC. In addition, Horizons has supported, and continues to
support, the Caribbean Basin Radar Network ("CBRN") program, including the
installation of nine new long-range 3D radar systems in the Caribbean and the
networking of these nine systems with seven existing radar systems into two
regional operations control centers, in order to improve air traffic control
and international relations in the Caribbean area.
C2 SYSTEMS
The Air Force's Theater Battle Management Core Systems ("TBMCS")
program links the organizational levels of command with the automated tools
necessary for air operations, thereby creating functional capabilities for
planning, intelligence and operational execution. An important TBMCS
subsystem is the Contingency Theater Automated Planning System ("CTAPS").
CTAPS is a hardware and software system composed of a number of workstations
on a local area network ("LAN") linked with geographically remote terminals.
The focus of CTAPS is the Air Tasking Order that assigns operational units to
fly specified combat and combat support missions, and to maintain aircraft
and aircrews at specified alert status condition.
Horizons provides C2, TBMCS and CTAPS support worldwide in the
areas of requirements, system development, software testing, training and
operations. SEG personnel are on-site at Ramstein air base in Germany, Air
Force headquarters at the Barksdale, Shaw and Davis-Monthan Air Force bases,
sites in Alaska and Guam, as well as to the Air Force's Pacific headquarters.
Horizons also supports the United States Marine Corps at each of the Marine
Air Wings in the United States and Okinawa, Japan.
Horizons provides support to these worldwide military operations
by configuring, maintaining, and operating a variety of hardware systems and
software applications, using workstations and servers, LAN management
software, network protocols, systems and database administration and
management software. SEG technical support personnel are also part of the
computer security activities at CTAPS site locations.
65
<PAGE>
SEG is also involved in the development and fielding of the Air
Mobility Command's (the "AMC") primary C2 tool referred to as the C2
Integrated Processing System ("C2IPS").
AIR TRAFFIC MANAGEMENT
SEG supports air traffic management ("ATM") projects that range
from airspace and airport planning to design and engineering services for
several terminal and en-route surveillance radar programs for the both FAA
and the Air Force. SEG provides expertise in conducting systems analysis,
development, integration, and installation of many evolving ATM system
components. SEG professionals that work on such systems include systems
engineers, air traffic controllers, airway facilities engineers, software
engineers, communications engineers, radar engineers, meteorologists and
weather system experts, financial analysts and trainers and technicians.
PHYSICAL SECURITY
Horizons, through its SEG team, provides integrated security
systems for detection, surveillance, assessment, access control and automated
response to identified and potential security threats or challenges.
Horizons' engineers and technicians, through SEG, have helped the DoD develop
and deploy physical security technology. In addition to its support of the
DoD, SEG's staff also serves as a facility security consultant to the FAA.
INTEGRATED LOGISTICS
The overall objective of Air Force's Integrated Logistics
Supports System ("ILS") program is the fielding of supportable and affordable
support systems that meet the Air Force's performance and readiness
requirements in the planned operational environment. SEG logistics and
sustainment specialists participate in all phases of life cycle support
activities for many Air Force C2 programs.
BACKLOG
Horizons' backlog of unfilled orders at January 31, 1998 was
approximately $17.6 million compared to $12.9 million at January 31, 1997.
The backlog at January 31, 1998 consists of $16.4 million in backlog relating
to government contracts and $1.2 million in commercial backlog. The January
31, 1997 backlog consists of $12.7 million in backlog relating to government
contracts and $200,000 in commercial backlog. Horizons expects that all of
the January 31, 1998 backlog will be converted into revenue during the fiscal
year ended January 31, 1999.
Orders are entered into backlog only when Horizons receives a
definite commitment for products or services from a customer. Delivery
orders received by Horizons for its government contracts are generally issued
under long term contracts that have a maximum dollar ceiling. The difference
between the dollar value of delivery orders received and the maximum contract
dollar ceiling is considered unfunded backlog. At January 31, 1998, unfunded
backlog was approximately $59 million.
Horizons' backlog is typically subject to a number of
contingencies due to various factors. Such factors include funding
constraints, the cancellation or modification of government programs and
changes in allocation of work between prime and subcontractors. The amount
of backlog, therefore, should not be viewed as the sole determinant of
Horizons' future contract revenue and consequently, the dollar amount of the
backlog is not necessarily indicative of the future revenue of Horizons.
66
<PAGE>
COMPETITION
Horizons experiences competition in its target markets and
competes with both large and small businesses. In the large business arena,
competitors include such companies as Booz Allen Hamilton, Arthur D. Little,
ARINC, Inc., Lockheed Martin, Dynamics Research Corporation and TASC.
EMPLOYEES
As of December 31, 1997 Horizons had 293 employees. Horizons is
not subject to any collective bargaining agreements with its employees.
67
<PAGE>
HORIZONS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts are expressed in thousands)
The forward-looking statements included in Management's
Discussion and Analysis of Financial Condition and Results of Operations,
which reflect Horizons 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
Horizons pursuant to the safe harbor established by recent securities
legislation should be evaluated in the context of these factors.
Horizons formed the SEG segment in 1984 to address the growing
defense engineering and technical services market and continues today. A
second segment, ISG, was formed in 1993 to convert the company's proprietary
technologies into software products for commercial markets. Due to
insufficient capitalization and changes in the software product markets in
the mid 1990's, Horizons began a process of restructuring the ISG operations
in a series of right-sizing steps.
In December 1997, Horizons' Board of Directors adopted a plan to
restructure and wind down and exit its ISG segment, in order to better focus
Horizons' available resources on it's government information technology
business in the Systems Engineering segment. Accordingly, the following
discussion on the results of operations applies to continuing operations.
References to fiscal years refer to Horizons' fiscal year ended January 31.
GENERAL:
The following tables set forth for the periods indicated,
Horizons' revenues and operating profits (losses) by segment as reflected in
the Consolidated Statements of Operations and the annual change of such items
for the period indicated:
<TABLE>
<CAPTION>
Change
Years Ended January 31
---------------------------
Revenues (in thousands) 1998 1997 1996 1997 to 1998 1996 to 1997
--------------------------------------- ------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Systems Engineering $26,281 $29,551 $26,491 $(3,270) $ 3,062
Advanced Systems -- 2,128 10,890 (2,128) (8,762)
------- ------- ------- ------- -------
Total Revenues $26,281 $31,679 $37,381 $(5,398) $(5,700)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
<CAPTION>
Change
Operating Profit (Loss) (in thousands) Years Ended January 31
-------------------------------------- ----------------------------
1998 1997 1996 1997 to 1998 1996 to 1997
------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Systems Engineering $3,166 $5,323 $4,590 $(2,157) $733
Advanced Systems -- (260) 1,357 260 1,617
------ ------ ------ ------- -----
Total Operating Profit (Loss) $3,166 $5,063 $5,947 $(1,897) $884
------ ------ ------ ------- -----
------ ------ ------ ------- -----
</TABLE>
RESULTS OF OPERATIONS:
FISCAL YEAR 1998 COMPARED WITH FISCAL YEAR 1997:
Revenues for fiscal year 1998 were approximately $26,281, a decrease of
$5,398 compared to fiscal year 1997. The decrease in revenue is primarily
the result of the loss of revenues from the sale of Advanced Systems (a line
of business within Horizon's defense segment) which was sold in May 1996, as
well as Systems Engineering revenue declines of $3,270 primarily due to
reduced "pass through" subcontract activity and lower fees on service
contracts.
Systems Engineering operating profits were $3,166 in fiscal year 1998, a
decrease of $2,157 compared to fiscal year 1997. This reduction was
primarily the result of lower margins.
Interest expense for fiscal year 1998 was $519 as compared to $592 in fiscal
year 1997. The decrease was the result of carrying less accounts receivable
credit line debt through fiscal year 1998 than in the prior fiscal year.
Taxes have been allocated to continuing operations at a combined federal and
state income tax rate of 38%, and tax benefits related to net operating loss
(NOL) carryforwards have been reported as a benefit to the loss from
discontinued operations.
68
<PAGE>
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996:
Revenues for fiscal year 1997 were $31,681, a decrease of $5,700 from fiscal
year 1996. Systems Engineering revenues increased $3,062 due to expanded
"pass thru" of subcontract costs and increased direct labor volume on service
contracts. The $8,762 decrease in revenues for Advanced Systems represents
revenues lost due to the sale of that business in May 1996.
Operating Profit totaled $5,063 for fiscal year 1997. Systems Engineering
operating profits increased $733 in fiscal year 1997 primarily due to
improved margins on service contracts.
Interest expense in fiscal year 1997 totaled $592, an increase of $46 over
fiscal year 1996. During the fiscal year, bank accounts receivable credit
line and term debt decreased from a total of approximately $8,965 to $5,855.
Paydowns were made with $4,311 in proceeds from the sale of the Advanced
Systems division.
An income tax provision of $2,858, a loss from discontinued operations of
$3,719 and other results described above, yielded net income of $944 for the
fiscal year ended January 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 1998, cash totaled $523 comprised primarily of money market
funds. Trade receivables totaled $6,042, a decrease of $1,234 from January 31,
1997. The receivable decrease is primarily due to improved collections
and a decline in revenues due to the sale of the ASG in 1996.
At January 31, 1998, Horizon's bank debt is comprised of $5,327 against the
secured accounts receivable line of credit and a $196 balance on a term note
payable monthly through December 18, 2000. The interest rate on both the line
and term
69
<PAGE>
note is 2% in excess of the bank prime lending rate, and the effective rate
was 10.5% at January 31, 1998. The existing bank agreements provides for
advances against the line not to exceed a balance of $7,000 and matures on
May 15, 1998.
The Company has incurred net losses of approximately $4,200 and $5,200 for
the years ended January 31, 1998 and 1996, respectively. Pro forma net loss
for the year ended January 31, 1997 was approximately $2,100 after excluding
the one-time gain of $3,050 on sale of assets. At January 31, 1998, the
Company had negative working capital of approximately $5,900. Management
recognizes the need to generate positive cash flows in future periods and/or
to acquire additional capital from various sources. Management has undertaken
to discontinue its commercial software business in order to reduce or
eliminate future losses from operations related to this business. There can
be no guarantee that the Company's remaining government business will be
successful in generating significant revenues and/or sufficient cash flows in
future periods to enable the Company to meet its ongoing obligations.
Furthermore, the Company presently is highly dependent on its ability to find
additional sources of funding in the form of debt financing or equity
issuances. Management is currently engaged in a merger transaction with The
Titan Corporation; however, there is no assurance that the Company will be
able to complete this transaction on terms favorable to the Company. All of
these factors create a substantial doubt about the Company's ability to
continue as a going concern.
During fiscal year 1998, there has been no activity related to common or
preferred stock.
70
<PAGE>
OWNERSHIP OF HORIZONS' SECURITIES
Set forth below is information regarding beneficial ownership of
Horizons' capital stock as of the Record Date, by Horizons' directors and
executive officers (and the directors and officers as a group) and each
person beneficially owning 5% or more of the outstanding shares of Horizons
Common Stock or Horizons Series A Preferred Stock. Unless otherwise
indicated, each of the stockholders listed below has sole voting and sole
investing power with respect to the shares listed opposite such stockholder's
name.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT OF BENEFICIAL OWNERSHIP CLASS OF STOCK PERCENT OF CLASS
- ------------------------------------------- ------------------------------ -------------- ----------------
<S> <C> <C> <C>
Earl A. Pontius 225,000 Common Stock 3.0%
James T. Palmer 3,960,000 Common Stock 52.8%
J. Patrick Boyce 987,500 Common Stock 13.2%
North American Trust Co., for the HTI
Retirement Plan and Trust 300,000 Series A Preferred 60.0%
Wells Fargo Equity Capital, Inc. 100,000 Series A Preferred 20.0%
All Directors and Executive Officers as a
Group (3 persons) 5,172,500 Common Stock 69.0%
</TABLE>
71
<PAGE>
COMPARISON OF RIGHTS OF TITAN STOCKHOLDERS AND HORIZONS STOCKHOLDERS
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 Horizons stockholders are
currently governed by Horizons' Certificate of Incorporation (the "Horizons
Certificate"), its Bylaws (the "Horizons Bylaws") and the DGCL. Upon
consummation of the Merger, Horizons stockholders 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 Horizons
stockholders 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 respective corporate documents of Titan and
Horizons.
CAPITAL STOCK. The authorized capital stock of Titan consists of
45,000,000 shares of Titan Common Stock, of which 23,346,839 shares were
issued and outstanding on March 6, 1998, 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 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 Horizons consists of 12,000,000
shares of Horizons Common Stock, $.01 par value, of which 7,496,953 shares
were issued and outstanding on March 6, 1998, and 2,500,000 shares of
Preferred Stock ($.01) par value, all of which have been designated "Series A
Preferred Stock," of which 500,000 shares were issued and outstanding on
March 6, 1998.
AMENDMENT OF 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.
The Horizons Bylaws state that they may be amended, repealed or
replaced with new Bylaws by the affirmative vote of a majority of the Board
of Directors, provided that notice of any proposal to make, alter or repeal
the Bylaws, or to adopt new Bylaws is included in the notice of the meeting
of the Board of Directors at which such action takes place.
AMENDMENT OF HORIZONS CERTIFICATE 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
Titan Certificate does not modify this provision. Pursuant to the Horizons
Certificate, the Horizons certificate may only be amended by the approval of
two-thirds (2/3) of Horizons' outstanding capital stock entitled to vote on,
or consent to, such amendment.
SPECIAL MEETINGS OF STOCKHOLDERS. 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 Horizons Bylaws
permit a special meeting to be called by the Chairman of the Board, if any,
the President or Secretary, and only upon the request of a majority of
Horizons' directors duly elected and acting directors. Notices of such
special meeting must be in writing and state the purpose of the proposed
meeting.
ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS. 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. The Horizons Certificate
provides that any action which may be taken at any annual or special meeting
may be taken without a meeting, without prior notice and without a vote if
two-thirds (2/3) of the holders of Horizons' outstanding capital stock
otherwise entitled to vote on such action sign a consent setting forth the
action so taken.
SIZE OF THE BOARD OF DIRECTORS. The Titan Bylaws currently
provide that the number of directors presently authorized is seven (7). The
Horizons Bylaws currently provide that the number of directors presently
authorized is no less than three (3) and no more than seven (7).
72
<PAGE>
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. Neither
the Titan Bylaws nor the Horizons Certificate provide for a classified board.
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 either the Titan Certificate or the Horizons Certificate.
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 $1.00 Cumulative Convertible Preferred Stock, or elected
by the directors to fill a vacancy, requires the affirmative vote of the
holders of a majority of the $1.00 Cumulative Convertible Preferred Stock
entitled to vote thereon.
The Horizons Certificate contains no provisions relating to the
removal of directors. The Horizons Bylaws provide that one director may be
removed with or without cause at any meeting of the stockholders called
expressly for such purpose, by a vote of stockholders holding a majority of
shares issuable and outstanding and entitled to vote at an election of
directors.
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.
The Horizons 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 or by the sole remaining director. When one or more
directors resigns, effective at a future date, a majority of directors then
in office, including those who resigned, have the power to fill such vacancy
or vacancies. The vote thereon to take effect after such resignation or
resignations becomes effective, and each director so chosen holds office
until the next annual meeting of stockholders or until his successor has been
elected.
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 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 Horizons Bylaws provide that, subject to the provisions of
the DGCL, the Board of Directors may declare dividends at any annual, regular
or special meeting, and may be paid in cash, property or in shares of
Horizons' stock. Horizons' Bylaws also provide that the Board of Directors,
in its sole discretion, may set aside or reserve any sum, over and above the
paid-in capital of Horizons for any proper purpose.
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 Horizons Certificate
provides that a director of Horizons is not personally liable to Horizons or
its stockholders for monetary damages for beach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
73
<PAGE>
loyalty to Horizons 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 DGCL, which provides for liability for
the unlawful payment of dividends, unlawful stock purchase or unlawful stock
redemption, or (iv) for any transaction from which the director derived any
improper personal benefit. If the DGCL is amended to further eliminate or
limit the liability of a director of a corporation, then a director of
Horizons, in addition to the circumstances in which a director is not
personally liable as set forth in (i) to (iv) above, will not be liable to
the fullest extent permitted by the DGCL as amended.
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 Horizons Certificate states that Horizons shall
indemnify officers, directors, employees and agents of Horizons to the full
extent of the DGCL, and if, prior to indemnification, Horizons must make
certain investigations on a case-by-case basis, Horizons shall pursue such
investigations with diligence. To the extent not prohibited by the DGCL, the
indemnified parties shall not be liable to Horizons or its stockholders
except for their own individual willful misconduct or actions taken in bad
faith.
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
Horizons Bylaws contain no similar provisions.
74
<PAGE>
EXPERTS
The consolidated financial statements of both The Titan
Corporation and Horizons Technology, Inc. included in this Prospectus/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.
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 Horizons by Jenkens & Gilchrist, a
Professional Corporation, Washington, D.C.
75
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
THE TITAN CORPORATION PAGE
------
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995. . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995. . . . . . . . F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995. . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
HORIZONS TECHNOLOGY, INC.
AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-21
Consolidated Balance Sheets as of January 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-22
Consolidated Statements of Operations for the Years Ended January 31, 1998, 1997 and 1996 . . . . . . . . . . . . . F-23
Consolidated Statements of Stockholders' Equity for the Years Ended January 31, 1998, 1997 and 1996 . . . . . . . . F-24
Consolidated Statements of Cash Flows for the Years Ended January 31, 1998, 1997 and 1996 . . . . . . . . . . . . . F-25
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-27
</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, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of Titan'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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
February 27, 1998
F-2
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except shares and per share amounts)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1997 1996
---------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 10,612 $ 4,751
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,499 9,888
Accounts receivable - net . . . . . . . . . . . . . . . . . . . . . . . . 58,108 50,985
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,980 14,979
Net assets of discontinued operation. . . . . . . . . . . . . . . . . . . 11,512 1,304
Prepaid expenses and other. . . . . . . . . . . . . . . . . . . . . . . . 2,160 2,245
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 6,845 6,037
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 109,716 90,189
Property and equipment - net. . . . . . . . . . . . . . . . . . . . . . . . 23,936 26,445
Goodwill - net of accumulated amortization of $5,780 and $4,824 . . . . . . 20,367 21,580
Other assets - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,905 13,271
Net assets of discontinued operation. . . . . . . . . . . . . . . . . . . . 2,286 7,264
---------- ----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $164,210 $ 158,749
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,350 $ --
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,258 8,986
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . 1,104 1,010
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . 8,899 8,725
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 7,277 11,138
Note payable to related party . . . . . . . . . . . . . . . . . . . . . . -- 1,000
---------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . 40,888 30,859
---------- ----------
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,310 40,071
---------- ----------
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . 9,223 10,359
---------- ----------
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 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: 23,804,809 and
23,199,000 shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 238 232
Capital in excess of par value. . . . . . . . . . . . . . . . . . . . . . . 50,936 49,073
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,511 27,420
Treasury stock (971,894 and 1,106,114 shares), at cost. . . . . . . . . . . (2,591) (2,960)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 73,789 74,460
---------- ----------
Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . . $164,210 $ 158,749
---------- ----------
---------- ----------
</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,
---------------------------------------
1997 1996 1995
--------- ----------- ----------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 196,694 $ 155,954 $ 161,231
Costs and expenses:
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . 151,140 124,477 123,914
Selling, general and administrative expense. . . . . . . . . . 23,503 23,693 25,867
Research and development expense . . . . . . . . . . . . . . . 6,138 3,576 5,113
Restructuring and other expense, net . . . . . . . . . . . . . -- -- 6,249
----------- ------------ -----------
Total costs and expenses . . . . . . . . . . . . . . . . . . . 180,781 151,746 161,143
----------- ------------ -----------
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . 15,913 4,208 88
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . (5,179) (3,201) (1,353)
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . 802 639 392
----------- ------------ -----------
Income (loss) from continuing operations
before income taxes. . . . . . . . . . . . . . . . . . . . . . 11,536 1,646 (873)
Income tax provision (benefit) . . . . . . . . . . . . . . . . . 4,243 221 (540)
----------- ------------ -----------
Income (loss) from continuing operations . . . . . . . . . . . . 7,293 1,425 (333)
Loss from discontinued operation, net of taxes . . . . . . . . . (343) (3,642) (1,972)
----------- ------------ -----------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . 6,950 (2,217) (2,305)
Dividend requirements on preferred stock . . . . . . . . . . . . (875) (803) (695)
----------- ------------ -----------
Net income (loss) applicable to common stock . . . . . . . . . . $ 6,075 $ (3,020) $ (3,000)
----------- ------------ -----------
----------- ------------ -----------
Basic earnings per share:
Income (loss) from continuing operations . . . . . . . . . . . $ .29 $ .03 $ (.05)
Loss from discontinued operation . . . . . . . . . . . . . . . (.02) (.17) (.10)
----------- ------------ -----------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . $ .27 $ (.14) $ (.15)
----------- ------------ -----------
----------- ------------ -----------
Weighted average shares. . . . . . . . . . . . . . . . . . . . 22,267 21,418 19,438
----------- ------------ -----------
----------- ------------ -----------
Diluted earnings per share:
Income (loss) from continuing operations . . . . . . . . . . . $ .27 $ .03 $ (.05)
Loss from discontinued operation . . . . . . . . . . . . . . . (.01) (.17) (.10)
----------- ------------ -----------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . $ .26 $ (.14) $ (.15)
----------- ------------ -----------
----------- ------------ -----------
Weighted average shares. . . . . . . . . . . . . . . . . . . . 27,506 21,418 19,438
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Cumulative
Convertible Capital in
Preferred Common Excess of Retained Treasury
Stock Stock Par Value Earnings Stock Total
---------- ---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994. . . . . . . . . . . $ 695 $ 206 $ 33,165 $ 33,938 $(4,604) $63,400
Stock issuance . . . . . . . . . . . . . . . . . -- -- 1,579 -- 912 2,491
Exercise of stock options and other. . . . . . . -- 5 1,293 (60) (381) 857
Shares contributed to employee
benefit plans . . . . . . . . . . . . . . . . -- -- 583 (161) 549 971
Income tax benefit from employee
stock transactions. . . . . . . . . . . . . . -- -- 344 -- -- 344
Dividends on preferred stock -
$1 per share. . . . . . . . . . . . . . . . . -- -- -- (695) -- (695)
Net loss . . . . . . . . . . . . . . . . . . . . -- -- -- (2,305) -- (2,305)
---------- ---------- ----------- ----------- ---------- ----------
Balances at December 31, 1995. . . . . . . . . . . 695 211 36,964 30,717 (3,524) 65,063
Stock issuance for acquisition . . . . . . . . . -- 18 10,659 -- -- 10,677
Exercise of stock options and other. . . . . . . -- 3 553 (16) (62) 478
Shares contributed to
employee benefit plans. . . . . . . . . . . . -- -- 827 (261) 626 1,192
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 . . . . . . . . . . . . . . . . . . . . -- -- -- (2,217) -- (2,217)
---------- ---------- ----------- ----------- ---------- ----------
Balances at December 31, 1996. . . . . . . . . . . 695 232 49,073 27,420 (2,960) 74,460
Conversion of subordinated debt. . . . . . . . . -- 5 1,597 -- -- 1,602
Exercise of stock options and other. . . . . . . -- 1 759 (52) 37 745
Shares contributed to employee
benefit plans . . . . . . . . . . . . . . . . -- -- 12 -- 332 344
Shares purchased from benefit plan . . . . . . . -- -- (545) -- -- (545)
Income tax benefit from
employee stock transactions . . . . . . . . . -- -- 40 -- -- 40
Pooling of interests with DBA. . . . . . . . . . -- -- -- (8,932) -- (8,932)
Dividends on preferred stock -
Cumulative Convertible, $1.00 per share . . . -- -- -- (695) -- (695)
Series B, 6% annual . . . . . . . . . . . . . -- -- -- (180) -- (180)
Net income . . . . . . . . . . . . . . . . . . . -- -- -- 6,950 -- 6,950
---------- ---------- ----------- ----------- ---------- ----------
Balances at December 31, 1997. . . . . . . . . . . $ 695 $ 238 $ 50,936 $ 24,511 $(2,591) $73,789
---------- ---------- ----------- ----------- ---------- ----------
---------- ---------- ----------- ----------- ---------- ----------
</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,
----------------------------------------------
1997 1996 1995
--------------- ---------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . $ 7,293 $ 1,425 $ (333)
Adjustments to reconcile income (loss) from continuing
operations to net cash used for continuing operations:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 7,229 6,222 5,044
Deferred income taxes and other . . . . . . . . . . . . . . . . . . . 3,006 (1,830) 304
Change in operating assets and liabilities,
net of effects from businesses sold and
acquired:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . (5,799) 7,060 (2,770)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . (1,101) (5,144) (3,048)
Prepaid expenses and other assets. . . . . . . . . . . . . . . . 3,765 199 1,788
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 2,272 (4,356) 4,051
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . -- (653) --
Accrued compensation and benefits. . . . . . . . . . . . . . . . 108 (2,542) (1,673)
Restructuring activities . . . . . . . . . . . . . . . . . . . . (815) (4,099) (486)
Adjustment to conform DBA fiscal year. . . . . . . . . . . . . . (8,932) -- --
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . (5,359) (419) (542)
----------- ----------- ----------
Net cash provided by (used for) continuing operations. . . . . . . . . . . 1,667 (4,137) 2,335
----------- ----------- ----------
Loss from discontinued operation . . . . . . . . . . . . . . . . . . . . . (343) (3,642) (1,972)
Changes in net assets of discontinued operation. . . . . . . . . . . . . . (5,230) (4,943) (2,894)
----------- ----------- ----------
Net cash used for discontinued operation . . . . . . . . . . . . . . . . . (5,573) (8,585) (4,866)
----------- ----------- ----------
Net cash used for operating activities . . . . . . . . . . . . . . . . . . (3,906) (12,722) (2,531)
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,202) (5,507) (9,101)
Proceeds, net of transaction costs, from sale
of businesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 2,492 1,835
Payment for purchase of businesses, net of cash acquired . . . . . . . . . -- (2,679) --
Proceeds from sale of investments. . . . . . . . . . . . . . . . . . . . . 19,199 5,000 --
Purchase of investments. . . . . . . . . . . . . . . . . . . . . . . . . . (15,410) (9,888) (5,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 223 49
----------- ----------- ----------
Net cash provided by (used for) investing activities . . . . . . . . . . . 87 (10,359) (12,217)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,350 37,000 13,800
Retirements of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,065) (15,841) (1,426)
Deferred debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . -- (2,035) --
Proceeds from stock issuances. . . . . . . . . . . . . . . . . . . . . . . 741 476 3,324
Purchase of stock from benefit plan. . . . . . . . . . . . . . . . . . . . (471) -- --
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (875) (803) (695)
----------- ----------- ----------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . 9,680 18,797 15,003
----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . 5,861 (4,284) 255
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . 4,751 9,035 8,780
----------- ----------- ----------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . $ 10,612 $ 4,751 $ 9,035
----------- ----------- ----------
----------- ----------- ----------
</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, except per share data)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. The Titan Corporation provides 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, and Medical
Sterilization and Food Pasteurization--and a fifth business segment, Emerging
Technologies and Businesses. Titan provides engineering, technical,
management and consulting services in the areas of national security,
software systems, communication systems, information systems, threat
simulation/training systems, electronic control systems, advanced research
and development, and medical products sterilization and food pasteurization.
Titan also develops, designs, manufactures and markets satellite
communications subsystems, digital imaging products, electro-optical systems,
and pulsed power products including linear accelerators.
Titan is involved in a number of start-up ventures, most notably the commercial
satellite communications business in Titan's Communications Systems segment.
Titan believes that the primary source of revenues for this business will be
international customers in developing countries, primarily within Asia. Titan's
investment in this business is reflected in the balance sheet primarily within
the captions of Accounts Receivable, Inventories, and Property and Equipment and
aggregates approximately $14,400 at December 31, 1997. Also at December 31,
1997, this business has non-cancelable commitments of $4,354, primarily with two
contract manufacturers, for purchases through 1998 of certain components
incorporated into the segments's products. While accounts receivable are
generally not collateralized, Titan limits its exposure by performing ongoing
credit evaluations of its customers' financial condition. To mitigate credit
risk in foreign countries, Titan has a policy of requiring payment, primarily in
the form of stand-by letters of credit, advance deposits, or wire transfers,
prior to shipment.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of The Titan Corporation ("Titan") and its subsidiaries. All
significant intercompany transactions and balances have been eliminated.
Certain prior year amounts have been reclassified to conform to the 1997
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.
REVENUE RECOGNITION. A majority of Titan'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.
INVESTMENTS. Titan does not invest in securities as its primary business and
does not maintain a trading account. Occasionally, however, Titan purchases
financial instruments with maturities greater than three months from the date of
acquisition. Such securities are classified as "available for sale" as
required by Statement of Financial Accounting Standards No. 115 (SFAS 115)
"Accounting for Certain Investments in Debt and Equity Securities." As of
December 31, 1997 and 1996, all such investment securities owned by Titan mature
in one year or less and were carried at their current market value, which
approximates their cost, as required by SFAS 115.
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 10 years for machinery and equipment and furniture and fixtures. Certain
machinery and equipment in Titan'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. Titan periodically re-evaluates the original
assumptions and rationale utilized in the establishment of the carrying value
and estimated lives of its goodwill. The criteria used for these
F-7
<PAGE>
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 Titan's
business objectives.
CAPITALIZED SOFTWARE COSTS. Titan'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.
IMPAIRMENT OF LONG-LIVED ASSETS. Periodically, Titan reveiws for possible
impairment its long-lived assets and certain identifiable intangibles to be held
and used by an entity. Whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable, asset values
are adjusted accordingly.
STOCK BASED COMPENSATION. Titan has elected to adopt the disclosure only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123). Accordingly, Titan will continue to
account for its stock based compensation plans under the provisions of APB No.
25.
INCOME TAXES. Titan 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.
F-8
<PAGE>
PER SHARE INFORMATION. In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accountings Standards No. 128 "Earnings Per
Share" (SFAS 128), which has been adopted by Titan. The statement specifies the
computation, presentation, and disclosure requirements for earnings per share
("EPS"), and is effective for periods ending after December 15, 1997. Prior
year per share information is presented in accordance with the statement. The
following data summarize information relating to the per share computations for
1997:
<TABLE>
<CAPTION>
For The Year Ended December 31, 1997
----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amounts
----------- ------------- ---------
<S> <C> <C> <C>
Income from continuing operations. . . . . . . . . . . $7,293
Less preferred stock dividends . . . . . . . . . . . . (875)
-----------
Basic EPS:
Income from continuing operations
Available to common stockholders . . . . . . . . . . 6,418 22,267 $.29
Effect of dilutive securities:
Stock options. . . . . . . . . . . . . . . . . . . . -- 313 (.01)
Warrants . . . . . . . . . . . . . . . . . . . . . . -- 30 (.00)
Convertible subordinated debentures. . . . . . . . . 978 4,896 (.01)
------------ ------------ ----------
Diluted EPS:
Income from continuing operations
available to common stockholders
plus assumed conversions . . . . . . . . . . . . . . $7,396 27,506 $.27
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
In 1997, options to purchase 709,351 shares of common stock at prices ranging
from $4.02 to $9.50 per share were not included in the computation of diluted
EPS for 1997, because the options' exercise price was greater than the average
market price of the common shares. Also in 1997, 463,248 shares of common stock
that could result from the conversion of cumulative convertible preferred stock,
as well as 333,333 shares that could result from the conversion of Series B
Cumulative Convertible Redeemable Preferred stock (until November 24, 1997 when
the conversion privilege expired), were not included in the computation of
diluted EPS, as the effect would have been anti-dilutive.
Common shares that could result from the conversion of stock options in 1996 and
1995, and from the conversion of Titan's convertible subordinated debentures and
Series B cumulative convertible redeemable preferred stock in 1996 were not
included in the computation of diluted EPS in 1996 and 1995, as the effect would
have been anti-dilutive.
NEW ACCOUNTING STANDARD. In July 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). This Statement establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. The objective of the Statement is
to report a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with owners ("comprehensive income"). Comprehensive income is the total of net
income and all other nonowner changes in equity. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997, with earlier application
permitted. Titan does not anticipate that the adoption of the accounting and
disclosure provisions of SFAS No. 130 will have a material impact on Titan's
financial statements and results of operations.
NOTE 2. MERGER AND ACQUISITION
On February 27, 1998, Titan consummated a merger with DBA Systems, Inc. ("DBA"),
in a stock-for-stock transaction. DBA is a developer and manufacturer of
digital imaging products, electro-optical systems and threat simulation/training
systems. DBA's products and systems are primarily used by the defense and
intelligence communities; accordingly, it will become part of Titan's
Information Technologies segment.
Titan issued approximately 6,100,000 shares of common stock in exchange for all
the outstanding shares of DBA stock based on an exchange ratio of approximately
1.37 shares of Titan's common stock for each share of DBA common stock. The
merger constituted a tax-free reorganization and has been accounted for as a
pooling of interests. In connection therewith, DBA's June 30 fiscal year-end
has been changed to coincide with Titan's year-end. Accordingly, the financial
statements
F-9
<PAGE>
presented have been restated to include the combined results of operations,
financial position and cash flows of DBA as if the merger had occurred at the
beginning of the periods presented.
Prior to the merger, DBA used a fiscal year ending June 30. Accordingly, the
combined results reflect the results for the Titan fiscal years ended December
31, 1997, 1996 and 1995 combined with DBA's results for the fiscal years ended
June 30, 1997, 1996 and 1995, respectively. DBA revenues and net loss for the
six months ended December 31, 1997 were $11,660 and $8,932, respectively. The
net loss, which included certain non-recurring charges to conform DBA to Titan's
accounting policies, has been reflected as an adjustment to retained earnings.
The Consolidated Statement of Cash Flows for the year ended December 31, 1997,
reflects activity for the eighteen months ended December 31, 1997, for DBA.
On May 24, 1996, Titan completed the acquisition of three privately-held
affiliated businesses -- Eldyne, Inc. ("Eldyne"), Unidyne Corporation
("Unidyne") and Diversified Control Systems, LLC ("DCS"). The overall
transaction consideration, excluding associated transaction costs and expenses,
consisted of $1 million cash, 1,779,498 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 10), assumption
of indebtedness and a promissory note for $1 million issued to the principal
stockholder of the acquired companies. The $1 million note was due and paid on
March 15, 1997, and earned interest of 10% per annum. Titan 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, Titan's
consolidated financial statements include the operating results of the three
acquired companies since May 24, 1996. The excess of the purchase price over
the estimated fair value of net assets acquired of $17,474 at December 31, 1997
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. . . . . . . . .. $180,290 $212,316
Net income (loss) . . . . . (265) 118
Net loss per share. . . . . (0.05) (0.03)
</TABLE>
NOTE 3. DISCONTINUED OPERATION
On April 11, 1997, Titan's Board of Directors adopted a plan to divest Titan'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.
Revenues for the broadband communications business were $551, $2,238 and $2,432
for the years ended December 31, 1997, 1996 and 1995, respectively. Included in
the loss from discontinued operation is a tax benefit of $177, $1,876 and $625
for the years ended December 31, 1997, 1996 and 1995 respectively. Titan
deferred losses from the discontinued operation of $9,271 in 1997, which
primarily represented amortization and wind-down costs of the business.
Included in the deferred loss is interest of $509 allocated to the discontinued
operation based on the ratio of net assets to be sold to the sum of total net
assets of Titan. 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 4. RESTRUCTURING
In 1995, the Board of Directors adopted a formal plan of restructuring, which
resulted in a $5,431 charge to 1995 results of operations. The restructuring
plan generally provided for the dispositions of certain non-core businesses as
well as severance and related costs. The planned restructuring activities were
substantially accomplished in 1996.
F-10
<PAGE>
NOTE 5. OTHER FINANCIAL DATA
Following are details concerning certain balance sheet accounts:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accounts Receivable:
U.S. Government - billed . . . . . . . . . $ 20,992 $ 19,869
U.S. Government - unbilled . . . . . . . . 21,603 22,564
Trade. . . . . . . . . . . . . . . . . . . 15,964 8,956
Less allowance for doubtful accounts . . . (451) (404)
--------- ---------
$ 58,108 $ 50,985
--------- ---------
--------- ---------
</TABLE>
Unbilled receivables include approximately $10,400 and $11,200 at December
31, 1997 and 1996, respectively, 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 Titan for performance on certain U.S.
Government contracts are subject to audit by the Defense Contract Audit
Agency. Revenues have been recorded at amounts expected to be realized upon
final settlement.
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Inventories:
Materials. . . . . . . . . . . . . . . . . . . $2,285 $2,012
Work-in-process. . . . . . . . . . . . . . . . 11,668 9,238
Finished goods . . . . . . . . . . . . . . . . 2,027 3,729
-------- -------
$15,980 $14,979
-------- -------
-------- -------
Property and Equipment:
Machinery and equipment. . . . . . . . . . . . $38,648 $37,909
Furniture and fixtures . . . . . . . . . . . . 5,382 6,670
Land, buildings and leasehold improvements . . 14,011 13,593
Construction in progress . . . . . . . . . . . 406 938
-------- -------
58,447 59,110
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . (34,511) (32,665)
-------- -------
$23,936 $26,445
-------- -------
-------- -------
</TABLE>
Deferred income taxes of $314 and $4,094 are included in Other Assets at
December 31, 1997 and 1996, respectively. At December 31, 1997 and 1996,
respectively, other liabilities, current and non-current, include $2,570 and
$1,623 related to estimated losses on contracts, $1,006 and $2,019 of customer
advance payments, and liabilities for post-retirement benefits for employees of
previously discontinued operations of $2,436 and $2,923.
F-11
<PAGE>
NOTE 6. SEGMENT INFORMATION
In the fourth quarter of 1997, Titan realigned certain operations within its
existing segments and added a fifth segment to better position these
operations for strategic transactions pursuant to Titan's corporate strategy.
This realignment conforms with the provisions of Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information". All prior year segment data have been restated to
conform to the 1997 presentation.
The Communications Systems segment contains Titan's wholly owned subsidiary,
Linkabit Wireless, Inc., ("Linkabit Wireless"), which develops and produces
advanced satellite communications products and systems for commercial and
government customers. In December 1997, Titan filed a registration statement
including a preliminary prospectus with the Securities and Exchange
Commission ("SEC") for an initial public offering of 2,700,000 shares of
Linkabit Wireless common stock. The underwriters will be granted a 30-day
option to purchase up to an additional 405,000 shares to cover
over-allotments. If and when the offering is consumated, then immediately
following the offering, Titan will own approximately 74% of the common stock
of Linkabit Wireless.
The Software Systems segment is a systems integrator that provides systems
integration services and solutions for commercial and non-defense clients
with distributed computing environments.
The Information Technologies segment provides information systems solutions
primarily to government customers with large data management, information
manipulation, information fusion, knowledge-based systems and communications
requirements, and develops and manufactures digital imaging products,
electro-optical systems and threat simulation/training systems primarily used
by the defense and intelligence communities. This segment also supports high
priority government programs by providing systems integration, information
systems engineering services, development of systems and specialized
products, as well as systems research, development and prototyping. Other
services provided include research and development under government funded
contracts for the Department of Defense (DoD) and other customers.
The Medical Sterilization and Food Pasteurization segment provides medical
product sterilization services at two Titan facilities and manufactures and
sells turnkey electron beam sterilization and food pasteurization systems to
customers for use in their own facilities.
The Emerging Technologies and Businesses segment applies Titan's proprietary
knowledge and core competencies to industrial and commercial opportunities.
Substantially all operations are located in the United States. Export
revenues amounted to approximately $21,365, $10,693, and $14,209 in 1997,
1996 and 1995, respectively, primarily to countries in the Far East and
Western Europe.
The following tables summarize industry segment data for 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Communications Systems . . . . . . $48,980 $27,850 $25,506
Software Systems . . . . . . . . . 17,374 18,505 33,175
Information Technologies . . . . . 113,733 94,874 90,487
Medical Sterilization and
Food Pasteurization . . . . . . 5,983 2,818 3,459
Emerging Technologies and
Businesses. . . . . . . . . . . 10,624 11,907 8,604
-------- -------- --------
$196,694 $155,954 $161,231
-------- -------- --------
-------- -------- --------
</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 $148,095 in 1997, $122,302 in 1996, and $107,739 in 1995.
Within the Software Systems segment, sales to one customer, a telephone
company, totaled $4,500, $8,300 and $24,500 in 1997, 1996 and 1995,
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>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
OPERATING PROFIT (Loss):
Communications Systems . . . . . . . . . $1,074 $(4,187) $(578)
Software Systems . . . . . . . . . . . . 4,580 (137) 3,803
F-12
<PAGE>
Information Technologies . . . . . . . . 11,739 9,191 4,402
Medical Sterilization and Food
Pasteurization. . . . . . . . . . . . 189 (1,080) (1,340)
Emerging Technologies and Businesses . . (25) 964 151
Corporate. . . . . . . . . . . . . . . . (1,644) (543) (6,350)
------- ------- ------
$15,913 $4,208 $88
------- ------- ------
------- ------- ------
</TABLE>
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>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS:
Communications Systems . . . . . . . . . $29,019 $18,774 $13,826
Software Systems . . . . . . . . . . . . 8,114 6,139 8,945
Information Technologies . . . . . . . . 69,623 80,257 57,645
Medical Sterilization and Food
Pasteurization. . . . . . . . . . . . 11,854 10,222 10,446
Emerging Technologies and Businesses . . 7,589 7,649 5,508
Discontinued operation, net. . . . . . . 13,798 8,568 3,558
General corporate assets . . . . . . . . 24,213 27,140 23,596
-------- -------- --------
$164,210 $158,749 $123,524
-------- -------- --------
-------- -------- --------
</TABLE>
F-13
<PAGE>
General corporate assets are principally cash, prepaid expenses, property and
equipment, deferred income taxes and other assets.
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Depreciation and Amortization
of Property and Equipment,
Goodwill, and Other Assets:
Communications Systems . . . . . . . . . . . . . $1,292 $820 $601
Software Systems . . . . . . . . . . . . . . . . 617 1,152 1,032
Information Technologies . . . . . . . . . . . . 3,551 2,953 2,510
Medical Sterilization and Food Pasteurization. . 499 510 287
Emerging Technologies and Businesses . . . . . . 288 374 207
Corporate. . . . . . . . . . . . . . . . . . . . 982 413 407
------ ------ ------
$7,229 $6,222 $5,044
------ ------ ------
------ ------ ------
Capital Expenditures:
Communications Systems . . . . . . . . . . . . . $1,438 $1,831 $1,101
Software Systems . . . . . . . . . . . . . . . . 453 261 1,700
Information Technologies . . . . . . . . . . . . 1,493 1,727 1,095
Medical Sterilization and Food Pasteurization. . 429 1,024 4,183
Emerging Technologies and Businesses . . . . . . 270 437 668
Corporate. . . . . . . . . . . . . . . . . . . . 119 227 354
------ ------ ------
$4,202 $5,507 $9,101
------ ------ ------
------ ------ ------
</TABLE>
NOTE 7. INCOME TAXES
The components of the income tax provision (benefit) from continuing operations
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal. . . . . . . . . . . . . . . . . . . $848 $85 $(1,621)
State. . . . . . . . . . . . . . . . . . . . 178 -- (164)
------ ------ ------
1,026 85 (1,785)
Deferred . . . . . . . . . . . . . . . . . . . 3,217 136 1,245
------ ------ ------
$4,243 $221 $(540)
------ ------ ------
------ ------ ------
</TABLE>
F-14
<PAGE>
Following is a reconciliation of the income tax provision (benefit) from
continuing operations 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>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Expected Federal tax provision (benefit) on
continuing operations. . . . . . . . . . . . . . $3,922 $560 $(297)
State income taxes, net of Federal income tax
benefit. . . . . . . . . . . . . . . . . . . . . 310 (256) (44)
Research credit. . . . . . . . . . . . . . . . . . (324) -- --
Goodwill amortization. . . . . . . . . . . . . . . 351 88 160
Alternative minimum tax. . . . . . . . . . . . . . -- -- 100
Keyman life insurance. . . . . . . . . . . . . . . 24 36 75
Other. . . . . . . . . . . . . . . . . . . . . . . (40) (207) (534)
------ ------ ------
Actual tax provision (benefit) on continuing
operations . . . . . . . . . . . . . . . . . . . $4,243 $221 $(540)
------ ------ ------
------ ------ ------
</TABLE>
The deferred tax asset as of December 31, 1997 and 1996, results from the
following temporary differences:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Loss carryforward. . . . . . . . . . . . . . . $4,672 $6,973
Employee benefits. . . . . . . . . . . . . . . 3,807 4,644
Loss from discontinued operation . . . . . . . (3,338) --
Tax credit carryforwards . . . . . . . . . . . 2,546 1,383
Inventory and contract loss reserves . . . . . 2,335 1,770
Depreciation . . . . . . . . . . . . . . . . . (2,420) (4,033)
Deferred tax on foreign profit . . . . . . . . 1,123 --
Restructuring. . . . . . . . . . . . . . . . . -- 361
Other. . . . . . . . . . . . . . . . . . . . . (366) 233
------- -------
8,359 11,331
Valuation allowance. . . . . . . . . . . . . . (1,200) (1,200)
------- -------
Net deferred tax asset . . . . . . . . . . . . $7,159 $10,131
------- -------
------- -------
</TABLE>
Realization of certain components of the net deferred tax asset is dependent
upon Titan generating sufficient taxable income prior to expiration of loss
and credit carryforwards. Although realization is not assured, management
believes it is more likely than not that the net deferred tax asset will be
realized. The amount of the net deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable
income during the carryforward period are changed. Also, under Federal tax
law, certain potential changes in ownership of Titan which may not be within
Titan's control may limit annual future utilization of these carryforwards.
Cash paid for income taxes was $1,117 in 1997. Net tax refunds in 1996 and
1995 were $233 and $808, respectively.
NOTE 8. DEBT
At December 31, 1997, Titan had borrowings of $12,350 outstanding at a
weighted average interest rate of 8.02% under a $24,000 line of credit
maturing May 31, 1998 with two banks. This line amended and replaced the
existing lines of credit. Titan had commitments under letters of credit at
December 31, 1997 of $1,368, which reduced availability under the line of
credit. 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 and a subsequent amendment in
contemplation of the Linkabit Wireless transaction (see Note 6), Titan and
its wholly owned subsidiaries, 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 certain
limitations have been placed on transactions between Titan and Linkabit
Wireless. Borrowings under Titan's lines of credit averaged $10,803, $12,315
and $6,400 at weighted average interest rates of 8.1%, 8.2% and 8.8% during
1997, 1996 and 1995, respectively.
F-15
<PAGE>
In November 1996, Titan issued $34,500 of 8.25% convertible subordinated
debentures due 2003. The debentures are convertible into common stock of
Titan 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 Titan's
bank lines of credit and for working capital and general corporate purposes.
At December 31, 1997, Other assets include $1,778 in capitalized costs
related to the issuance, which are being amortized to interest expense
ratably over the life of the debt.
At December 31, 1997 and 1996, Titan had $3,328 and $5,215, respectively,
outstanding under two promissory notes, secured by certain machinery and
equipment, at interest rates of 8.5% and 7.42%, respectively. At December
31, 1997, $992 is due within one year. At December 31, 1996, Titan also had
outstanding a mortgage note and an equipment note, collateralized by real
estate and equipment, with balances of $1,244 and $122, respectively, at an
interest rate of LIBOR plus 2.5%. At December 31, 1997, only the mortgage
note remains, with a balance of $1,196, of which $112 is due within one year.
Cash paid for interest, primarily on these borrowings, was $4,703, $2,175,
and $771, in 1997, 1996, and 1995, respectively. At December 30, 1997, Titan
was in compliance with all financial covenants under its various debt
agreements.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Titan is obligated for aggregate rentals of $34,504 under operating lease
agreements, principally for facilities. These leases generally include
renewal options and require minimum payments of $5,632 in 1998, $4,411 in
1999, $3,879 in 2000, $3,741 in 2001, $4,775 in 2002, and $12,066 for the
years thereafter. Rental expense under these leases was $6,691 in 1997,
$8,363 in 1996 and $7,880 in 1995. Titan has entered into a long-term lease
agreement for facilities which are owned by an entity in which Titan has a
minority ownership interest. Rental expense in 1997, 1996 and 1995 includes
$904, $884, and $868, respectively, paid under this agreement.
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.
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.
NOTE 10. SERIES B CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
Titan's Series B Preferred Stock has a par value of $1.00, 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 redeemable at the Series B Liquidation
Preference (i) at the holder's option, after May 24, 1998 until May 24, 2001,
and (ii) at Titan's option, after May 24, 2001 until May 24, 2006.
NOTE 11. 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 Titan'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 12. COMMON STOCK
At December 31, 1997, approximately 36,804,900 common shares were reserved
for future issuance for conversion of convertible subordinated debentures,
preferred stock, all stock incentive plans and warrants.
F-16
<PAGE>
In September 1995, Titan 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. Titan's shares were placed with offshore
institutional investors pursuant to Regulation S under the Securities Act of
1933, as amended.
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 Titan's common stock. Each Right
entitles the registered holder to purchase from Titan 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 Titan's Board of
Directors ("Board"), 15% or more of Titan'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 Titan'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 Titan
common stock having a market value of twice the Right's exercise price. If
Titan 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. Titan may redeem the Rights at $.01 per
Right, subject to certain conditions. The Rights expire on August 17, 2005.
NOTE 13. STOCK-BASED COMPENSATION PLANS
Titan 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. Titan 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 Titan'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, Titan's results of
operations would have been reduced to the pro forma amounts indicated below:
F-17
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- --------
<S> <C> <C> <C>
Net income (loss) As reported $6,950 $(2,217) $(2,305)
Pro forma 5,243 (2,887) (2,479)
Net income (loss) per share, basic As reported $.27 $(.14) $(.15)
Pro forma .20 (.17) (.16)
Net income (loss) per share, diluted As reported $.26 $(.14) $(.15)
Pro forma .16 (.17) (.16)
</TABLE>
Titan currently has options available for grant under the Stock Option Plans
of 1990, 1994 and 1997, The 1989 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 3,000,000 and 185,000, 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 Titan'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 using the following weighted-average
assumptions: zero dividend yield and an expected life of 5 years in all
years; expected volatility of 70% in 1997 and 87% in 1996 and 1995; and a
risk free interest rate of 5.72% in 1997 and 6.57% in 1996 and 1995.
A summary of the status of Titan's fixed stock option plans as of December
31, 1997, 1996 and 1995, and changes during the years ending on those dates
is presented below:
FIXED OPTIONS
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE (000) EXERCISE PRICE
------------ -------------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,993 $4.34 1,661 $4.60 1,845 $3.16
Granted 786 4.77 873 4.16 601 6.68
Exercised (201) 2.79 (162) 2.82 (540) 2.59
Canceled (284) 3.66 (379) 5.55 (245) 5.13
------------ ------------ -----------
Outstanding at end of year 2,294 4.69 1,993 4.34 1,661 4.60
------------ ------------ -----------
------------ ------------ -----------
Options exercisable at year-end 993 721 660
Weighted-average fair value of
options granted during the year $3.52 $3.25 $5.40
</TABLE>
F-18
<PAGE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- -----------------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE PRICES 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE 12/31/97 EXERCISE PRICE
- --------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$2.63 - 3.63 607,900 6.18 years $3.33 437,800 $3.21
4.00 - 5.88 1,363,700 8.59 4.43 435,900 4.50
6.25 - 9.50 322,200 8.22 8.06 119,400 8.39
-------------- --------------
2,293,800 7.98 4.65 993,100 4.40
-------------- --------------
-------------- --------------
</TABLE>
Under the 1995 Employee Stock Purchase Plan, Titan 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 Titan'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 in both 1997
and 1996 and purchased 110,461 and 89,865 shares of Titan stock in 1997 and
1996, respectively. The weighted-average fair value of the purchase rights
granted in 1997 and 1996 was $1.06 and $1.71, respectively.
Three of Titan's wholly-owned subsidiaries have stock option plans for the
granting of subsidiary stock, which is not publicly traded. The exercise
price of all options granted under these plans equals the fair value of the
subsidiary stock at the date of grant as determined by the subsidiaries'
board of directors. If all options available for grant in these plans were
exercised, Titan's ownership in each of the subsidiaries would be diluted by
no greater than 12.5%, 25% and 37.5%.
NOTE 14. BENEFIT PLANS
Titan has various defined contribution benefit plans covering certain
employees. Titan's contributions to these plans were $2,197, $2,320, and
$2,594 in 1997, 1996 and 1995, respectively. Titan's discretionary
contributions to its Employee Stock Ownership Plan was $290, $100 and $100 in
1997, 1996 and 1995, respectively. Discretionary contributions to a profit
sharing plan covering certain employees were $175, $150 and $150 in 1997,
1996 and 1995, respectively. During 1997, 1996 and 1995, Titan utilized
treasury stock of $344, $1,092, and $871, respectively, for benefit plan
contributions.
Titan has a non-qualified executive deferred compensation plan for certain
officers and key employees. Titan's expense for this plan was $821, $901,
and $970 in 1997, 1996, and 1995, respectively. At December 31, 1997 and
1996, respectively, other non-current liabilities include $3,954 and $3,492
for obligations under this plan. Interest expense for the years ended
December 31, 1997, 1996, and 1995 includes $527, $561, and $486,
respectively, related to the plan. Titan also has performance bonus plans
for certain of its employees. Related expense amounted to approximately
$1,507, $1,315, and $2,516 in 1997, 1996 and 1995, respectively.
Titan has previously provided for post-retirement benefit obligations of
operations discontinued in prior years. Titan has no post-retirement benefit
obligations for any of its continuing operations nor for its recently
discontinued broadband communications business.
NOTE 15. SUBSEQUENT EVENT
On February 26, 1998, Titan entered into a definitive merger agreement with
Horizons Technology, Inc. ("Horizons"), a Delaware corporation, whereby, if
approved by the stockholders of Horizons, Horizons will become a wholly-owned
subsidiary of Titan Technologies and Information Systems Corporation, a
wholly-owned subsidiary of Titan, in a stock-for-stock transaction.
NOTE 16. QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
1997 QUARTER QUARTER QUARTER QUARTER YEAR
- ---- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . $49,583 $47,380 $48,354 $51,377 $196,694
Gross profit . . . . . . . . . . . . . 10,747 11,775 11,672 11,360 45,554
Income from continuing operations . . 1,141 1,390 2,241 2,521 7,293
F-19
<PAGE>
Net income . . . . . . . . . . . . . . 798 1,390 2,241 2,521 6,950
Basic earnings per share:
Income from continuing operations. . .04 .05 .09 .10 .29
Net income . . . . . . . . . . . . . .02 .05 .09 .10 .27
Diluted earnings per share:
Income from continuing
operations . . . . . . . . . . . . .04 .05 .08 .09 .27
Net income . . . . . . . . . . . . . .02 .05 .08 .09 .26
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
1996 QUARTER QUARTER QUARTER QUARTER YEAR
- ---- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . $35,795 $33,758 $40,006 $46,395 $155,954
Gross profit . . . . . . . . . . . . . 7,390 8,053 7,441 8,593 31,477
Income (loss) from continuing
operations . . . . . . . . . . . . . 472 632 (524) 845 1,425
Net income (loss). . . . . . . . . . . (605) (532) (1,697) 617 (2,217)
Basic earnings per share:
Income (loss) from
continuing operations. . . . . . . . .01 .02 (.03) .03 .03
Net income (loss). . . . . . . . . . (.04) (.04) (.08) .02 (.14)
Diluted earnings per share:
Income (loss) from
continuing operations. . . . . . . . .01 .02 (.03) .03 .03
Net income (loss). . . . . . . . . . (.04) (.03) (.08) .02 (.14)
</TABLE>
The above financial information for each quarter reflects all normal and
recurring adjustments.
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Horizons Technology, Inc.:
We have audited the accompanying consolidated balance sheets of HORIZONS
TECHNOLOGY, INC. (A Delaware corporation) and subsidiaries as of January 31,
1998 and 1997, and the related consolidated statements of operations,
stockholders' deficit and cash flows for each of the three years in the
period ended January 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made my 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 consolidated financial position of Horizons
Technology, Inc. and subsidiaries as of January 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1998 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
March 9, 1998
F-21
<PAGE>
HORIZONS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share information)
<TABLE>
<CAPTION>
ASSETS January 31,
----------------------
1998 1997
------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 523 $ 416
Accounts receivable, net 6,064 7,276
Net assets of discontinued operation - 358
Prepaid expenses and other current assets 238 126
------- -------
Total current assets 6,825 8,176
PROPERTY AND EQUIPMENT, net 305 700
OTHER ASSETS - 79
NET ASSETS OF DISCONTINUED OPERATION - 1,141
------- -------
Total assets $ 7,130 $10,096
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,403 $ 2,246
Line of credit 5,327 5,855
Accrued compensation 2,561 1,395
Other accrued liabilities 119 1,945
Net liabilities of discontinued operation 3,277 -
------- -------
Total current liabilities 12,687 11,441
------- -------
LONG-TERM DEBT, less current portion 184 146
------- -------
OTHER NON-CURRENT LIABILITIES 266 295
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, par value $.01 per share:
Authorized shares - 2,500,000
Issued and outstanding shares - 500,000
(aggregate liquidation value $3,500,000) 5 5
Common stock, par value $.01 per share:
Authorized shares - 12,000,000
Issued and outstanding shares - 7,496,953 75 75
Paid-in capital 3,762 3,762
Retained deficit (9,849) (5,628)
------- -------
Total stockholders' deficit (6,007) (1,786)
------- -------
Total liabilities and stockholders' deficit $ 7,130 $10,096
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-22
<PAGE>
HORIZONS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES $ 26,281 $ 31,679 $ 37,381
-------- -------- --------
COSTS AND EXPENSES:
Cost of revenues 18,335 21,373 23,248
Selling, general and administrative expense 4,699 5,127 8,061
Research and development expense 81 116 125
-------- -------- --------
Total costs and expenses 23,115 26,616 31,434
-------- -------- --------
OPERATING PROFIT 3,166 5,063 5,947
Interest expense (519) (592) (546)
GAIN ON SALE OF ASSETS - 3,050 -
-------- -------- --------
Income from continuing operations before
income taxes 2,647 7,521 5,401
Income tax provision 1,006 2,858 2,052
-------- -------- --------
Income from continuing operations 1,641 4,663 3,349
Loss from discontinued operation, net of taxes (5,862) (3,719) (8,517)
-------- -------- --------
Net income (loss) $ (4,221) $ 944 $ (5,168)
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-23
<PAGE>
HORIZONS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Total
------------------- --------------------- Paid-in Retained Stockholders'
Shares Amount Shares Amount Capital Deficit (Deficit)
------- ------ --------- ------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1995 500,000 $ 5 7,367,544 $ 74 $ 3,603 $ (1,404) $ 2,278
Issuance of common stock
under Stock Option Plan - - 129,409 1 159 - 160
Net loss - - - - - (5,168) (5,168)
------- ------ --------- ------- ---------- ----------- ------------
Balance, January 31, 1996 500,000 5 7,496,953 75 3,762 (6,572) (2,730)
Net income - - - - - 944 944
------- ------ --------- ------- ---------- ----------- ------------
Balance, January 31, 1997 500,000 5 7,496,953 75 3,762 (5,628) (1,786)
Net loss - - - - - (4,221) (4,221)
------- ------ --------- ------- ---------- ----------- ------------
Balance, January 31, 1998 500,000 $ 5 7,496,953 $ 75 $ 3,762 $ (9,849) $ (6,007)
------- ------ --------- ------- ---------- ----------- ------------
------- ------ --------- ------- ---------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-24
<PAGE>
HORIZONS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED JANUARY 31,
-------------------------
1998 1997 1996
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 1,641 $ 4,663 $ 3,349
Adjustments to reconcile income from continuing
operations to net cash provided by
continuing operations:
Gain on sale of assets - (3,050) -
Depreciation and amortization 134 113 445
Changes in operating assets and liabilities,
net of effects of sale of division:
Accounts receivable 1,212 1,872 (2,893)
Inventories - 71 (19)
Prepaid expenses and other assets 33 286 (149)
Accounts payable (843) (291) 1,027
Accrued compensation 1,166 (510) (216)
Other liabilities (1,559) (239) 369
------- ------- -------
Net cash provided by continuing operations 1,784 2,915 1,913
------- ------- -------
Loss from discontinued operation (5,862) (3,719) (8,517)
Changes in net assets of discontinued operation 4,776 248 795
------- ------- -------
Net cash used for discontinued
operation (1,086) (3,471) (7,722)
------- ------- -------
Net cash provided by (used for) operating
activities 698 (556) (5,809)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets - 4,311 -
Purchase of equipment and improvements (52) (569) (598)
------- ------- -------
Net cash provided by (used for)
investing activities (52) 3,742 (598)
------- ------- -------
(continued)
F-25
<PAGE>
HORIZONS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments on) line
of credit (528) (1,933) 6,388
Proceeds from long-term debt - - 1,000
Repayments of long-term debt (11) (1,031) (1,358)
Issuance of common stock - - 160
------- ------- -------
Net cash provided by (used for)
financing activities (539) (2,964) 6,190
------- ------- -------
Increase (decrease) in cash and cash equivalents 107 222 (217)
Cash and cash equivalents, beginning of year 416 194 411
------- ------- -------
Cash and cash equivalents, end of year $ 523 $ 416 $ 194
------- ------- -------
------- ------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes refunded $ 5 $ 4 $ 30
------- ------- -------
------- ------- -------
Income taxes paid $ 120 $ 35 $ 7
------- ------- -------
------- ------- -------
Interest paid $ 520 $ 593 $ 553
------- ------- -------
------- ------- -------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Equipment financed under capital lease
obligations $ - $ - $ 213
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-26
<PAGE>
HORIZONS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE INFORMATION)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Horizons Technology, Inc. ("Horizons" or "the Company") provides
computer software and systems integration, research and engineering
analysis, and technical services primarily for the U.S. government.
During fiscal years 1998, 1997 and 1996, respectively, substantially all
revenues were derived under prime contracts with the federal government,
or under subcontracts issued under federal prime contracts with other
companies.
RISKS AND UNCERTAINTIES
The Company has incurred net losses of approximately $4,200 and $5,200
for the years ended January 31, 1998 and 1996, respectively. Pro forma
net loss for the year ended January 31, 1997 was approximately $2,100
after excluding the one-time gain of $3,050 on sale of certain assets
(Note 3). At January 31, 1998, the Company had negative working capital
of approximately $5,900. Management recognizes the need to generate
positive cash flows in future periods and/or to acquire additional
capital from various sources. Management has undertaken to discontinue
its commercial software business in order to reduce or eliminate future
losses from operations related to this business (Note 2). There can be
no guarantee that the Company's remaining government business will be
successful in generating significant revenues and/or sufficient cash
flows in future periods to enable the Company to meet its ongoing
obligations. Furthermore, the Company presently is highly dependent on
its ability to find additional sources of funding in the form of debt
financing or equity issuances. Management is currently engaged in a
merger transaction ("Merger") with The Titan Corporation ("Titan") (Note
11); however, there is no assurance that the Company will be able to
complete this transaction on terms favorable to the Company. For a more
complete listing of these factors see "Risk Factors" in Titan's
Registration Statement on Form S-4 filed with respect to the Merger.
All of these factors create a substantial doubt about the Company's
ability to continue as a going concern.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Horizons
and its wholly-owned subsidiaries, Horizons Services Company, Inc.,
Horizons Technology International, Ltd. and Horizons Technology
Australia Pty Limited. All material intercompany transactions and
balances have been eliminated in consolidation.
F-27
<PAGE>
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.
CASH EQUIVALENTS
Cash equivalents include all highly liquid investments with original
maturities of three months or less.
PROPERTY AND EQUIPMENT
Property and Equipment, consist principally of computer equipment, and
is stated at cost. Depreciation is provided principally using the
straight-line method in amounts sufficient to amortize the cost of such
assets over their estimated useful lives, generally from three to ten
years.
IMPAIRMENT OF LONG-LIVED ASSETS
In February 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). This 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 Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25), and related interpretations in
accounting for its employee stock options because the alternative fair
value accounting provided for under SFAS 123 requires use of option
valuation models that were not developed for use in valuing employee
stock options of a non-public entity.
F-28
<PAGE>
REVENUE RECOGNITION
Substantially all of the Company's revenue is derived from contract
services performed for the U.S. Government or for other contractors engaged
in performing services for the U.S. Government under a variety of
contracts. Revenues on time and material contracts are recorded on the
basis of hours delivered plus other direct costs as incurred. Revenues on
cost-type contracts are recorded on the basis of recoverable costs incurred
and fees earned. Revenues on fixed price contracts are recorded as
services are performed, using the percentage-of-completion method of
accounting, primarily based on contract costs incurred to date compared to
total estimated costs at completion. Estimated contract losses are fully
charged to operations when identified.
RESEARCH AND DEVELOPMENT
Costs associated with research and development activities are expensed as
incurred.
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.
FISCAL YEAR
For presentation purposes, the Company has indicated its fiscal year as
ending on January 31; whereas in fact the Company operates and reports
on a 52-53 week fiscal year ending on the Friday nearest of January 31
based upon business days. The fiscal years ended January 31, 1998 and
1997 contained 52 weeks; the fiscal year ended January 31, 1996
contained 53 weeks.
NEW ACCOUNTING STANDARD
In July 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130). This statement establishes standards for reporting
and display of comprehensive income and its components in a full set of
general purpose financial statements. The objective of the Statement is
to report a measure of all changes in equity of an enterprise that
result from transactions and other economic events of the period other
than transactions with owners ("comprehensive income"). Comprehensive
income is the total of net income and all other non-owner changes in
equity. SFAS 130 is effective for fiscal years beginning after December
15, 1997, with earlier application permitted. The Company does not
F-29
<PAGE>
anticipate that the adoption of the accounting and disclosure provisions
of SFAS 130 will have a material impact on the Company's financial
statements and results of operations.
2. DISCONTINUED OPERATION
In December 1997, the Company's Board of Directors adopted a plan to wind down
and exit its commercial software business (Information Systems segment), in
order to focus the Company's resources entirely on its profitable government
information technologies business or Systems Engineering segment. Accordingly,
the Information Systems segment has been accounted for as a discontinued
operation for all periods presented 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.
Revenues for the ISG business were $2,737, $3,225 and $5,660 for the years
ended January 31, 1998, 1997 and 1996, respectively. Included in the loss
from discontinued operation is a tax benefit (provision) of $911, $2,791 and
$2,694 for the years ended January 31, 1998, 1997 and 1996, respectively.
During fiscal 1998, the Company recorded a charge of approximately $3,600 for
costs to be incurred in future periods in connection with the winding down of
this operation. Net current liabilities of discontinued operation consist
primarily of accrued facility costs, warranties, and anticipated operating
losses from the date of discontinuance until the estimated disposal date net
of certain accounts receivable balances. Prior year consolidated financial
statements have been restated to present the ISG business as a discontinued
operation.
3. SALE OF ASSETS
On May 6, 1996, the Company sold certain assets and liabilities of its
Advanced Systems Group and the assets of its Australian subsidiary , both of
which were part of the Company's defense segment (collectively "ASG") for cash
of $4,311. The sale resulted in a gain of $3,050.
The sales agreement provides for additional payments to the Company of up to a
total of $2,900 through April 1999, contingent upon certain specified growth in
sales of ASG, future sales of certain products, and obtaining a specified
contract. These payments are to be made in cash, up to the maximum of $2,900.
The maximum will be reduced by 50% (not to exceed a $2.0 million-reduction) of
the amount of contracts awarded to the Company for purchases of products and
services by the acquirer of ASG. No contingent payments have been received,
through January 31, 1998.
4. SALE OF TECHNOLOGY
On January 19, 1997, the Company sold its Network product technology in exchange
for a $1,300 receivable, and warrants to purchase 1,000 shares of International
Data Systems Limited stock. The warrants are exercisable through February 28,
2002, at prices from $0.50 to $3.00 per share, with an average exercise price of
$1.90. The Company has assigned a zero value to these warrants. During fiscal
1998, the Company received payments totaling $110 in cash from the buyer and
converted the remaining receivable balance of $1,190 into a promissory note due
monthly in various amounts, plus interest at
F-30
<PAGE>
8%, through November 1997. Due to management's uncertainty regarding the
ultimate recoverability of this receivable, the Company has provided an $800
reserve against this receivable representing the possible gain on the
transaction. This gain will be recognized if and when the cash is received.
F-31
<PAGE>
5. ACCOUNTS RECEIVABLE AND CREDIT RISK
Accounts receivable, net of allowance for doubtful accounts of $150 and $1,095
at January 31, 1998 and 1997, respectively, relates primarily to government
contracts and consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Billed $ 5,423 $ 6,064
Unbilled 360 1,020
Retentions 281 192
---------- ----------
$ 6,064 $ 7,276
---------- ----------
---------- ----------
</TABLE>
Unbilled accounts receivable consist primarily of costs and fees billable upon
contract completion or other specific events, such as the right to bill under
existing contract provisions. Unbilled accounts receivable also include costs
incurred on projects for which the Company has been requested by the customer to
begin work or extend the work under a present contract, but for which final
contract negotiations or formal contract extensions had not taken place by year
end. It is expected that such receivables will be billed during fiscal 1999.
The retention balances are expected to become due and payable as follows:
fiscal 1999 - $84; years after fiscal 1999 - $197.
6. LONG-TERM DEBT AND LINE OF CREDIT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Notes payable to a bank, collateralized
by substantially all of the Company's
assets. Monthly payments of $6.50,
including interest at 10.5% payable
through December 2000. $ 196 -
Obligation under capital leases 70 182
--------- ---------
266 182
Less current portion (82) (36)
--------- ---------
$ 184 $ 146
--------- ---------
--------- ---------
</TABLE>
In January 1996, in connection with the $1,000 note payable, the Company issued
warrants to the bank to purchase 17,985 shares of Common Stock at $5.56 per
share (Note 8) that expire in January 1999.
As of January 31, 1998, the Company has a revolving line of credit agreement
with a bank for $7,000 which expires in May 1998. Under the terms of the bank
credit agreement, borrowings are limited to qualifying receivables. Advances
under the line bear interest at the prime rate (8.5% at January 31,
F-32
<PAGE>
1998) plus 2.0%. There are no compensating cash balance requirements.
Borrowings outstanding at January 31, 1998 totaled $5,327 and are
collateralized by substantially all the Company's assets. The underlying
bank credit agreement for the revolving line of credit provides for certain
restrictive covenants which include, among other provisions, maintenance of
specified liquidity and debt ratios, limitations on certain capital asset
balances, and minimum profitability levels. As of January 31, 1998, the
Company was not in compliance with these covenants, and was not granted a
waiver from the bank. Accordingly, all of the outstanding balance as of
January 31, 1998 is classified as currently payable. The current bank
agreement otherwise expires in May 1998.
In connection with the line of credit agreement, the Company issued warrants to
the bank to purchase 71,942 shares of Common Stock at $5.56 per share (Note 8).
The warrants are exercisable in the event of an initial public offering of the
Company's Common Stock and expire on April 1, 1998.
7. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under noncancellable
operating leases. Certain of the leases provide for annual costs of living
adjustments and in some cases require the Company to pay taxes, insurance,
maintenance and other operating expenses. Certain of the leases include renewal
options for periods ranging from one to five years. Rent expense totaled
$1,085, $1,744 and $2,187 in fiscal years 1998, 1997 and 1996, respectively.
The Company leases certain equipment under capital lease obligations. Cost and
accumulated amortization of the equipment under capital leases are as follows at
January 31:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cost of equipment under capital leases $107 $213
Accumulated amortization (32) (31)
---------- ----------
Net book value of equipment under
capital leases $ 75 $ 182
---------- ----------
---------- ----------
</TABLE>
Annual future minimum lease payments under operating and capital leases as of
January 31, 1998 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Fiscal Year Leases Leases
----------- --------- --------
<S> <C> <C>
1999 $ 1,100 $ 27
2000 692 27
2001 713 27
2002 225 -
2003 57 -
--------- --------
Total minimum lease payments $ 2,787 81
---------
---------
F-33
<PAGE>
<CAPTION>
<S> <C>
Less amounts representing interest (11)
---------
70
Less amounts due in one year (21)
---------
Long-term portion of obligations under
capital leases $ 49
---------
---------
</TABLE>
The Company periodically is a defendant in cases incidental to its business
activities. Furthermore, providers of products and services to the U.S.
government are generally subject to multiple levels of audit and investigation
by various U.S. government agencies. In the opinion of management, the amount
of ultimate liability, if any, with respect to these actions will not materially
affect the financial position or results of operations of the Company.
8. STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED STOCK
During fiscal 1995, the Company sold 500,000 shares of Series A Preferred
Stock at $5.00 to $5.25 per share. The holders of the Preferred Stock are
entitled to receive quarterly dividends commencing July 1995, at a
quarterly rate of $.15 per share. Dividends will be paid when declared by
the Company's board of directors, and are cumulative and shall accrue,
whether or not declared, commencing July 1995. Cumulative unpaid dividends
at January 31, 1998 and 1997 totaled $750,000 and $450,000, respectively.
The Preferred Stock is convertible at any time at the option of the holder
into an equal number of shares of Common Stock. The conversion ratio of
Common for Preferred shares may increase in certain circumstances based
upon future sale of shares of Common Stock.
The holders of Preferred Stock and Common Stock vote together as a class
on all matters to be voted on by the stockholders of the Company, with
each holder of Preferred Stock entitled to one vote for each share of
Common Stock which would be deliverable upon conversion. Holders of
Preferred Stock have a liquidation preference of $7.00 per share less
any dividends previously paid. The Company's 401(k) retirement plan
purchased 300,000 shares of the Series A Preferred Stock.
STOCK OPTIONS
The Company has a stock option plan under which incentive or nonqualified
stock options may be granted to the Company's employees, consultants and
directors. Options are granted at no less than the fair market value of
the Common Stock on the date of grant. The options become exercisable over
various terms and expire over three or four years.
The weighted average exercise price of all options outstanding at January
31, 1998 is $2.35; the weighted-average price of options canceled during
the year was $2.13; the outstanding options expire at various dates through
April 1999. At January 31, 1998, 13,700 options
F-34
<PAGE>
are exercisable through October 1998 and 1,225,760 shares are available
for future grant. The following table summarizes stock option activity
for the three years ended January 31, 1998:
F-35
<PAGE>
<TABLE>
<CAPTION>
Weighted Average
Number of Price per
Shares Share
----------- ----------------
<S> <C> <C>
Outstanding at January 31, 1994 594,474 $1.30
Granted 188,200 2.33
Exercised (144,132) 1.54
Canceled or expired (128,612) 1.54
----------- ----------------
Outstanding at January 31, 1995 509,930 1.54
Granted 139,000 2.45
Exercised (129,409) 1.74
Canceled or expired (213,021) 1.74
----------- ----------------
Outstanding at January 31, 1996 306,500 1.74
Canceled or expired (230,990) 1.74
----------- ----------------
Outstanding at January 31, 1997 75,510 1.72
Canceled or expired (47,810) 1.74
----------- ----------------
Outstanding at January 31, 1998 27,700 $1.70
----------- ----------------
----------- ----------------
</TABLE>
STOCK PURCHASE WARRANTS
The Company has issued warrants to purchase shares of Common Stock to
employees and directors. The warrants are exercisable in the event of
an initial public offering of the Company's Common Stock and expire
three years from the date of grant. In addition, the Company issued
warrants in connection with its bank credit agreement (Note 6). The
following summarizes warrant activity for the three years ended January
31, 1998:
<TABLE>
<CAPTION>
Weighted Average
Number of Price per
Shares Share
---------- ---------------
<S> <C> <C>
Outstanding at January 31, 1994 77,000 $1.61
---------- ---------------
Outstanding at January 31, 1995 77,000 1.61
Granted 120,430 4.01
Forfeited (14,400) 3.07
---------- ---------------
Outstanding at January 31, 1996 183,030 3.07
Forfeited (16,000) 3.07
---------- ---------------
Outstanding at January 31, 1997 167,030 3.07
Forfeited (8,666) 3.07
---------- ---------------
Outstanding at January 31, 1998 158,364 $3.07
---------- ---------------
---------- ---------------
</TABLE>
F-36
<PAGE>
At January 31, 1998, the Company has reserved 686,064 shares of Common Stock for
issuance upon the exercise of stock options and warrants and conversion of the
Preferred Stock.
Adjusted pro forma information regarding net loss is required by SFAS 123, and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using the minimum value method for
option pricing with the following weighted-average assumptions for 1998:
risk-free interest rates of 5.29%; dividend yields of 0%; and a weighted-average
expected life of the option of four years. The effect of applying the minimum
value method of SFAS 123 to options granted to employees in 1998 did not result
in pro forma net loss and loss per share amounts that are materially different
from historical amounts reported. Therefore, such pro forma information is not
presented herein. Future pro forma results of operations under SFAS 123 may be
materially different from the amounts in the current year.
9. INCOME TAXES
Income tax expense from continuing operations consists of the following:
<TABLE>
<CAPTION>
Years ended January 31,
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Current:
Federal $ 821 $ 2,432 $ 2,290
State 157 423 411
Foreign 28 3 -
-------- -------- ---------
$ 1,006 $ 2,858 $ 2,701
Deferred:
Federal - - (619)
State - - (30)
-------- -------- ---------
- - (649)
-------- -------- ---------
Total income tax expense (credit) $ 1,006 $ 2,858 $ 2,052
-------- -------- ---------
-------- -------- ---------
</TABLE>
A reconciliation of the provision for income taxes from continuing operations to
the amount computed by applying the statutory federal income tax rate to income
before income taxes is as follows:
<TABLE>
<CAPTION>
Years ended January 31,
1998 1997 1996
------ -------- ------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
Research and development - (0.4) -
Meals and entertainment disallowance 2.0 3.0 0.5
Foreign income 5.0 - 0.5
Decrease in valuation allowance (4.0) 2.8 4.8
Other, net - (2.4) (2.8)
------ -------- ------
38.0% 38.0% 38.0%
------ -------- ------
------ -------- ------
</TABLE>
F-37
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets at January 31 are as
follows:
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Deferred tax liabilities:
Recognition of revenue on unbilled
receivables and contract retentions $ 869 $ 869
Depreciation expense 119 69
Gain on sale of technology - 321
---------- -----------
Total deferred tax liabilities 988 1,259
---------- -----------
Deferred tax assets:
Net operating loss carryforward 3,271 2,670
Research and development credit
carryforward 438 438
Capitalized research and development 359 359
Employee benefits 107 279
Rent expense 103 118
Computer software costs 1,322 1,278
Other 415 415
---------- -----------
Total deferred tax assets 6,015 5,557
Valuation allowance (5,027) (4,298)
---------- -----------
Net deferred tax asset $ - $ -
---------- -----------
---------- -----------
</TABLE>
At January 31, 1998, the Company has federal and state net operating loss
carryforwards of approximately $9,347 and $1,144, respectively. The difference
between the federal and state tax loss-carryforwards is attributable to the
limitations on net operating loss carrybacks and carryforwards for state tax
purposes. The federal and state tax loss carryforwards will begin expiring in
2009 and 1999, respectively, unless previously utilized.
The Company also has federal and California research and development tax credit
carryforwards of approximately $300 and $211, respectively, which will begin to
expire in 2009.
10. EMPLOYEE RETIREMENT PLANS
The Company has a 401(k) defined contribution retirement plan covering
substantially all employees. The Plan provides for voluntary employee salary
deferrals whereby employees may elect to defer and invest a certain percentage
of their base annual compensation. Employee deferrals of 1% or 2% are matched
at a 50% rate and employee deferrals of 3% of each such participating employee's
compensation are matched dollar for dollar. The Plan also provides for
additional Company contributions to be funded at the discretion of the Board of
F-38
<PAGE>
Directors. Participants vest in Company contributions over 6 years at a rate of
10% in each of the first two years and 20% for each remaining year of service.
The Company's matching contributions under this Plan amounted to approximately
$303, $412 and $540 for fiscal 1998, 1997 and 1996, respectively.
Effective January 1, 1992, the Company established an Employee Stock Ownership
Plan for substantially all employees. The Company may, at the discretion of the
Board of Directors, make contributions to the Plan in cash, in Common Stock of
the Company, or in a combination of cash and stock. Participants vest in
Company contributions after 5 years of service. The Company's contributions
under this plan amounted to approximately $82, $20 and $25 for fiscal years
1998, 1997 and 1996, respectively. During fiscal 1996, the plan purchased
41,000 shares of Common Stock from existing shareholders. At January 31, 1998,
the Plan held 321,322 shares of the Company's Common Stock.
11. SUBSEQUENT EVENT
On February 26, 1998, the Company signed a definitive merger agreement with The
Titan Corporation ("Titan") in which Titan will acquire all of the outstanding
shares of the Company in exchange for approximately $19 million of Titan common
stock in a tax-free exchange. Approval by the Stockholders of both Titan and
the Company is required in order for the merger to be consummated.
F-39
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
THE TITAN CORPORATION,
a Delaware corporation;
SUNRISE ACQUISITION SUB, INC.
a Delaware corporation;
HORIZONS TECHNOLOGY, INC.,
a Delaware corporation;
and
CERTAIN STOCKHOLDERS OF HORIZONS TECHNOLOGY, INC.
_____________________________
Dated as of February 26, 1998
_____________________________
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
SECTION 1. DESCRIPTION OF TRANSACTION. . . . . . . . . . . . . . . . . . . . . 2
1.1 Merger of Merger Sub into the Company . . . . . . . . . . . . . . . 2
1.2 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Closing; Effective Time . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Certificate of Incorporation and Bylaws; Directors and Officers . . 2
1.5 Payment and Conversion of Shares. . . . . . . . . . . . . . . . . . 3
1.6 Employee Stock Options and Company Warrants . . . . . . . . . . . . 4
1.7 Closing of the Company's Transfer Books . . . . . . . . . . . . . . 5
1.8 Exchange of Certificates. . . . . . . . . . . . . . . . . . . . . . 5
1.9 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.10 Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.11 Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . 7
1.12 Further Action. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . 7
2.1 Due Organization; Subsidiaries; Etc. . . . . . . . . . . . . . . . 7
2.2 Certificate of Incorporation and Bylaws; Records. . . . . . . . . . 8
2.3 Capitalization, Etc. . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 10
2.5 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . 11
2.6 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.7 Bank Accounts; Receivables. . . . . . . . . . . . . . . . . . . . . 11
2.8 Equipment; Leasehold. . . . . . . . . . . . . . . . . . . . . . . . 11
2.9 Proprietary Assets. . . . . . . . . . . . . . . . . . . . . . . . . 12
2.10 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.11 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.12 Compliance with Legal Requirements. . . . . . . . . . . . . . . . . 17
2.13 Governmental Authorizations . . . . . . . . . . . . . . . . . . . . 17
2.14 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.15 Employee and Labor Matters; Benefit Plans . . . . . . . . . . . . . 19
2.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . 21
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
2.17 ESOP Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.19 Related Party Transactions. . . . . . . . . . . . . . . . . . . . . 23
2.20 Legal Proceedings; Orders . . . . . . . . . . . . . . . . . . . . . 24
2.21 Authority; Binding Nature of Agreement. . . . . . . . . . . . . . . 24
2.22 Non-Contravention; Consents . . . . . . . . . . . . . . . . . . . . 24
2.23 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.24 Accounting Matters. . . . . . . . . . . . . . . . . . . . . . . . . 26
2.25 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE DESIGNATED
STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . 26
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB . . . . . . 27
4.1 Due Organization; Etc . . . . . . . . . . . . . . . . . . . . . . . 27
4.2 Certificate of Incorporation and By-Laws. . . . . . . . . . . . . . 27
4.3 Capitalization, Etc. . . . . . . . . . . . . . . . . . . . . . . . 28
4.4 SEC Filings; Financial Statements . . . . . . . . . . . . . . . . . 28
4.5 Absence of Certain Changes or Events. . . . . . . . . . . . . . . . 29
4.6 Compliance with Legal Requirements. . . . . . . . . . . . . . . . . 29
4.7 Governmental Authorizations . . . . . . . . . . . . . . . . . . . . 29
4.8 Legal Proceedings; Orders . . . . . . . . . . . . . . . . . . . . . 29
4.9 Authority; Binding Nature of Agreement. . . . . . . . . . . . . . . 30
4.10 Valid Issuance. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.11 Non-Contravention; Consents . . . . . . . . . . . . . . . . . . . . 30
4.12 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.13 Government Contracts; Government Bids . . . . . . . . . . . . . . . 32
4.14 Accounting Matters. . . . . . . . . . . . . . . . . . . . . . . . . 32
4.15 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5. CERTAIN COVENANTS OF THE COMPANY AND THE DESIGNATED STOCKHOLDERS. . 32
5.1 Access and Investigation. . . . . . . . . . . . . . . . . . . . . . 32
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
5.2 Operation of the Company's Business . . . . . . . . . . . . . . . . 33
5.3 Notification; Updates to Company Disclosure Schedule. . . . . . . . 35
5.4 No Negotiation. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.5 ESOP Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6. CERTAIN COVENANTS OF PARENT . . . . . . . . . . . . . . . . . . . . 37
6.1 Access and Investigation. . . . . . . . . . . . . . . . . . . . . . 37
6.2 Notification; Updates to Parent Disclosure Schedule . . . . . . . . 37
SECTION 7. ADDITIONAL COVENANTS OF THE COMPANY AND PARENT. . . . . . . . . . . 38
7.1 Filings and Consents. . . . . . . . . . . . . . . . . . . . . . . . 38
7.2 Company Stockholders' Meeting . . . . . . . . . . . . . . . . . . . 38
7.3 Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . 38
7.4 Pooling of Interests. . . . . . . . . . . . . . . . . . . . . . . . 38
7.5 Affiliate Agreements. . . . . . . . . . . . . . . . . . . . . . . . 38
7.6 Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.7 Registration Statement; Proxy Statement . . . . . . . . . . . . . . 39
7.8 Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . 39
7.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.10 FIRPTA Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.11 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.12 Treatment of Employee Plans and Benefits. . . . . . . . . . . . . . 40
7.13 "Post-Closing" Insurance. . . . . . . . . . . . . . . . . . . . . . 40
7.14 Directors' and Officers' Indemnification and Insurance. . . . . . . 41
7.15 Earnings Release. . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB. . . . 41
8.1 Accuracy of Representations . . . . . . . . . . . . . . . . . . . . 41
8.2 Performance of Covenants. . . . . . . . . . . . . . . . . . . . . . 42
8.3 Stockholder Approval. . . . . . . . . . . . . . . . . . . . . . . . 42
8.4 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.5 Agreements and Documents. . . . . . . . . . . . . . . . . . . . . . 42
8.6 FIRPTA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 43
iii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
8.7 Compliance With the Securities Act. . . . . . . . . . . . . . . . . 43
8.8 Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.9 No Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.10 Effectiveness of Registration Statement . . . . . . . . . . . . . . 43
8.11 No Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 43
8.12 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.13 Average Sales Price . . . . . . . . . . . . . . . . . . . . . . . . 44
8.14 Stock Voting Agreement. . . . . . . . . . . . . . . . . . . . . . . 44
8.15 Tax Representation Letters. . . . . . . . . . . . . . . . . . . . . 44
8.16 Representation and Warranty Insurance . . . . . . . . . . . . . . . 44
SECTION 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. . . . . . . . . 44
9.1 Accuracy of Representations . . . . . . . . . . . . . . . . . . . . 44
9.2 Performance of Covenants. . . . . . . . . . . . . . . . . . . . . . 44
9.3 Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.4 Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.5 No Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.6 Effectiveness of Registration Statement . . . . . . . . . . . . . . 45
9.7 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.8 Average Sales Price . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 10. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.1 Termination Events. . . . . . . . . . . . . . . . . . . . . . . . . 46
10.2 Termination Procedures. . . . . . . . . . . . . . . . . . . . . . . 46
10.3 Termination Fees. . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.4 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 11. SURVIVAL OF REPRESENTATIONS, ETC.; INDEMNIFICATION, ETC. . . . . . 47
11.1 Survival of Representations, Etc. . . . . . . . . . . . . . . . . . 47
11.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.3 Limits on Indemnification and Liability . . . . . . . . . . . . . . 48
11.4 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.5 Defense of Third Party Claims . . . . . . . . . . . . . . . . . . . 49
iv.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
11.6 Exercise of Remedies by Indemnitees Other Than Parent . . . . . . . 49
SECTION 12. MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 49
12.1 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . 49
12.2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 49
12.3 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.5 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.6 Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . 51
12.7 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.10 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 52
12.11 Remedies Cumulative; Specific Performance . . . . . . . . . . . . . 52
12.12 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.13 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.14 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.15 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . 53
12.16 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.17 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
LIST OF EXHIBITS:
EXHIBIT A - DESIGNATED STOCKHOLDERS
EXHIBIT B - CERTAIN DEFINITIONS
EXHIBIT C - DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
EXHIBIT D-1 - FORM OF AFFILIATE AGREEMENT
EXHIBIT D-2 - PERSONS TO EXECUTE AFFILIATE AGREEMENTS
EXHIBIT E - FORM OF TAX REPRESENTATION LETTER OF COOLEY GODWARD LLP
EXHIBIT F - FORM OF TAX REPRESENTATION LETTER OF JENKENS & GILCHRIST, P.C.
EXHIBIT G - FORM OF RELEASE
EXHIBIT H - FORM OF LEGAL OPINION OF JENKENS & GILCHRIST, P.C.
EXHIBIT I - FORM OF LEGAL OPINION OF COOLEY GODWARD LLP
v.
<PAGE>
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is made
and entered into as of February 26, 1998, by and among: THE TITAN CORPORATION,
a Delaware corporation ("Parent"); SUNRISE ACQUISITION SUB, INC., a Delaware
corporation and a wholly owned subsidiary of Parent ("Merger Sub"); HORIZONS
TECHNOLOGY, INC., a Delaware corporation (the "Company"); and the parties
identified on Exhibit A (the "Designated Stockholders"). Certain capitalized
terms used in this Agreement are defined in Exhibit B.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of
Merger Sub into the Company in accordance with this Agreement and the Delaware
General Corporation Law (the "Merger"). 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"). For accounting purposes, it is intended that the Merger
be treated as a "pooling of interests."
C. This Agreement has been approved by the respective boards of
directors of Parent, Merger Sub and the Company.
D. The Designated Stockholders own a total of 5,172,500 shares of the
Common Stock (with par value $.01) of the Company ("Company Common Stock") and
no other shares of capital stock of the Company. Each Designated Stockholder
has executed and delivered to Parent a Stock Voting Agreement dated on or about
the date hereof (the "Stock Voting Agreement").
1.
<PAGE>
AGREEMENT
The parties to this Agreement 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 Delaware General
Corporation Law.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Parent, 3033 Science Park Road, San Diego, California 92121, on March 31,
1998, or at such other time and date as the Parties agree, but in no event
later than the second business day after the date that all of the conditions
set forth in Sections 8 and 9 have been satisfied or waived (the "Closing Date"
and, unless and until the Closing has occurred, the "Scheduled Closing Time").
Contemporaneously with or as promptly as practicable after the Closing, a
properly executed Certificate of Merger conforming to the requirements of the
Delaware General Corporation Law shall be filed with the Secretary of State of
the State of Delaware. The Merger shall become effective at the time such
Certificate of Merger is filed with and accepted by the Secretary of State of
the State of Delaware (the "Effective Time").
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Unless otherwise determined by Parent and the Company prior to the Effective
Time:
(a) the Certificate of Incorporation of Merger Sub in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation as of the Effective Time;
(b) the Bylaws of Merger Sub in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation as of the
Effective Time; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals identified on
Exhibit C.
1.5 PAYMENT AND CONVERSION OF SHARES.
(a) Subject to Sections 1.8(d) and 1.9, at the Effective Time, by
virtue of the Merger and without any further action on the part of Parent,
Merger Sub, the Company or any stockholder of the Company:
(i) each share of Company Common Stock outstanding immediately
prior to the Effective Time shall be converted into the right to receive the
"Applicable Fraction"
2.
<PAGE>
(as defined in Section 1.5(b)(i)) of a share of the common stock (par value
$.01 per share) of Parent ("Parent Common Stock");
(ii) each share of the Company's Series A Preferred Stock (with
par value $.01) (the "Series A Preferred Stock"), if any, outstanding
immediately prior to the Effective Time shall be converted into the right to
receive the fraction of a share of Parent Common Stock (A) having a numerator
equal to $5.00 and (B) having a denominator equal to the Designated Parent
Stock Price (as defined in Section 1.5(b)(iv)); and
(iii) each share of the common stock (with par value $.01)
of Merger Sub outstanding immediately prior to the Effective Time shall be
converted into one share of common stock of the Surviving Corporation.
(b) For purposes of this Agreement:
(i) The "Applicable Fraction" shall be the fraction: (A) having
a numerator equal to the amount by which (x) $23,850,000, minus the "Balance
Sheet Deduction," plus $65,240 (which the Company represents to be a good faith
estimate of the aggregate exercise prices of all of the Company Options),
exceeds (y) the "Aggregate Preferred Stock Valuation" and (B) having a
denominator equal to the amount determined by multiplying (1) the "Adjusted
Company Share Amount" by (2) the "Designated Parent Stock Price".
(ii) The "Aggregate Preferred Stock Valuation" shall be the
amount determined by multiplying (A) $5.00 by (B) the aggregate number of
shares of Series A Preferred Stock outstanding immediately prior to the
Effective Time.
(iii) The "Adjusted Company Share Amount" shall be the sum
of (A) the aggregate number of shares of Company Common Stock outstanding
immediately prior to the Effective Time (including any such shares that are
subject to a repurchase option or risk of forfeiture under any restricted stock
purchase agreement or other agreement), and (B) the aggregate number of shares
of Company Common Stock purchasable under or otherwise subject to all Company
Options outstanding immediately prior to the Effective Time (including all
shares of Company Common Stock that may ultimately be purchased under Company
Options that are unvested or are otherwise not then exercisable).
(iv) The "Designated Parent Stock Price" shall be (A) the
average of the closing sale prices of a share of Parent Common Stock as
reported on the New York Stock Exchange for each of the twenty consecutive
trading days immediately preceding the Closing Date (the "Average Sales
Price"), if the Average Sales Price is less than or equal to $8.00 per share
and greater than or equal to $6.00 per share; (B) $8.00 if the Average Sales
Price is greater than $8.00 per share; or (C) $6.00 if the Average Sales Price
is less than $6.00 per share.
(v) The "Balance Sheet Deduction" shall be (A) $4,500,000 plus
or minus, as described below, (B) the amount by which the Company's Working
Capital (determined prior to the Closing as set forth in Section 1.5(c) below)
is less than (in which case such amount shall be added to the amount determined
in (A) above) or greater than (in which case such amount shall be subtracted
from the amount determined in (A) above) negative
3.
<PAGE>
$2,150,000; provided, however, no such adjustment shall be made unless the
Company's Working Capital is at least $200,000 less than or greater than, as
the case may be, negative $2,150,000 (and in such case such adjustment shall
be made with respect to the entire amount less than or greater than, as
appropriate, negative $2,150,000).
(c) As soon as practicable, and prior to March 15, 1998, or at such
other time as the parties may agree, the Company shall provide to Parent a
certificate (the "Estimated Deduction Certificate") executed by the Company's
Chief Executive Officer, which shall set forth the Company's good faith best
estimate of the Balance Sheet Deduction (determined using the Company's
unaudited balance sheet as of January 31, 1998, and as provided in Section
1.5(b)(v) above), and such estimate shall be used for purposes of determining
the Applicable Fraction; provided, however, that if Parent determines that the
Estimated Deduction Certificate underestimates the Balance Sheet Deduction (as
determined by the Parent's audit of the Company's records to be completed
within 15 days following delivery of such Estimated Deduction Certificate),
Parent and the Company shall cooperate to mutually determine the appropriate
Applicable Fraction consistent with the foregoing provisions (and any
disagreement between them shall be resolved via arbitration).
1.6 EMPLOYEE STOCK OPTIONS AND COMPANY WARRANTS. At the Effective Time,
each stock option that is then outstanding under the Company's 1988 Amended
Stock Option Plan, whether vested or unvested (a "Company Option"), and each
warrant to purchase shares of Company Common Stock ("Company Warrants") that
does not by its terms terminate in connection with the Merger, shall be assumed
(or substituted in the case of Company Warrants) by Parent in accordance with
the terms (as in effect as of the date of this Agreement) of the Company's 1988
Amended Stock Option Plan and the stock option agreement by which such Company
Option is evidenced, or the Company Warrant (as applicable). All rights with
respect to Company Common Stock under outstanding Company Options and such
surviving Company Warrants shall thereupon be converted into rights with
respect to Parent Common Stock. Accordingly, from and after the Effective
Time, (a) each Company Option and Company Warrant assumed (as substituted in
the case of Company Warrants) by Parent may be exercised solely for shares of
Parent Common Stock, (b) the number of shares of Parent Common Stock subject to
each such assumed Company Option and Company Warrant shall be equal to the
number of shares of Company Common Stock that were subject to such Company
Option or Company Warrant (as applicable) immediately prior to the Effective
Time multiplied by the Applicable Fraction, rounded down to the nearest whole
number of shares of Parent Common Stock, (c) the per share exercise price for
the Parent Common Stock issuable upon exercise of each such assumed Company
Option and Company Warrant shall be determined by dividing the exercise price
per share of Company Common Stock subject to such Company Option or Company
Warrant (as applicable), as in effect immediately prior to the Effective Time,
by the Applicable Fraction, and rounding the resulting exercise price up to the
nearest whole cent, and (d) all restrictions on the exercise of each such
assumed Company Option and Company Warrant shall continue in full force and
effect, and the term, exercisability, vesting schedule and other provisions of
such Company Option or Company Warrant (as applicable) shall otherwise remain
unchanged; provided, however, that each such assumed Company Option and Company
Warrant shall, in accordance with its terms, be subject to further adjustment
as appropriate to reflect any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction
4.
<PAGE>
effected by Parent after the Effective Time. The Company and Parent shall
take all action that may be necessary (under the Company's 1988 Amended
Stock Option Plan and otherwise) to effectuate the provisions of this Section
1.6. Following the Closing, Parent will send to each holder of an assumed
Company Option a written notice setting forth (i) the number of shares of
Parent Common Stock subject to such assumed Company Option, and (ii) the
exercise price per share of Parent Common Stock issuable upon exercise of
such assumed Company Option.
1.7 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have
any rights as stockholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of
any such shares of the Company's capital 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 the Company's capital
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 1.8.
1.8 EXCHANGE OF CERTIFICATES.
(a) At or as soon as practicable after the Effective Time, Parent,
or a transfer agent designated by Parent (the "Transfer Agent") will send to
the holders of Company Stock Certificates (i) a letter of transmittal in
customary form and containing such provisions as Parent may reasonably specify,
and (ii) instructions for use in effecting the surrender of Company Stock
Certificates in exchange for certificates representing Parent Common Stock.
Upon surrender of a Company Stock Certificate to Parent for exchange, together
with a duly executed letter of transmittal and such other documents as may be
reasonably required by Parent or the Transfer Agent, the holder of such Company
Stock Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of whole shares of Parent Common Stock that
such holder has the right to receive pursuant to the provisions of this Section
1, and the Company Stock Certificate so surrendered shall be canceled. Until
surrendered as contemplated by this Section 1.8, each Company Stock Certificate
shall be deemed, from and after the Effective Time, to represent only the right
to receive upon such surrender a certificate representing shares of Parent
Common Stock (and cash in lieu of any fractional share of Parent Common Stock)
as contemplated by this Section 1. 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 may reasonably direct) as indemnity against any claim that may be
made against Parent or the Surviving Corporation with respect to such Company
Stock Certificate.
(b) 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, and no cash
payment in lieu of any fractional share shall be paid to any such holder, until
such holder surrenders such Company Stock Certificate in accordance with
5.
<PAGE>
this Section 1.8 (at which time such holder shall be entitled to receive all
such dividends and distributions and such cash payment).
(c) 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 capital
stock of the Company 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 Designated Parent Stock Price.
(d) Parent and the Surviving Corporation (or the Transfer Agent on
their behalf) shall be entitled to deduct and withhold from any consideration
payable or otherwise deliverable to any holder or former holder of capital
stock of the Company pursuant to this Agreement such amounts as Parent or the
Surviving Corporation may be required to deduct or withhold therefrom under the
Code or under any provision of state, local or foreign tax law (or, in the
alternative, Parent or the Transfer Agent, at Parent's option may request tax
information and other documentation to ensure no withholding is necessary). To
the extent such amounts are so deducted or withheld, such amounts shall be
treated for all purposes under this Agreement as having been paid to the Person
to whom such amounts would otherwise have been paid.
(e) Neither Parent nor the Surviving Corporation shall be liable to
any holder or former holder of capital stock of the Company 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.
1.9 DISSENTING SHARES.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any shares of capital stock of the Company that, as of the Effective
Time, are or may become "dissenting shares" within the meaning of applicable
law, shall not be converted into or represent the right to receive Parent
Common Stock in accordance with Section 1.5 (or cash in lieu of fractional
shares in accordance with Section 1.8(c)), and the holder or holders of such
shares shall be entitled only to such rights as may be granted to such holder
or holders pursuant to applicable law; provided, however, that if the status of
any such shares as "dissenting shares" shall not be perfected, or if any such
shares shall lose their status as "dissenting shares," then, as of the later of
the Effective Time or the time of the failure to perfect such status or the
loss of such status, such shares shall automatically be converted into and
shall represent only the right to receive (upon the surrender of the
certificate or certificates representing such shares) Parent Common Stock in
accordance with Section 1.5 (and cash in lieu of fractional shares in
accordance with Section 1.8(c)).
(b) The Company shall give Parent (i) prompt notice of any written
demand received by the Company prior to the Effective Time to require the
Company to purchase shares of capital stock of the Company pursuant to
applicable law and of any other demand, notice or instrument delivered to the
Company prior to the Effective Time pursuant to applicable law, and
6.
<PAGE>
(ii) the opportunity to participate in all negotiations and proceedings with
respect to any such demand, notice or instrument. The Company shall not make
any payment or settlement offer prior to the Effective Time with respect to
any such demand unless Parent shall have consented in writing to such payment
or settlement offer.
1.10 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 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 TREATMENT. For accounting purposes, the Merger is
intended to be treated 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 or desirable 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.
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 disclosure schedule prepared by the Company and delivered by
the Company to Parent on the date of this Agreement (the "Company Disclosure
Schedule"):
2.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(a) Each of the Company and its majority-owned subsidiaries
(including any subsidiaries of such subsidiaries) (each of the Company and such
subsidiaries is individually referred to herein as "Acquired Corporation" and
collectively as the "Acquired Corporations") is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all necessary power and authority: (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 Company Contracts. For purposes of
this Agreement, a company's "subsidiaries" shall mean and include all Entities
in which such company owns a majority interest or has the power to vote a
majority of the interests.
(b) Since January 1, 1993, except as set forth in Part 2.1 of the
Company Disclosure Schedule, the Company has not conducted any business under
or otherwise used, for any purpose or in any jurisdiction, any fictitious name,
assumed name or other name, other than the name "Horizons Technology, Inc."
(c) Each of the Acquired Corporations is qualified, authorized,
registered or licensed to do business as a foreign corporation in any
jurisdiction where so required under applicable law, except where the failure
to be so qualified, authorized, registered or licensed has
7.
<PAGE>
not had and will not have a Material Adverse Effect on the Acquired
Corporation. Each of the Acquired Corporations is in good standing as a
foreign corporation in each of such jurisdictions.
(d) Part 2.1 of the Company Disclosure Schedule accurately sets
forth (i) the names of each of the Acquired Corporations, (ii) the names of the
members of each of the Acquired Corporations' board of directors, (iii) the
names of the members of each committee of each of the Acquired Corporations'
board of directors, and (iv) the names and titles of each of the Acquired
Corporations' officers.
(e) Except for the equity interests identified in Part 2.1 of the
Company Disclosure Schedule, each of the Acquired Corporations does not own,
beneficially or otherwise, any shares or other securities of, or any direct or
indirect equity interest in, any Entity. Each of the Acquired Corporations has
not agreed and is not obligated to make any future investment in or capital
contribution to any Entity. Each of the Acquired Corporations has not
guaranteed and is not responsible or liable for any obligation of any of the
Entities in which it owns any equity interest.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered or made available to Parent accurate and complete copies of: (1) the
Company's Certificate of Incorporation and bylaws, including all amendments
thereto, and all charter documents and bylaws and amendments thereto relating
to the other Acquired Corporations; (2) the stock records of each of the
Acquired Corporations, and (3) the minutes and other records of the meetings
and other proceedings (including any actions taken by written consent) of the
stockholders of each of the Acquired Corporations, the board of directors of
each of the Acquired Corporations and all committees of the board of directors
of each of the Acquired Corporations. There have been no formal meetings (or
other proceedings required under applicable law to be reflected in the
Company's minute book) of the stockholders of any of the Acquired Corporations,
the board of directors of any of the Acquired Corporations or any committee of
the board of directors of any of the Acquired Corporations that are not
accurately reflected in such minutes or other records. There has not been any
violation of any of the provisions of the Certificate of Incorporation or
bylaws or other charter documents of any of the Acquired Corporations, and each
of the Acquired Corporations has not taken any action that is inconsistent in
any material respect with any resolution adopted by the its stockholders, its
board of directors or any committee of its board of directors. The stock
records and minute books of the Acquired Corporations are accurate, up-to-date
and complete in all material respects.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of: (i)
12,000,000 shares of Common Stock (with par value $.01), of which 7,496,953
shares have been issued and are outstanding as of the date of this Agreement;
and (ii) 2,500,000 shares of Preferred Stock (with par value $.01), all of
which have been designated "Series A Preferred Stock," of which 500,000 shares
have been issued and are outstanding as of the date of this Agreement. Except
as set forth in Part 2.3 of Company Disclosure Schedule, each outstanding share
of Series A Preferred Stock is convertible into one share of Company Common
Stock. All of the outstanding shares of Company Common Stock and Series A
Preferred Stock have been duly authorized and validly issued, and are fully
paid and non-assessable. The Company has made available to
8.
<PAGE>
Parent an accurate and complete description of the terms of each repurchase
option which is held by the Company and to which any of such shares is
subject as well as any obligation by the Company to pay dividends on any of
its stock.
(b) The Company has reserved 1,225,760 shares of Company Common
Stock for issuance under its 1988 Amended Stock Option Plan, of which options
to purchase 27,700 shares are outstanding as of the date of this Agreement.
The Company has reserved 158,364 shares of Company Common Stock for issuance
under outstanding warrants to purchase Company Common Stock. Part 2.3 of the
Company Disclosure Schedule accurately sets forth, with respect to each Company
Option and Company Warrant that is outstanding as of the date of this
Agreement: (i) the name of the holder of such Company Option or Company
Warrant; (ii) the total number of shares of Company Common Stock that are
subject to such Company Option or Company Warrant and the number of shares of
Company Common Stock with respect to which such Company Option or Company
Warrant is immediately exercisable; (iii) the date on which such Company Option
or Company Warrant was granted and the term of such Company Option or Company
Warrant; (iv) the exercise schedule or period, as applicable, for such Company
Option or Company Warrant; (v) the exercise price per share of Company Common
Stock purchasable under such Company Option or Company Warrant; and (vi)
whether such Company Option has been designated an "incentive stock option" as
defined in Section 422 of the Code. Except as set forth above and in Part 2.3
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) 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 (as defined in
Exhibit B hereto) 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. All of the Company Warrants except the
Company Warrants issued to Imperial Bank shall terminate and be of no further
force and effect as of the Closing.
(c) All outstanding shares of Company Common Stock and Series A
Preferred Stock, and all outstanding Company Options and Company Warrants, 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 Contracts.
(d) Except as set forth in Part 2.3 of the Company Disclosure
Schedule, since January 31, 1993, the Company has never repurchased, redeemed
or otherwise reacquired any shares of capital stock or other securities of the
Company. All securities so reacquired by the Company were reacquired in
compliance with (i) the applicable provisions of the Delaware General
Corporation Law and all other applicable Legal Requirements, and (ii) all
requirements set forth in applicable restricted stock purchase agreements and
other applicable Contracts.
(i) 321,322 shares of the Company Common Stock, and no other
securities of the Company, have been issued to and are held by the Company's
Employee Stock Ownership Plan and Trust (the "Company ESOP") and 300,000 Shares
of the Company's Series
9.
<PAGE>
A Preferred Stock, and no other securities of the Company, have been issued
and are held by the Company's Retirement Plan.
(ii) All of the outstanding shares of capital stock of each of
the subsidiaries of the Company are validly issued (in compliance with all
applicable securities laws and other Legal Requirements and applicable Company
Contracts), fully paid and nonassessable and are owned beneficially and of
record by the Company, free and clear of any Encumbrance.
2.4 FINANCIAL STATEMENTS
(a) The Company has delivered or made available to Parent the
following financial statements and notes (collectively, the "Company Financial
Statements"):
(i) the balance sheets of the Company as of January 31, 1997
and 1996, and the related statements of operations, statements of
stockholders' equity and statements of cash flows of the Company for the
years then ended, together with the notes thereto.
(ii) the unaudited balance sheet of the Company as of January 2,
1998 (the "Unaudited Interim Balance Sheet"), and the related unaudited income
statement of the Company for the eleven months then ended.
(b) The Company Financial Statements are accurate and complete in
all material respects except as adjusted per agreement with Parent and present
fairly the financial position of the Company and the other Acquired
Corporations as of the respective dates thereof and the results of operations
and (in the case of the financial statements referred to in Section 2.4(a)(i))
cash flows of the Company and the other Acquired Corporations for the periods
covered thereby. The Company Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods covered (except that the financial
statements referred to in Section 2.4(a)(ii) do not contain footnotes).
2.5 ABSENCE OF CHANGES. Since December 31, 1997 there has not been
(a) any change, or any development or combination of developments that has had
or would reasonably be expected to have a Material Adverse Effect on the
Company, or (b) any material 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.
2.6 TITLE TO ASSETS
(a) Each of the Acquired Corporations owns, and has good, valid and
marketable title to, all assets purported to be owned by it, including: (i)
all assets reflected on the Unaudited Interim Balance Sheet; (ii) all assets
referred to in Parts 2.1, 2.7(b) and 2.9 of the Company Disclosure Schedule and
all of its rights under the Contracts identified in Part 2.10 of the Company
Disclosure Schedule; and (iii) all other assets reflected in its books and
records as being owned by such Acquired Corporation. Except as set forth in
Part 2.6 of the Company
10.
<PAGE>
Disclosure Schedule, all of said assets are owned by the Acquired
Corporations free and clear of any liens or other Encumbrances, except for
any lien for current taxes not yet due and payable.
(b) Part 2.6 of the Company Disclosure Schedule identifies all
material assets that are material to the business of the Acquired Corporations
and that are being leased or licensed to any of the Acquired Corporations.
2.7 BANK ACCOUNTS; RECEIVABLES
(a) The Company has provided to Parent accurate records for each
account (including account numbers) maintained by or for the benefit of any of
the Acquired Corporations at any bank or other financial institution.
(b) The Company has provided to Parent accurate records reflecting a
breakdown and aging of all accounts receivable, notes receivable and other
receivables of the Acquired Corporations as of December 31, 1997. Except as
set forth in Part 2.7(b) of the Company Disclosure Schedule, all existing
accounts receivable of the Acquired Corporations (including those accounts
receivable reflected on the Unaudited Interim Balance Sheet that have not yet
been collected and those accounts receivable that have arisen since December
31, 1997 and have not yet been collected) (i) represent valid obligations of
customers of the Acquired Corporations arising from bona fide transactions
entered into in the ordinary course of business, and (ii) are current and to
the best knowledge of the Company will be collected in full when due, without
any counterclaim or set off (net of a reasonable allowance for doubtful
accounts).
2.8 EQUIPMENT; LEASEHOLD
(a) All material items of equipment and other tangible assets owned
by or leased to the Acquired Corporations are adequate for the uses to which
they are being put, are in good condition and repair (ordinary wear and tear
excepted) and are adequate for the conduct of the Acquired Corporations'
businesses, in the manner in which such businesses are currently being
conducted.
(b) None of the Acquired Corporations own any real property or any
interest in real property, except for the leasehold created under the real
property leases identified in Part 2.10 of the Company Disclosure Schedule.
2.9 PROPRIETARY ASSETS
(a) Part 2.9(a)(i) of the Company Disclosure Schedule sets forth,
with respect to each Company Proprietary Asset registered with any Governmental
Body or for which an application has been filed with any Governmental Body, (i)
a brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application.
Part 2.9(a)(ii) of the Company Disclosure Schedule identifies and provides a
brief description of all other material Company Proprietary Assets owned by the
Company or any other Acquired Corporation. Part 2.9(a)(iii) of the Company
Disclosure Schedule identifies and provides a brief description of each
material Proprietary Asset licensed to the Company or any other Acquired
Corporation by any Person (except for any Proprietary Asset that is licensed to
11.
<PAGE>
the Company or any other Acquired Corporation under any third party software
license generally available to the public at a cost of less than $10,000), and
identifies the license agreement under which such Proprietary Asset is being
licensed to the Company or any other Acquired Corporation. Except as set forth
in Part 2.9(a)(iv) of the Company Disclosure Schedule the Company (or any other
Acquired Corporation, as appropriate) has good, valid and marketable title to
all of the Company Proprietary Assets identified in Parts 2.9(a)(i) and
2.9(a)(ii) of the Company Disclosure Schedule, free and clear of all liens and
other Encumbrances, and has a valid right (contractual or otherwise) to use all
Proprietary Assets identified in Part 2.9(a)(iii) of the Company Disclosure
Schedule. Except as set forth in Part 2.9(a)(v) of the Company Disclosure
Schedule, no Acquired Corporation is obligated to make any payment to any
Person for the use of any Company Proprietary Asset. Except as set forth in
Part 2.9(a)(vi) of the Company Disclosure Schedule, no Acquired Corporation has
developed jointly with any other Person any Company Proprietary Asset with
respect to which such other Person has any rights.
(b) The Acquired Corporations have taken all measures and
precautions reasonably necessary to protect and maintain the confidentiality
and secrecy of all Company Proprietary Assets (except Company Proprietary
Assets whose value would be unimpaired by public disclosure) and otherwise to
maintain and protect the value of all Company Proprietary Assets.
(c) None of the Company Proprietary Assets infringes or conflicts
with any Proprietary Asset owned or used by any other Person. None of the
Acquired Corporations is infringing, misappropriating or making any unlawful
use of, and the Acquired Corporations have not at any time infringed,
misappropriated or made any unlawful use of, or received any notice or other
communication (in writing or otherwise) of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of, any Proprietary
Asset owned or used by any other Person. To the best of the knowledge of the
Company, no other Person is infringing, misappropriating or making any unlawful
use of, and no Proprietary Asset owned or used by any other Person infringes or
conflicts with, any Company Proprietary Asset.
(d) Except as set forth in Part 2.9(d) of the Company Disclosure
Schedule: (i) each Company Proprietary Asset conforms in all material respects
with any specification, documentation and performance standard provided with
respect thereto by or on behalf of any Acquired Corporation; and (ii) there has
not been any material claim by any customer or other Person alleging that any
Company Proprietary Asset does not conform in all material respects with any
specification, documentation, performance standard, representation or statement
made or provided by or on behalf of any Acquired Corporation, and, to the best
of the knowledge of the Company, there is no basis for any such claim. The
Company has established adequate reserves on the Unaudited Interim Balance
Sheet to cover all costs associated with any obligations that the Acquired
Corporations may have with respect to the correction or repair of programming
errors or other defects in the Company Proprietary Assets.
(e) The Company Proprietary Assets constitute all the Proprietary
Assets reasonably necessary to enable the Acquired Corporations to conduct
their businesses in the manner in which such businesses have been and are being
conducted. Except as set forth in Part 2.9(e) of the Company Disclosure
Schedule, (i) the Acquired Corporations have not licensed any of the Company
Proprietary Assets to any Person on an exclusive basis, and (ii) the Acquired
12.
<PAGE>
Corporations have not entered into any covenant not to compete or Contract
limiting the ability to exploit fully any Proprietary Assets or to transact
business in any market or geographical area or with any Person.
(f) Except as set forth in Part 2.9(f) of the Company Disclosure
Schedule, (i) all current and former employees of the Acquired Corporations
have executed and delivered to the Acquired Corporations an agreement that is
substantially identical to the standard form of Confidential Information and
Invention Assignment Agreement or similar agreement used by the Company and
previously delivered to Parent, and (ii) all current and former consultants and
independent contractors to the Acquired Corporations have executed and
delivered to the Acquired Corporations an agreement that is substantially
identical to the standard form of Consultant Confidential Information and
Invention Assignment Agreement or similar agreement used by the Company and
previously delivered to Parent.
2.10 CONTRACTS
(a) Part 2.10 of the Company Disclosure Schedule identifies each
Contract of the Company or any of the other Acquired Corporations material to
the Acquired Corporations, considered as a whole (each a "Material Company
Contract"), including the following (to the extent material):
(i) each Company Contract relating to the employment of, or
the performance of services by, any employee, consultant or independent
contractor;
(ii) each Company Contract relating to the acquisition,
transfer, use, development, sharing or license of any Proprietary Asset;
(iii) each Company Contract imposing any material
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 with any other Person, or
(C) develop or distribute any technology;
(iv) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
(v) each Company Contract relating to the creation of any
Encumbrance with respect to any asset of any of the Acquired Corporations;
(vi) each Company Contract involving or incorporating any
guaranty, any pledge, any performance or completion bond, any indemnity or any
surety arrangement;
(vii) each Company Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits, losses, costs
or liabilities;
(viii) each Company Contract 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 Related Party (as defined in Section 2.19);
13.
<PAGE>
(ix) any other Company Contract that was entered into by any
Acquired Corporation outside the ordinary course of business or was
inconsistent with any such Acquired Corporation's past practices;
(b) The Acquired Corporations have delivered or made available to
Parent accurate and complete copies of all written Contracts identified in Part
2.10 of the Company Disclosure Schedule, including all amendments thereto.
Each Contract identified in Part 2.10 of the Company Disclosure Schedule is
valid and in full force and effect, and, to the best of the knowledge of the
Company, is enforceable by the Acquired Corporations 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) Except as set forth in Part 2.10 of the Company Disclosure
Schedule:
(i) none of the Acquired Corporations has materially violated
or breached, or committed any material default under, any Company Contract,
and, to the best of the knowledge of the Company, no other Person has
materially violated or breached, or committed any material default under, any
Company Contract;
(ii) to the best of the knowledge of the Company, no event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time) will, or would reasonably be expected to, (A) result in a
material violation or breach of any of the provisions of any Material Company
Contract, (B) give any Person the right to declare a default or exercise any
remedy under any Material Company Contract, (C) give any Person the right to
accelerate the maturity or performance of any Material Company Contract, or
(D) give any Person the right to cancel, terminate or modify any Material
Company Contract;
(iii) since January 31, 1997, none of the Acquired
Corporations has received any notice or other communication regarding any
material violation or breach of, or default under, any Company Contract; and
(iv) none of the Acquired Corporations has waived any of its
material rights under any Material Company Contract.
(d) No Person is renegotiating any amount paid or payable to the
Company under any Material Company Contract or any other material term or
provision of any Material Company Contract.
(e) The Contracts identified in Part 2.10 of the Company Disclosure
Schedule collectively constitute all of the Contracts reasonably necessary to
enable the Acquired Corporations to conduct their businesses in the manner in
which they are currently being conducted.
(f) The Company has made available to Parent all material
documentation regarding any bid, offer, award, written proposal or term sheet
which has been submitted or received by the Acquired Corporations since January
31, 1997.
14.
<PAGE>
(g) The Company has made available to Parent all material
documentation regarding the Acquired Corporations' current backlog under
Company Contracts.
(h) Since January 1, 1992, except as set forth in Part 2.10(h) of
the Company Disclosure Schedule:
(i) none of the Acquired Corporations has had any
determination of noncompliance or entered into any consent order;
(ii) each of the Acquired Corporations has complied in all
material respects with all Legal Requirements with respect to all Government
Contracts and Government Bids;
(iii) none of the Acquired Corporations has, 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 of the
Acquired Corporations in any certification, representation or disclosure
statement submitted by it with respect to any Government Contract or
Government Bid were current, accurate and complete as of the date of
submission;
(v) neither the Acquired Corporations nor any of their
current employees (while, or to the best of the Company's knowledge, prior to
becoming an employee) has been debarred or suspended from doing business with
any Governmental Body, and, to the best of the knowledge of the Company, no
circumstances exist that would sustain a debarment or suspension of any of
the Acquired Corporations or any employee of any of the Acquired Corporations;
(vi) no negative determinations of responsibility have been
issued against any of the Acquired Corporations in connection with any
Government Contract or Government Bid;
(vii) no material direct or indirect costs incurred by any
Acquired Corporation have been questioned (by written document or formal
proceeding) or disallowed as a result of a finding or determination of any
kind by any Governmental Body;
(viii) Since January 1, 1997, no Governmental Body, and no
prime contractor or higher-tier subcontractor of any Governmental Body, has
withheld or set off, or threatened to withhold or set off, any amount due to
any Acquired Corporation under any Government Contract;
15.
<PAGE>
(ix) none of the Acquired Corporations is undergoing or has
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);
(x) except as set forth in Part 2.10 of the Company
Disclosure Schedule none of the Acquired Corporations has entered into any
financing arrangement with respect to the performance of any Government
Contract;
(xi) no payment has been made by any Acquired Corporation, or
to the best knowledge of the Company, to any Person (other than to any bona
fide employee or agent (as defined in subpart 3.4 of the FAR) of the Company)
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;
(xii) each of the Acquired Corporations' cost accounting
system has not been determined by any Governmental Body not to be in
compliance with any Legal Requirement;
(xiii) each of the Acquired Corporations has complied with
all applicable regulations and other Legal Requirements and with all
applicable contractual requirements relating to the placement of legends or
restrictive markings on technical data, computer software and other
Proprietary Assets, except where any failure to do so has not and would not
reasonably be expected to have a Material Adverse Effect on the Company;
(xiv) in each case in which any Acquired Corporation has
delivered or otherwise provided any technical data, computer software or
Company Proprietary Asset to any Governmental Body in connection with any
Government Contract, such Acquired Corporation has taken reasonable measures
to mark such technical data, computer software or Company 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 Company Proprietary Asset;
(xv) each of the Acquired Corporations has reached agreement
with the cognizant government representatives approving and "closing" all
indirect costs charged to Government Contracts for 1991, 1992, and 1993, and
those years are closed;
(xvi) none of the Acquired Corporations is nor will they
be required to make any filing with or give any notice to, or to obtain any
Consent from, any Governmental Body under or in connection with any
Government Contract or Government Bid as a result of or by virtue of (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.
16.
<PAGE>
2.11 LIABILITIES. Each of the Acquired Corporations has no material
accrued, contingent or other liabilities of any nature, either matured or
unmatured (whether or not required to be reflected in financial statements in
accordance with generally accepted accounting principles, and whether due or
to become due), not otherwise reflected in the Company Financial Statements
or provided in the Company Disclosure Schedule.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of the Acquired
Corporations is, and has at all times since December 31, 1993 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 the Company. Except as set forth in Part 2.12 of
the Company Disclosure Schedule, since December 31, 1993, each of the
Acquired Corporations has 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 Requirements, except where the failure to
comply with such Legal Requirements has not had and will not have a Material
Adverse Effect on the Company.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Company Disclosure
Schedule identifies each material Governmental Authorization held by each of
the Acquired Corporations. The Governmental Authorizations identified in
Part 2.13 of the Company Disclosure Schedule are valid and in full force and
effect, and collectively constitute all Governmental Authorizations necessary
to enable each of the Acquired Corporations 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 of the Acquired
Corporations is, and at all times since December 31, 1993 has been, in
substantial compliance with the terms and requirements of the respective
Governmental Authorizations identified in Part 2.13 of the Company Disclosure
Schedule. Since December 31, 1993, the Company has 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.
2.14 TAX MATTERS
(a) All Tax Returns required to be filed by or on behalf of any
Acquired Corporation with any Governmental Body with respect to any taxable
period ending on or before the Closing Date (the "Company Returns") (i) have
been or will be filed on or before the applicable due date (including any
extensions of such due date), and (ii) have been, or will be when filed,
prepared in all material respects in compliance with all applicable Legal
Requirements. All amounts shown on the Company Returns to be due on or
before the Closing Date have been or will be paid on or before the Closing
Date. The Company has delivered or made available to Parent accurate and
complete copies of all Company Returns filed since December 31, 1990 which
have been requested by Parent.
(b) The Company Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the
dates thereof in accordance with generally accepted accounting principles.
17.
<PAGE>
(c) Except as set forth in Part 2.14 of the Company Disclosure
Schedule, there have been no examinations or audits of any Company Return
since December 31, 1990. The Company has delivered to Parent accurate and
complete copies of all audit reports and similar documents (to which it has
access) relating to the Company Returns. Except as set forth in Part 2.14 of
the Company Disclosure Schedule, no extension or waiver of the limitation
period applicable to any of the Company Returns has been granted and no such
extension or waiver has been requested from any Acquired Corporation.
(d) Except as set forth in Part 2.14 of the Company Disclosure
Schedule, since January 31, 1993 no material claim or Proceeding is pending
or has been threatened against or with respect to any Acquired Corporation in
respect of any Tax. There are no unsatisfied liabilities for Taxes
(including liabilities for interest, additions to tax and penalties thereon
and related expenses) with respect to any notice of deficiency or similar
document received by any Acquired Corporation with respect to any Tax (other
than liabilities for Taxes asserted under any such notice of deficiency or
similar document which are being contested in good faith by any such Acquired
Corporation and with respect to which adequate reserves for payment have been
established). There are no liens for Taxes upon any of the assets of any
Acquired Corporation except liens for current Taxes not yet due and payable.
Each of the Acquired Corporations has not entered into or become bound by any
agreement or consent pursuant to Section 341(f) of the Code. Each of the
Acquired Corporations has not been, and will not be, required to include any
adjustment in taxable income for any tax period (or portion thereof) pursuant
to Section 481 or 263A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions or events occurring, or
accounting methods employed, prior to the Closing.
(e) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of any Acquired Corporation that, considered
individually or considered collectively with any other such Contracts, will,
or could reasonably be expected to, give rise directly or indirectly to the
payment of any amount that would not be deductible pursuant to Section 280G
or Section 162 of the Code. Each of the Acquired Corporations is not, and
has never been, a party to or bound by any tax indemnity agreement, tax
sharing agreement, tax allocation agreement or similar Contract.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS
(a) Part 2.15(a) of the Company Disclosure Schedule identifies
each salary, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, severance pay, or termination pay plan (collectively,
the "Compensation Plans"), and each hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, including the Company
ESOP, the "Plans") sponsored, maintained, contributed to or required to be
contributed to by any Acquired Corporation for the benefit of any employee of
any Acquired Corporation ("Employee"), except for Plans which would not
require the Acquired Corporations to make payments or provide benefits having
a value in excess of $25,000 in the aggregate.
(b) Except as set forth in Part 2.15(a) of the Company Disclosure
Schedule, the Acquired Corporations do not maintain, sponsor or contribute to,
and, to the best of the
18.
<PAGE>
knowledge of Company, have not at any time in the past maintained, sponsored
or contributed to, any employee pension benefit plan (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not excluded from coverage under specific Titles or
Merger Subtitles of ERISA) for the benefit of Employees or former Employees
(a "Pension Plan").
(c) Each of the Acquired Corporations maintains, sponsors or
contributes only to those employee welfare benefit plans (as defined in
Section 3(1) of ERISA, whether or not excluded from coverage under specific
Titles or Merger Subtitles of ERISA) for the benefit of Employees or former
Employees which are described in Part 2.15(c) of the Company Disclosure
Schedule (the "Welfare Plans"), none of which is a multiemployer plan (within
the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to Parent:
(i) an accurate and complete copy of such Plan (including all
amendments thereto);
(ii) an accurate and complete copy of the annual report, if
required under ERISA, with respect to such Plan for the last 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 Plan, and all
material employee communications relating to such Plan;
(iv) if such 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
the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to
such Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and record keeping
agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect
to such Plan (if such Plan is intended to be qualified under Section 401(a)
of the Code).
(e) No Acquired Corporation is required to be, and, to the best of
the knowledge of the Company, 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. No Acquired Corporation has
ever been a member of an "affiliated service group" within the meaning of
Section 414(m) of the Code. To the best of the knowledge of the Company, the
Acquired Corporations have never 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
19.
<PAGE>
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).
(f) The Acquired Corporations do not have any plan or commitment
to create any additional 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.
(g) Except as set forth in Part 2.15(g) of the Company Disclosure
Schedule, no Welfare Plan provides death, medical or health benefits (whether
or not insured) with respect to any current or former 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
Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which
are borne by current or former Employees (or the Employees' beneficiaries)).
(h) With respect to each of the Welfare Plans 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.
(i) Each of the Compensation Plans and the 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.
(j) Each of the Compensation Plans and the Plans intended to be
qualified under Section 401(a) of the Code has received a favorable
determination from the Internal Revenue Service, the Company is not aware of
any reason why any such determination letter should be revoked.
(k) Except as set forth in Part 2.15(k) of the Company Disclosure
Schedule, 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 any Acquired Corporation (whether or not under any
Plan), or materially increase the benefits payable under any Compensation
Plan or Plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(l) The Company has provided to Parent documentation showing all
salaried employees of the Acquired Corporations, and correctly reflecting, in
all material respects, their salaries, any other compensation payable to them
(including compensation payable pursuant to bonus, deferred compensation or
commission arrangements), their dates of employment and their positions. The
Acquired Corporations are not a party to any collective bargaining contract
or other Contract with a labor union involving any of its Employees. All of
the Company's employees are "at will" employees.
20.
<PAGE>
(m) Part 2.15(m) of the Company Disclosure Schedule identifies
each Employee who is not fully available to perform work because of
disability or other leave and sets forth the basis of such leave and the
anticipated date of return to full service.
(n) Each of the Acquired Corporations is 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.
(o) Except as set forth in Part 2.15(o) of the Company Disclosure
Schedule, each of the Acquired Corporations has good labor relations, and the
Company has no reason to believe that (i) the consummation of the Merger or
any of the other transactions contemplated by this Agreement will have a
material adverse effect on any Acquired Corporation's labor relations, or
(ii) any Acquired Corporation's employee(s) intend(s) to terminate his or her
employment with the Acquired Corporation
2.16 ENVIRONMENTAL MATTERS. Each of the Acquired Corporations is in
compliance in all material respects with all applicable Environmental Laws,
which compliance includes the possession by each of the Acquired Corporations
of all permits and other Governmental Authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof. Each of the Acquired Corporations has not received any notice or
other communication (in writing or otherwise), whether from a Governmental
Body or citizens group, that alleges that any of the Acquired Corporations is
not in compliance with any Environmental Law, and, to the best of the
knowledge of the Company, there are no circumstances that may prevent or
interfere with the Acquired Corporations' compliance with any Environmental
Law in the future. To the best of the knowledge of the Company, no current
or prior owner of any property leased or controlled by any of the Acquired
Corporations has received any notice or other communication (in writing or
otherwise), whether from a Government Body, citizens group, employee or
otherwise, that alleges that such current or prior owner or any of the
Acquired Corporations is not in compliance with any Environmental Law. All
Governmental Authorizations currently held by each of the Acquired
Corporations pursuant to Environmental Laws are identified in Part 2.16 of
the Company Disclosure Schedule. (For purposes of this Section 2.16: (i)
"Environmental Law" means any federal, state, local or foreign Legal
Requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface
or subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern; and (ii) "Materials of Environmental Concern" include
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products and any other substance that is now or hereafter regulated
by any Environmental Law or that is otherwise a danger to health,
reproduction or the environment.)
2.17 ESOP MATTERS
(a) The Company ESOP is duly organized and existing under applicable
law, is a stock bonus plan qualified under Section 401(a) of the Code and is an
"employee stock
21.
<PAGE>
ownership plan" as defined in Section 4975(e)(7) of the Code. The Company
ESOP was formed and is, and at all times has been, maintained primarily for
the benefit of the Company ESOP participants and beneficiaries, within the
meaning of Section 4975(d)(3)(A) of the Code, Treasury Regulations Section
54.4975-7 and Section 408(b)(3) of ERISA. The shares of each Acquired
Corporation's stock held by the Company ESOP (the "ESOP Shares") constitute
"employer securities" within the meaning of Section 409(l) of the Code. The
Company has heretofore delivered to Parent accurate and complete copies of
all documents (and all amendments, modifications and supplements thereto)
material to the creation of the Company ESOP and ESOP Trust and the ESOP
Transactions, including, but not limited to, (a) the Company ESOP plan
document and trust agreement, (b) each request heretofore filed with the IRS
requesting the issuance of a favorable determination letter with respect to
the qualified status or continuing qualified status of the Company ESOP,
including all supporting documentation filed herewith, (c) any request filed
with the IRS under the Voluntary Compliance Resolution Program ("VCR") or the
Closing Agreement Program ("CAP"), (d) documentation of any correction of
Company ESOP defects under the IRS' Administrative Program Regarding Self
Correction ("APRSC").
(b) Except as set forth in Part 2.17(b) of the Company Disclosure
Schedule, (a) as of the Closing Date, no ESOP Transaction has occurred and no
ESOP Loan exists with respect to the Company ESOP and (b) as of the Closing
Date no ESOP Loan or ESOP Transaction is under negotiation and neither the
Company nor any Acquired Corporation have any plan or commitment to enter
into an ESOP Transaction or an ESOP Loan. No ESOP Transaction was, or has
resulted in, or will result in a prohibited transaction under Section 4975(c)
of the Code, Sections 406 or 407 of ERISA, or the regulations thereunder.
Any ESOP Loans and any related guarantees constitutes an "exempt loan" under
Treasury Regulation Section 54.4975-7(b)(1)(iii). The use of the proceeds of
any ESOP Loans by the Acquired Corporations and the Company ESOP,
respectively, and the pledge of the ESOP Shares as security for the ESOP
Loans, did not and does not constitute or result in a violation of the
provisions of the Code or ERISA or any regulations thereunder.
(c) All ESOP Loans have been fully paid, and no further amounts
are due thereunder. Neither any of the Acquired Corporations nor the Company
ESOP is or has been in breach or violation of any ESOP Transaction Document,
there are no remaining unperformed obligations of the Acquired Corporations
or the Company ESOP under any ESOP Transaction Document, and there are no
amounts as to which any Acquired Corporation or the Company ESOP are or may
be liable under any ESOP Transaction Documents.
(d) At the Closing Date, there have been no transactions under
Internal Revenue Code Section 1042 with respect to the Company ESOP.
(e) All Legal Requirements applicable to any Acquired Corporation
and/or to the ESOP Trustee requiring prudence of fiduciaries, including,
without limitation, as to valuation matters and other similar matters
relating to discretionary judgments not involving legal judgments, have been
complied with, and the Acquired Corporations are not and shall not be subject
to any liability as a fiduciary or co-fiduciary under ERISA with respect to
matters arising prior to and through the Closing Date in connection with the
Company ESOP. Neither the execution and delivery of this Agreement nor the
consummation of the transactions described
22.
<PAGE>
herein or any other agreement between or among the parties to this Agreement,
or the performance of the terms hereof or thereof, will conflict with,
violate, or result in a breach of the Company ESOP plan document, any ESOP
Transaction Documents or any agreement or other instrument by which the
Acquired Corporations, the Company ESOP, the ESOP Trustee or the ESOP Trust
may be bound, and will not constitute a breach by any Person acting as a
fiduciary, within the meaning of ERISA, with respect to the Company ESOP of
any fiduciary responsibility or similar duty or obligation owed by such
Person to the participants of the Company ESOP under ERISA or otherwise.
2.18 INSURANCE. Part 2.18 of the Company Disclosure Schedule identifies
all insurance policies maintained by, at the expense of or for the benefit of
the Acquired Corporations and identifies any material claims made thereunder,
and the Company has delivered or made available to Parent accurate and
complete copies of the insurance policies identified on Part 2.18 of the
Company Disclosure Schedule. Each of the insurance policies identified in
Part 2.18 of the Company Disclosure Schedule is in full force and effect.
Since January 31, 1993, each of the Acquired Corporations has not received
any notice or other communication regarding any actual or possible (a)
cancellation or invalidation of any insurance policy, (b) refusal of any
coverage or rejection of any claim under any insurance policy, or (c)
material adjustment in the amount of the premiums payable with respect to any
insurance policy.
2.19 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.19 of
the Company Disclosure Schedule: (a) no Related Party has, and no Related
Party has at any time since January 31, 1995 had, any direct or indirect
interest in any material asset used in or otherwise relating to the
businesses of the Acquired Corporations; (b) no Related Party is, or has at
any time since January 31, 1995 been, indebted to any of the Acquired
Corporations; (c) since January 31, 1995, no Related Party has entered into,
or has had any direct or indirect financial interest in, any Material Company
Contract, transaction or business dealing involving any of the Acquired
Corporations; (d) no Related Party is competing, or has at any time since
January 31, 1995 competed, directly or indirectly, with any of the Acquired
Corporations; and (e) no Related Party has any claim or right against any of
the Acquired Corporations (other than rights under Company Options or Company
Warrants and rights to receive compensation for services performed as an
employee of any of the Acquired Corporations). (For purposes of this Section
2.19 each of the following shall be deemed to be a "Related Party": (i)
each of the Designated Stockholders; (ii) each individual who is, or who has
at any time since January 31, 1995 been, an officer any of the Acquired
Corporations; (iii) each member of the immediate family of each of the
individuals referred to in clauses "(i)" and "(ii)" above; and (iv) any trust
or other Entity (other than the Acquired Corporations) in which any one of
the individuals referred to in clauses "(i)", "(ii)" and "(iii)" above holds
(or in which more than one of such individuals collectively hold),
beneficially or otherwise, a material voting, proprietary or equity interest.
No Related Party shall have any liability or obligation to Parent with
respect to this Section 2.19.)
2.20 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 2.20 of the Company Disclosure
Schedule, there is no pending Legal Proceeding, and (to the best of the
knowledge of the Company) no Person has threatened to commence any Legal
Proceeding: (i) that involves any of the Acquired Corporations or any of the
assets owned or used by any of the Acquired Corporations or (to the
23.
<PAGE>
best knowledge of the Company) any Person whose liability any of the Acquired
Corporations has or may have retained or assumed, either contractually or by
operation of law; or (ii) that 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 of the knowledge of the Company, except as set forth in Part 2.20 of
the Company Disclosure Schedule, 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.
(b) Except as set forth in Part 2.20 of the Company Disclosure
Schedule, no material Legal Proceeding has been commenced by or has been
pending against any of the Acquired Corporations since January 1, 1997.
(c) There is no order, writ, injunction, judgment or decree to
which any of the Acquired Corporations, or any of the assets owned or used by
any of the Acquired Corporations, is subject. To the best of the knowledge of
the Company, no officer or other employee of any of the Acquired Corporations
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 any such Acquired Corporation's business.
2.21 AUTHORITY; BINDING NATURE OF AGREEMENT. Subject to the approval of
the stockholders of the Company, the Company has the absolute and
unrestricted right and authority to enter into and to perform its obligations
under this Agreement; and the execution, delivery and performance by the
Company of this Agreement have been duly authorized by all necessary action
on the part of the Company and its board of directors. This Agreement
constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company 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.
2.22 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.22 of
the Company Disclosure Schedule, neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in
this Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly
(with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of the Company's Certificate of Incorporation or bylaws, or
(ii) any resolution adopted by the Company's stockholders, the Company's
board of directors or any committee of each of the Company's board of
directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or
obtain any relief under, any material Legal Requirement or any order, writ,
injunction, judgment or decree to which the Company, or any of the assets
owned or used by any of the Acquired Corporations, is subject;
24.
<PAGE>
(c) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any material
Governmental Authorization that is held by any of the Acquired Corporations
or that otherwise relates to any of the Acquired Corporations' business or to
any of the assets owned or used by any of the Acquired Corporations;
(d) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of any Company Contract that
is or would constitute a Material Company Contract, or give any Person the
right to (i) declare a default or exercise any remedy under any such Company
Contract, (ii) accelerate the maturity or performance of any such Company
Contract, or (iii) cancel, terminate or modify any such Company Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by any of the
Acquired Corporations (except for minor liens that will not, in any case or
in the aggregate, materially detract from the value of the assets subject
thereto or materially impair the operations of any such Acquired Corporation).
Except as set forth in Part 2.22 of the Company Disclosure Schedule, the
Acquired Corporations are 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 (x) the execution, delivery or performance of this Agreement
or any of the other agreements referred to in this Agreement, or (y) the
consummation of the Merger or any of the other transactions contemplated by
this Agreement.
2.23 FULL DISCLOSURE
(a) This Agreement (including the Company Disclosure Schedule)
does not (i) contain any representation, warranty or information that is
false or misleading with respect to any material fact, or (ii) omit to state
any material fact or necessary in order to make the representations,
warranties and information contained and to be contained herein and therein
(in the light of the circumstances under which such representations,
warranties and information were or will be made or provided) not false or
misleading.
(b) The information supplied by the Company for inclusion in the
S-4 Registration Statement (as defined in Section 7.7) will not, as of the
date the S-4 Registration Statement becomes effective or as of the date of
the Company Stockholders' Meeting (as defined in Section 7.2), (i) contain
any statement that is inaccurate or misleading with respect to any material
fact, or (ii) omit to state any material fact necessary in order to make such
information (in the light of the circumstances under which it is provided)
not false or misleading.
2.24 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."
2.25 BROKERS. No broker, finder or financial adviser retained by the
Company is entitled to any brokerage, finder's or other fee or commission
from the Company in connection with the transactions contemplated by this
Agreement; except the Company has retained the
25.
<PAGE>
Slavitt Ellington Group to give fairness opinions and valuations in
connection with the Merger for a fee not to exceed $50,000.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE DESIGNATED STOCKHOLDERS.
3.1 REPRESENTATIONS AND WARRANTIES. The Designated Stockholders
represent and warrant to and for the benefit of the Parent that to the best
of their actual knowledge, and based upon review of relevant information and
records of the Company as deemed appropriate by the Designated Stockholders,
the representations and warranties of the Company contained herein (as
qualified by the Company Disclosure Schedule) are true and correct in all
material respects, and do not set forth facts that are false or misleading in
any material respect, nor do they omit to set forth facts the absence of
which would make such representations and warranties materially false or
misleading. Notwithstanding the generality of the foregoing, the Designated
Stockholders represent and warrant to the best of their actual knowledge, and
based upon review of relevant information and records of the Company as
deemed appropriate by the Designated Stockholders, as follows:
(a) The Company has made available to Parent the Company Financial
Statements and the Company Financial Statements are accurate and complete in
all material respects and present fairly the financial position of the
Company and the other Acquired Corporations as of the respective dates
thereof and the results of operations and (in the case of the financial
statements referred to in Section 2.4(a)(i)) cash flows of the Company and
the other Acquired Corporations for the periods covered thereby. The Company
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered (except that the financial statements referred to in Section
2.4(a)(ii) do not contain footnotes and are subject to normal and recurring
year-end audit adjustments, which will not, individually or in the aggregate,
be material in magnitude).
(b) Except as set forth in Part 2.12 of the Company Disclosure
Schedule, to the best knowledge of the Designated Stockholders, each of the
Acquired Corporations is, and has at all times since January 31, 1993 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 the Company.
(c) Except as would not have a Material Adverse Effect on the
Company, each of the Acquired Corporations owns, and has good, valid and
marketable title to, all assets purported to be owned by it, including: (i)
all assets reflected on the Unaudited Interim Balance Sheet; (ii) all
assets referred to in Parts 2.1, 2.7(b) and 2.9 of the Company Disclosure
Schedule and all of its rights under the Contracts identified in Part 2.10 of
the Company Disclosure Schedule; and (iii) all other assets reflected in its
books and records as being owned by such Acquired Corporation. Except as set
forth in Part 2.6 of the Company Disclosure Schedule, all of said assets are
owned by the Acquired Corporations free and clear of any liens or other
Encumbrances, except for any lien for current taxes not yet due and payable.
(d) None of the Acquired Corporations has materially violated or
breached or committed any material default under, any Material Company
Contract.
26.
<PAGE>
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub (each of the Parent and Merger Sub is individually
referred to herein as "Acquiring Corporation" and collectively as the
"Acquiring Corporations") jointly and severally represent and warrant to the
Company that, except as set forth in the disclosure schedule prepared by the
Parent and delivered by the Parent to the Company on the date of this
Agreement (the "Parent Disclosure Schedule"):
4.1 DUE ORGANIZATION; ETC
(a) Each of the Acquiring Corporations is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has all necessary power and authority: (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 Company Contracts by which it is bound.
(b) Each of the Acquiring Corporations is qualified, authorized,
registered or licensed to do business as a foreign corporation in any
jurisdiction where so required under applicable law, except where the failure
to be so qualified, authorized, registered or licensed has not had and will
not have a Material Adverse Effect on the Acquiring Corporation. Each of the
Acquiring Corporations is in good standing as a foreign corporation in each
of such jurisdictions.
4.2 CERTIFICATE OF INCORPORATION AND BY-LAWS. True, correct and
complete copies of the Certificates of Incorporation and By-laws, each as
amended to date, of Parent and Merger Sub have been made available to the
Company. The Certificates of Incorporation and By-laws of Parent and each of
the other Acquiring Corporations are in full force and effect. Neither
Parent nor any of the other Acquiring Corporations is in violation of any
provision of its Certificate of Incorporation or By-laws.
4.3 CAPITALIZATION, ETC. The authorized capital stock of Parent
consists of: (i) 45,000,000 shares of Common Stock, $.01 par value per
share, 16,725,179 shares were issued and are outstanding as of January 30,
1998, 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, (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 were issued and are outstanding as of January 30,
1998, and (C) 500,000 shares of which have been designated as Series B
Cumulative Convertible Redeemable Preferred Stock, all of which were issued
as of January 30, 1998. Each outstanding share of $1.00 Cumulative
Convertible Preferred Stock is convertible at any time into two-thirds (2/3)
of a share of Parent's common stock. The Series B Preferred Stock is
convertible at the holder's option into shares of Parent's common stock at a
conversion price of $9.00 per share. In November 1996, Parent issued
$34,500,000 of convertible subordinated debentures. The debentures are
convertible into common stock at a conversion price of $3.50 per share. 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
27.
<PAGE>
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. Parent has outstanding options
to purchase 1,860,598 shares of common stock as of the date hereof, with
exercise prices ranging between $2.625 to $9.50. In addition, Parent has
issued 100,000 warrants to acquire common stock at an exercise price of $3.50
per share. 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).
4.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered or made available to the Company accurate
and complete copies (excluding copies of exhibits) of each report,
registration statement (on a form other than Form S-8) and definitive proxy
statement filed by Parent with the SEC between January 1, 1997 and the date
of this Agreement (the "Parent SEC Documents"). As of the time it was filed
with the SEC (or, if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing): (i) each of the Parent SEC
Documents complied in all material respects with the applicable requirements
of the Securities Act or the Exchange Act (as the case may be); and (ii) none
of the Parent SEC Documents contained any untrue statement of a material fact
or omitted 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) The consolidated financial statements 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 generally accepted accounting principles 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 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; 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 of Parent and its
subsidiaries for the periods covered thereby.
4.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1997,
there has not been (a) any change, or any development or combination of
developments, 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.
28.
<PAGE>
4.6 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of the Acquiring
Corporations is, and has at all times since December 31, 1993 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 Parent. Except as set forth in Part 4.6 of the
Parent Disclosure Schedule, since December 31, 1993, each of the Acquiring
Corporations has 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 Requirements, except where the failure to comply
with such Legal Requirements has not had and will not have a Material Adverse
Effect on Parent.
4.7 GOVERNMENTAL AUTHORIZATIONS. The Governmental Authorizations held
by the Acquiring Corporations are valid and in full force and effect, and
collectively constitute all Governmental Authorizations necessary to enable
each of the Acquiring Corporations 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 of the Acquiring Corporations is in
substantial compliance with the terms and requirements of such Governmental
Authorizations.
4.8 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 4.8 of the Parent Disclosure
Schedule, there is no pending Legal Proceeding, and (to the best of the
knowledge of the Acquiring Corporations) no Person has threatened to commence
any Legal Proceeding that has had or would reasonably be expected to have a
Material Adverse Effect on Parent: (i) that involves any of the Acquiring
Corporations or any of the assets owned or used by any of the Acquiring
Corporations or (to the best knowledge of the Company) any Person whose
liability any of the Acquiring Corporations has or may have retained or
assumed, either contractually or by operation of law; or (ii) that
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 of the knowledge of
the Company, except as set forth in Part 4.8 of the Parent Disclosure
Schedule, 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.
(b) Except as set forth in Part 4.8 of the Parent Disclosure
Schedule, no material Legal Proceeding has ever been commenced by or has ever
been pending against any of the Acquiring Corporations since January 1, 1997.
(c) There is no order, writ, injunction, judgment or decree to
which any of the Acquiring Corporations, or any of the assets owned or used
by any of the Acquiring Corporations, is subject. To the best of the
knowledge of the Company, no officer or other employee of any of the
Acquiring Corporations 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 any such Acquiring
Corporation's business.
4.9 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the absolute and unrestricted right and authority to perform their obligations
under this Agreement;
29.
<PAGE>
and the execution, delivery and performance by Parent and Merger Sub of this
Agreement (including the contemplated issuance of Parent Common Stock in the
Merger in accordance with this Agreement) have been duly authorized by all
necessary action on the part of Parent and Merger Sub and their respective
boards of directors. No vote of Parent's stockholders is needed to approve
the Merger. This Agreement constitutes the legal, valid and binding
obligation of Parent and Merger Sub, enforceable against them 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.
4.10 VALID ISSUANCE. The Parent Common Stock to be issued in the Merger
will, when issued in accordance with the provisions of this Agreement, be
validly issued, fully paid and nonassessable, as described herein.
4.11 NON-CONTRAVENTION; CONSENTS. Except as set forth in 4.11 of the
Parent Disclosure Schedule, neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in
this Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly
(with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of the Acquiring Corporations' Certificates of
Incorporation or bylaws, or (ii) any resolution adopted by either Acquiring
Corporations' stockholders, board of directors or any committee of either of
the Acquiring Corporation's board of directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or
obtain any relief under, any material Legal Requirement or any order, writ,
injunction, judgment or decree to which the Company, or any of the assets
owned or used by any of the Acquiring Corporations, is subject;
(c) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any material
Governmental Authorization that is held by any of the Acquiring Corporations
or that otherwise relates to any of the Acquiring Corporations' business or
to any of the assets owned or used by any of the Acquiring Corporations;
(d) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of any Contract material to
the Acquiring Corporations, or give any Person the right to (i) declare a
default or exercise any remedy under any such Contract, (ii) accelerate the
maturity or performance of any such Contract, or (iii) cancel, terminate or
modify any such Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by any of the
Acquiring Corporations (except for minor liens that will not, in any case or
in the aggregate, materially detract from the value of the assets subject
thereto or materially impair the operations of any such Acquiring
Corporation).
30.
<PAGE>
Except as set forth in Part 4.11 of the Parent Disclosure Schedule, and
except as may be required by the Securities Act, the Exchange Act, state
securities or "blue sky" laws, the HSR Act and the New York Stock Exchange
Rules and Regulations, the Acquiring Corporations are 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 (x) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in
this Agreement, or (y) the consummation of the Merger or any of the other
transactions contemplated by this Agreement.
4.12 FULL DISCLOSURE.
(a) This Agreement (including the Parent Disclosure Schedule) does
not (i) contain any representation, warranty or information that is false or
misleading with respect to any material fact, or (ii) omit to state any
material fact or necessary in order to make the representations, warranties
and information contained and to be contained herein and therein (in the
light of the circumstances under which such representations, warranties and
information were or will be made or provided) not false or misleading.
(b) The information supplied by the Acquiring Corporations for
inclusion in the S-4 Registration Statement (as defined in Section 7.7) will
not, as of the date the S-4 Registration Statement becomes effective, (i)
contain any statement that is inaccurate or misleading with respect to any
material fact, or (ii) omit to state any material fact necessary in order to
make such information (in the light of the circumstances under which it is
provided) not false or misleading.
4.13 GOVERNMENT CONTRACTS; GOVERNMENT BIDS. Except as set forth in Part
4.13 of the Parent Disclosure Schedule:
(a) None of the Acquiring Corporations have had any determination
of noncompliance or entered into any consent order;
(b) the Acquiring Corporations have complied in all material
respects with all Legal Requirements with respect to all Government Contracts
and Government Bids;
(c) 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;
(d) neither the Acquiring Corporations nor any of their current
respective employees (while, or to the best of Parent's knowledge prior to
becoming an employee) have been debarred or suspended from doing business
with any Governmental Body, and, to the best of the knowledge of Parent, no
circumstances exist that would sustain a debarment or suspension of any
Acquiring Corporation or any employee of any Acquiring Corporation; and
31.
<PAGE>
4.14 ACCOUNTING MATTERS. To the knowledge of Parent, Parent has not
taken and has not agreed, and does not plan, and will not take any action
that would prevent Parent from accounting for the business combination to be
effected by the Merger as a "pooling of interest."
4.15 BROKERS. No broker, finder or financial adviser retained by Parent
and Merger Sub is entitled to any brokerage, finder's or other fee or
commission from Parent and Merger Sub in connection with the transactions
contemplated by this Agreement.
SECTION 5. CERTAIN COVENANTS OF THE COMPANY AND THE DESIGNATED STOCKHOLDERS
5.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "Pre-Closing Period"), the Company
shall, and shall cause its Representatives to: (a) provide Parent and
Parent's Representatives with reasonable access to the Company's
Representatives, personnel and assets and to all existing books, records, Tax
Returns, work papers and other documents and information relating to the
Company; and (b) provide Parent and Parent's Representatives with copies of
such existing books, records, Tax Returns, work papers and other documents
and information relating to the Company, and with such additional financial,
operating and other data and information regarding the Company, as Parent may
reasonably request.
5.2 OPERATION OF THE COMPANY'S BUSINESS. During the Pre-Closing
Period, except pursuant to prior written consent of Parent, the Company
shall, and shall cause each of the other Acquired Corporations to:
(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) in each case, in all material respects 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
good will with all suppliers, customers, landlords, creditors, employees and
other Persons having business relationships with it;
(c) use reasonable efforts to keep in full force all insurance
policies identified in Part 2.18 of the Company Disclosure Schedule;
(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 (except that the Company may repurchase Company Common Stock
from former employees pursuant to the terms of existing restricted stock
purchase agreements);
(e) not sell, issue or authorize the issuance of (i) any capital
stock or other security, (ii) any option 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 (except that the Company
shall be permitted (x) to grant stock options to employees in accordance with
its
32.
<PAGE>
past practices, (y) to issue Company Common Stock to employees upon the
exercise of outstanding Company Options or Company Warrants, and (z) to issue
shares of Company Common Stock upon the conversion of shares of Series A
Preferred Stock);
(f) not amend or waive any of its rights under, or permit the
acceleration of vesting under, (i) any provision of the Company's 1988
Amended Stock Plan, (ii) any provision of any agreement evidencing any
outstanding Company Option or Company Warrants, or (iii) any provision of any
restricted stock purchase agreement;
(g) except as otherwise provided herein, not amend or permit the
adoption of any amendment to the Company's Certificate of Incorporation or
bylaws, or effect or permit the Company to become a party to any Acquisition
Transaction, recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction; to which each of the Designated
Stockholders also covenants;
(h) not form any subsidiary or acquire any equity interest or
other interest in any other Entity;
(i) not make any capital expenditure, 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 $150,000 in the aggregate;
(j) not (i) enter into, or permit any of the assets owned or used
by it to become bound by, any Contract that is or would constitute a Material
Company Contract, or (ii) amend or prematurely terminate, or waive any
material right or remedy under, any such Material Company Contract;
(k) except in compliance with the limits of subsection (i) above,
not (i) acquire, lease or license any right or other asset from any other
Person, (ii) sell or otherwise dispose of, or lease or license, any right or
other asset to any other Person, or (iii) waive or relinquish any right,
except for assets acquired, leased, licensed or disposed of by the Acquired
Corporations pursuant to Contracts that are not Material Company Contracts;
(l) not (i) lend money to any Person or (ii) incur or guarantee
any indebtedness for borrowed money (except that the Company may make routine
borrowings in the ordinary course of business under its line of credit with
Imperial Bank);
(m) except as set forth in the Company Disclosure Schedule, not
(i) establish, adopt or amend any Employee Benefit Plan, (ii) pay any bonus
or make any profit-sharing payment, cash incentive payment 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 for items accrued and approved by Parent or
pursuant to agreements in effect on the date hereof, or in accordance with
the Company's past practices, or (iii) hire any new indirect employee whose
aggregate annual compensation from the Company is expected to exceed $40,000;
33.
<PAGE>
(n) not change any of its methods of accounting or accounting
practices in any material respect; and, with respect to determinations of
Working Capital, not change any of its methods of accounting or accounting
practices whatsoever, except the Company shall change its methods of
accounting or accounting practices with respect to determinations of Working
Capital to the extent reasonably requested by Parent to ensure compliance
with Generally Accepted Accounting Principles, consistently applied ("GAAP");
(o) not make any Tax election;
(p) not commence or settle any material Legal Proceeding; and
(q) not agree or commit to take any of the actions described in
clauses "(d)" through "(p)" above.
5.3 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 of the Designated
Stockholders in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty made
by the Company or any of the Designated Stockholders 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 (and each Designated Stockholder shall promptly notify Parent in
writing of any breach of any covenant or obligation of such Designated
Stockholder set forth herein); and
(iv) any event, condition, fact or circumstance that would
make the timely satisfaction of any of the conditions set forth in Section 8
or Section 9 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required
to be disclosed pursuant to Section 5.3(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
34.
<PAGE>
purpose of (i) determining the accuracy of any of the representations and
warranties made by the Company or any of the Designated Stockholders in this
Agreement, or (ii) determining whether any of the conditions set forth in
Section 8 has been satisfied; provided, however, that if Closing occurs, the
Company Disclosure Schedule shall be deemed to be modified at such time by
such update.
5.4 NO NEGOTIATION. During the Pre-Closing Period, neither the Company
nor any of the Designated Stockholders shall, directly or indirectly:
(a) solicit or encourage the initiation of any inquiry, proposal
or offer from any Person (other than Parent) relating to a possible
Acquisition Transaction;
(b) participate in any discussions or negotiations or enter into
any agreement with, or provide any non-public information or afford access to
the properties, books or records of Company to any Person (other than Parent)
relating to or in connection with a possible Acquisition Transaction; or
(c) consider, entertain or accept (subject to Section 10.1(e)) any
proposal or offer from any Person (other than Parent) relating to a possible
Acquisition Transaction.
The parties acknowledge that any breach of the foregoing provisions by any
officer, director or agent (including any employee of the Company acting as
agent) of any of the Acquired Corporations shall be deemed a breach by the
Company.
This Section 5.4 does not prohibit the Company from furnishing information
regarding the Company or entering into discussions with any Person in
response to an unsolicited bona fide written proposal or offer relating to a
possible Acquisition Transaction submitted by such Person if the Board of
Directors of the Company concludes in good faith, after consultation with
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 stockholders under applicable law.
The Company shall promptly notify Parent in writing of any material inquiry,
proposal or offer relating to a possible Acquisition Transaction that is
received by the Company or any of the Designated Stockholders during the
Pre-Closing Period.
5.5 ESOP COVENANTS
(a) The Company shall take such action as is necessary to ensure
that the requirements of Section 409(e) of the Code and the fiduciary
provisions of ERISA are satisfied in connection with the voting of the ESOP
Shares upon the Merger at the Company Stockholders' Meeting.
(b) The Company agrees to take, during the Pre-Closing Period and
thereafter, such actions, if any, as Parent deems reasonably necessary in
Parent's discretion to obtain assurances satisfactory to Parent as to (i) the
qualification of the Company ESOP under Section 401(a) and 4975(e)(7) of the
Code and (ii) the compliance by the Company, the Company ESOP and the ESOP
Trust with applicable Legal Requirements, including ERISA and
35.
<PAGE>
the Code, in connection with the establishment, operation and maintenance of
the Company ESOP and the availability of the intended benefits and
consequences associated with the Company ESOP and the ESOP Transactions. No
such actions taken by Parent or the Company shall in any way limit or
diminish the rights of any Indemnitees under this Agreement to recover or be
indemnified for Indemnitee Damages, as defined herein.
SECTION 6. CERTAIN COVENANTS OF PARENT
6.1 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 (b) provide the Company and the Company's Representatives with copies of
such existing books, records, Tax Returns, work papers and other documents
and information relating to Parent, and with such additional financial,
operating and other data and information regarding Parent, as the Company may
reasonably request.
6.2 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;
(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 8
or Section 9 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required
to be disclosed pursuant to Section 6.2(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)
36.
<PAGE>
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 9 has been satisfied.
SECTION 7. ADDITIONAL COVENANTS OF THE COMPANY AND PARENT
7.1 FILINGS AND CONSENTS. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (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 all commercially reasonable
efforts to obtain all Consents (if any) required to be obtained (pursuant to
any applicable Legal Requirement or Contract, or otherwise) by such party in
connection with the Merger and the other transactions contemplated by this
Agreement. The Company shall (upon request) promptly deliver to Parent a
copy of each such filing made, each such notice given and each such Consent
obtained by the Company during the Pre-Closing Period.
7.2 COMPANY STOCKHOLDERS' MEETING. The Company shall, in accordance
with its Certificate of Incorporation and By-laws, the applicable
requirements of the Delaware General Corporation Law and SEC requirements
with respect to preparation and mailing of the Prospectus/Proxy Statement,
call and hold a special meeting of its stockholders (or if agreed upon by the
Company and Parent, solicit the vote of its stockholders by way of written
consent) as promptly as practicable for the purpose of permitting them to
consider and to vote upon and approve the Merger and this Agreement (for
purposes of this Agreement, such meeting, or the time at which the Company
shall have received such written consent from the stockholders of the Company
shall be referred to as the "Company Stockholders' Meeting"). As soon as
permissible under the rules of the Delaware General Corporation Law, the
Company shall solicit the vote of its stockholders with respect to the Merger
and the transactions contemplated hereby.
7.3 PUBLIC ANNOUNCEMENTS. During the Pre-Closing Period, (a) neither
the Company nor any of the Designated Stockholders shall (and the Company
shall not permit any of its Representatives to) issue any press release or
make any public statement regarding this Agreement or the Merger, or
regarding any of the other transactions contemplated by this Agreement,
without Parent's prior written consent, which shall not be unreasonably
withheld, and (b) Parent will use reasonable efforts to consult with the
Company prior to issuing any press release or making any public statement
regarding the Merger.
7.4 POOLING OF INTERESTS. During the Pre-Closing Period, no party to
this Agreement shall take any action that could reasonably be expected to
have an adverse effect on the ability of Parent to account for the Merger as
a "pooling of interests."
7.5 AFFILIATE AGREEMENTS. Each Designated Stockholder shall execute
and deliver to Parent, and the Company shall use all commercially reasonable
efforts to cause each other Person identified on Exhibit D-2 (and any other
Person that could reasonably be deemed to be an "affiliate" of the Company
for purposes of the Securities Act), to execute and deliver to Parent, as
promptly as practicable after the execution of this Agreement, an Affiliate
Agreement in the form of Exhibit D-1.
37.
<PAGE>
7.6 BEST EFFORTS. During the Pre-Closing Period, (a) the Company and
the Designated Stockholders shall use their best efforts to cause the
conditions set forth in Section 8 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 9 to be satisfied on a timely basis.
7.7 REGISTRATION STATEMENT; 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 stockholders in the Merger (the "S-4 Registration
Statement"), in which a Prospectus/Proxy Statement will be included as a
prospectus (the "Prospectus/Proxy Statement"), 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 Prospectus/Proxy
Statement) 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. The Company will use
all reasonable efforts to cause the Prospectus/Proxy Statement to be mailed
to the Company's stockholders, 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 stockholders that may be required or
reasonably requested in connection with any action contemplated by this
Section 7.7. 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 Prospectus/Proxy Statement, 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 stockholders 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 stockholders entitled to notice of and to
vote upon this Agreement and the Merger as provided herein; 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.
7.8 REGULATORY APPROVALS. In addition to the obligations of the
parties set forth in the preceding section, 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
38.
<PAGE>
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.
7.9 TAX MATTERS. Prior to Closing and prior to the filing of the S-4
Registration Statement, and as soon as practicable after the execution of
this Agreement, Parent and the Company shall execute and deliver, to Cooley
Godward LLP and to Jenkens & Gilchrist, P.C., tax representation letters in
substantially the form of Exhibit E and Exhibit F, respectively (which will
be relied upon in connection with the legal opinions contemplated by Sections
8.5(e) and 9.3(b)).
7.10 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)(l)(i) of the
United States Treasury Regulations, and (b) the Company may deliver to the
Internal Revenue Service the notification required under Section
1.897-2(h)(2) of the United States Treasury Regulations.
7.11 RELEASE. At the Closing, each of the Designated Stockholders shall
execute and deliver to the Company a Release in the form of Exhibit G.
7.12 TREATMENT OF EMPLOYEE PLANS AND BENEFITS. Except as otherwise
agreed to by Parent and the Company, Parent shall ensure that upon the
Closing, the benefit plans and benefit arrangements of employees of the
Company will remain unchanged. By year end, benefits will be reviewed in
consonance with Parent benefit plans and arrangements, applicable law and
marketplace factors.
7.13 "POST-CLOSING" INSURANCE. The parties hereto will cooperate and
otherwise use best efforts to ensure that, prior to the Closing, either
Company, Parent or Merger Sub shall obtain a one (1) year (subject to the
timing requirements of Section 10 and 11 hereof) insurance policy (with an
aggregate coverage limit in excess of $5 million) effective no later than the
Effective Time, covering, pursuant to terms reasonably acceptable to Parent
and the Designated
39.
<PAGE>
Stockholders, the representations and warranties of the Designated
Stockholders set forth in Section 4 hereof (the "Representation and Warranty
Insurance"). The parties hereto agree to comply with the provisions of the
Representation and Warranty Insurance and to not take action that would limit
its availability or effectiveness.
7.14 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) Parent and the Company agree to provide indemnification in
favor of any director or officer of the Company and its Subsidiaries (the
"Indemnified Parties"), as currently provided in their respective
certificates of incorporation or by-laws, or in an agreement between an
Indemnified Party and the Company or one of its Subsidiaries set forth in
Part 7.15 of the Company Disclosure Schedule, and rights to indemnification
shall survive the Merger and shall continue in full force and effect for a
period of six years after the Effective Time; provided that in the event any
claim or claims are asserted or made within such six-year period, all rights
to indemnification in respect to any such claim shall continue until final
disposition of such claim.
(b) Parent agrees that from and after the Effective Time, the
Surviving Corporation shall cause to be maintained in effect for one year
after the Effective Time a policy of directors' and officers' liability
insurance covering the directors and officers of the Company (as of
immediately prior to the Effective Time) in their capacity as such; and
Parent shall secure such policy prior to the Closing.
7.15 EARNINGS RELEASE. Parent shall use best efforts to, as soon as
practicable following the Closing, issue a press release disclosing, or
otherwise publish as contemplated by applicable rules and regulations
relating to "pooling of interests" accounting, thirty days' operations of the
Surviving Corporation; which disclosure shall be no later than the time of
filing of Parent's report on Form 10-Q for the quarter next ended following
the date that is 30 days following the Closing.
SECTION 8. 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:
8.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Company and the Designated Stockholders 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, or any similar qualifications, contained or
incorporated directly or indirectly in such representations and warranties),
and shall be accurate in all material respects as of the Scheduled Closing
Time as if made at the Scheduled Closing Time (without giving double effect
to any update to the Company Disclosure Schedule not consented to in writing
by Parent, and without giving effect to any "Material Adverse Effect" or
other materiality qualifications, or any similar qualifications, contained or
incorporated directly or indirectly in such representations and warranties).
40.
<PAGE>
8.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations
that the Company and the Designated Stockholders are required to comply with
or to perform at or prior to the Closing shall have been complied with and
performed in all respects at or prior to Closing.
8.3 STOCKHOLDER APPROVAL. The principal terms of the Merger shall have
been duly approved at the Company Stockholders' Meeting as necessary for
approval under the Delaware General Corporation Law (at least a majority of
the Company Common Stock, voting as a class, and two-thirds (2/3) of the
Series A Preferred Stock, voting as a class); and the holders of not more
than 10% of the outstanding shares of the Company shall have exercised
dissenters rights as described in Section 1.9.
8.4 CONSENTS. All material Consents required to be obtained in
connection with the Merger and the other transactions contemplated by this
Agreement (including the Consents identified in Part 2.22 of the Company
Disclosure Schedule) shall have been obtained and shall be in full force and
effect.
8.5 AGREEMENTS AND DOCUMENTS. Parent and the Company, as provided
herein, shall have received the following agreements and documents, each of
which shall be in full force and effect:
(a) Affiliate's Agreements in the form of Exhibit D-1 executed by
any Person who could reasonably be deemed to be an "affiliate" of the Company
for purposes of the Securities Act;
(b) a Release in the form of Exhibit G, executed by the Designated
Stockholders;
(c) to the extent reasonably requested by Parent, confidential
invention and assignment agreements, reasonably satisfactory in form and
content to Parent, executed by all employees of the Company and by all
consultants and independent contractors to the Company who have not already
signed such agreements (including the individuals identified in Part 2.9(f)
of the Company Disclosure Schedule);
(d) a legal opinion of Jenkens & Gilchrist, P.C., dated as of the
Closing Date, in the form of Exhibit H;
(e) a legal opinion of Cooley Godward LLP dated as of the Closing
Date, to the effect that the Merger will constitute a reorganization within
the meaning of Section 368 of the Code (it being understood that, in
rendering such opinion, such counsel may rely upon the tax representation
letters referred to in Section 7.9);
(f) a letter from Arthur Andersen LLP, dated as of the Closing
Date, confirming that no transaction entered into by the Company, and no
other fact or circumstance relating to the Company, will prevent Parent from
accounting for the Merger as a "pooling of interests" in accordance with
generally accepted principles, Accounting Principles Board Opinion No. 16 and
all published rules, regulations and policies of the SEC;
41.
<PAGE>
(g) a certificate executed by the Company's Chief Executive
Officer (solely in his capacity as such and not in his capacity as a
Designated Stockholder) and containing the representation and warranty that
each of the representations and warranties set forth in Section 2 is accurate
in all respects as of the Closing Date as if made on the Closing Date and
that the conditions set forth in Sections 8.1, 8.2, 8.3 and 8.4 have been
duly satisfied (the "Company Closing Certificate"); and
(h) if requested by Parent, written resignations of all officers
and directors of the Acquired Corporations and the Company ESOP Trustees and
401(k) Trustees, effective as of the Effective Time, except as otherwise
provided herein or otherwise agreed by Parent and the Company.
8.6 FIRPTA COMPLIANCE. The Company shall have filed with the Internal
Revenue Service the notification referred to in Section 7.10(b).
8.7 COMPLIANCE WITH THE SECURITIES ACT. All applicable requirements of
the Securities Act and state securities laws shall have been satisfied.
8.8 LISTING. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for listing (subject to notice of issuance)
on the New York Stock Exchange.
8.9 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.
8.10 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.
8.11 NO LEGAL PROCEEDINGS. No Person shall have commenced or threatened
to commence any Legal Proceeding challenging or seeking the recovery of a
material amount of damages in connection with the Merger or seeking to
prohibit or limit the exercise by Parent of any material right pertaining to
its ownership of stock of the Surviving Corporation.
8.12 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act (if applicable) shall have expired or been
terminated.
8.13 AVERAGE SALES PRICE. The Average Sales Price shall be less than or
equal to $8.75 per share.
8.14 STOCK VOTING AGREEMENT. The Stock Voting Agreement shall be in
full force and effect and enforceable against each Designated Stockholder.
8.15 TAX REPRESENTATION LETTERS. Each of Parent and the Company shall
have executed and delivered a tax representation letter as set forth in
Section 7.9.
42.
<PAGE>
8.16 REPRESENTATION AND WARRANTY INSURANCE. The Representation and
Warranty Insurance shall have been purchased and shall be in full force and
effect.
SECTION 9. 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 the following conditions:
9.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement and in each of the
other agreements and instruments delivered to Company in connection herewith,
shall have been accurate in all material respects as of the date of this
Agreement (without giving effect to any "Materially Adverse Effect" or other
materiality qualifications, or any similar qualifications, contained or
incorporated directly or indirectly in such representations and warranties),
and shall be accurate in all material respects as of the Scheduled Closing
Time as if made at the Scheduled Closing Time (without giving effect to any
"Material Adverse Effect" or other materiality qualifications, or any similar
qualifications, contained in such representations and warranties).
9.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations
that Parent and Merger Sub are required to comply with or to perform at or
prior to the Closing shall have been complied with and performed in all
respects.
9.3 DOCUMENTS. The Company shall have received the following documents:
(a) a legal opinion of Cooley Godward LLP, dated as of the Closing
Date, in the form of Exhibit I;
(b) a legal opinion of Jenkens & Gilchrist, P.C., dated as of the
Closing Date, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368 of the Code (it being understood that, in
rendering such opinion, such counsel may rely upon the tax representation
letters referred to in Section 7.9); provided, however, that if such counsel
does not render such opinion, this condition shall nonetheless be deemed
satisfied with respect to the Company if Cooley Godward LLP renders such
opinion to the Company; and
(c) a certificate executed by Parent's Chief Executive Officer and
containing the representation and warranty that each of the representations
and warranties set forth in Section 4 is accurate in all respects as of the
Closing Date as if made on the Closing Date and that the conditions set forth
in Sections 9.1 and 9.2 have been duly satisfied (the "Parent Closing
Certificate"); and
9.4 LISTING. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for listing (subject to notice of issuance)
on the New York Stock Exchange.
9.5 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
43.
<PAGE>
Requirement enacted or deemed applicable to the Merger that makes
consummation of the Merger illegal.
9.6 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.
9.7 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act (if applicable) shall have expired or been
terminated.
9.8 AVERAGE SALES PRICE. The Average Sales Price shall be greater than
or equal to $5.25 per share.
SECTION 10. TERMINATION
10.1 TERMINATION EVENTS. This Agreement may be terminated prior to the
Closing without either party (except as provided in Section 10.1(e))
incurring any termination fee:
(a) by Parent if Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 8 (other than as related
to the Company Stockholders' Meeting covered by Section 7.2) has become
impossible (other than as a result of any failure on the part of Parent or
Merger Sub to comply with or perform any covenant or obligation of Parent or
Merger Sub set forth in this Agreement);
(b) by the Company if the Company reasonably determines that the
timely satisfaction of any condition set forth in Section 9 has become
impossible (other than as a result of any failure on the part of the Company
or any of the Designated Stockholders to comply with or perform any covenant
or obligation set forth in this Agreement or in any other agreement or
instrument delivered to Parent);
(c) by Parent if the Closing has not taken place on or before June
30, 1998 (other than as a result of any failure on the part of Parent to
comply with or perform any covenant or obligation of Parent set forth in this
Agreement);
(d) by the Company if the Closing has not taken place on or before
June 30, 1998 (other than as a result of the failure on the part of the
Company or any of the Designated Stockholders to comply with or perform any
covenant or obligation set forth in this Agreement or in any other agreement
or instrument delivered to Parent);
(e) by the Company (at any time prior to stockholder approval of
this Agreement, the Merger and the transactions contemplated hereby) if,
pursuant to and in compliance with Section 5.4, the Company and its Board of
Directors conclude in good faith that the Company must accept an unsolicited
bona fide written proposed Acquisition Transaction which could reasonably be
expected to result in a transaction that is more favorable to the Company's
stockholders than the Merger (any such more favorable proposed Acquisition
Transaction being referred to in this Agreement as a "Superior Proposal");
PROVIDED, HOWEVER, that if this Agreement is terminated pursuant to this
Section 10.1(e), the Company shall pay to
44.
<PAGE>
Parent a nonrefundable fee of $250,000 in cash (and no additional fee will be
required under Section 10.3) upon the Company's (or its Board of Directors')
election to accept such Superior Proposal. In reaching such conclusion, the
Board of Directors shall consult with outside legal counsel(and other
advisors as appropriate);
(f) by the mutual consent of Parent and the Company; or
(g) by Parent as provided in Section 10.3.
10.2 TERMINATION PROCEDURES. If Parent wishes to terminate this
Agreement pursuant to Section 10.1(a), Section 10.1(c) or Section 10.1(f),
Parent shall deliver to the Company prompt written notice stating that Parent
is terminating this Agreement and setting forth a brief description of the
basis on which Parent is terminating this Agreement. If the Company wishes
to terminate this Agreement pursuant to Section 10.1(b), Section 10.1(d) or
Section 10.1(e), the Company shall deliver to Parent prompt written notice
stating that the Company is terminating this Agreement and setting forth a
brief description of the basis on which the Company is terminating this
Agreement.
10.3 TERMINATION FEES.
(a) Parent may terminate this Agreement immediately (unless
already terminated as provided in subsection (iii) below) and the Company
shall pay to Parent a termination fee of $250,000, payable upon termination
of this Agreement, if (i) at any time prior to the Closing Date, Company
accepts a third party proposal or offer relating to a possible Acquisition
Transaction that it determines is more favorable than the proposal or offer
by Parent; (ii) the Company fails to complete the Company Stockholders'
Meeting as required herein or if the stockholders of the Company fail to
approve the Merger and this Agreement at the Company Stockholders' Meeting;
or (iii) the Company terminates this Agreement other than pursuant to Section
10.1.
(b) Parent shall pay to the Company a termination fee of $250,000,
payable upon termination of this Agreement, if Parent terminates this
Agreement other than pursuant to Section 10.1 or this Section 10.3.
10.4 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 10.1, all further obligations of the parties under this Agreement
shall terminate; provided, however, that: (a) neither the Company nor Parent
shall be relieved of any obligation or liability arising from any prior
breach by such party of any provision of this Agreement or any obligation to
pay a termination fee as set forth in Section 10.3; (b) the parties shall, in
all events, remain bound by and continue to be subject to the provisions set
forth in Section 12; and (c) the Company shall, in all events, remain bound
by and continue to be subject to Section 7.3.
45.
<PAGE>
SECTION 11. SURVIVAL OF REPRESENTATIONS, ETC.; INDEMNIFICATION, ETC.
11.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) Subject to the indemnification limitations set forth in
Section 11.2, the representations and warranties made by the Designated
Stockholders in Section 3 shall survive the Closing and shall expire on the
first anniversary of the Closing Date (the "Claim Deadline"); provided,
however, that if, at any time prior to the first anniversary of the Closing
Date, any Indemnitee (acting in good faith) delivers to any of the Designated
Stockholders or the appropriate Person under the terms of the Representation
and Warranty Insurance, a written notice asserting a claim for recovery under
Section 11.2, then the claim asserted in such notice shall survive the first
anniversary of the Closing until such time as such claim is fully and finally
resolved. All representations and warranties made by Parent, Merger Sub and
the Company shall terminate and expire as of the Effective Time, and any
liability of Parent, Merger Sub, or Company with respect to such
representations and warranties shall thereupon cease.
(b) The representations, warranties, covenants and obligations of
the parties hereto, and (except as provided herein) the rights and remedies
that may be exercised pursuant hereto, shall not be limited or otherwise
affected by or as a result of any information furnished to or any
investigation made by or knowledge of (except as provided herein or in the
Company Disclosure Schedule), any of the parties or any of their
Representatives.
(c) For purposes of this Agreement, each statement or other item
of information set forth in the Company Disclosure Schedule or in any update
to the Company Disclosure Schedule shall be deemed to be a representation and
warranty made by the Company in this Agreement.
11.2 INDEMNIFICATION.
(a) From and after the Effective Time (but subject to Section
10.1(a)), Indemnitees shall be held harmless and indemnified under the terms
of the Representation and Warranty Insurance from and against, and shall be
compensated and reimbursed out of the Representation and Warranty Insurance
for, any Damages which are directly or indirectly suffered or incurred by any
of the Indemnitees or to which any of the Indemnitees may otherwise become
subject (regardless of whether or not such Damages relate to any third-party
claim) and which arise from or as a result of, or are directly or indirectly
connected with: (i) any inaccuracy in or breach of any representation or
warranty of the Designated Stockholders set forth in Section 3; (ii) any
Legal Proceeding relating to any inaccuracy or breach of the type referred to
in clause "(i)" above (including any Legal Proceeding commenced by any
Indemnitee for the purpose of enforcing any of its rights under this Section
11.
(b) The Parties acknowledge and agree that, if the Surviving
Corporation suffers, incurs or otherwise becomes subject to any Damages as a
result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation of the Designated
Stockholders set forth in Section 3, then (without limiting any of the rights
of the Surviving Corporation as an Indemnitee) Parent shall also be deemed,
by virtue of its ownership
46.
<PAGE>
of the stock of the Surviving Corporation, to have incurred Damages as a
result of and in connection with such inaccuracy or breach.
11.3 LIMITS ON INDEMNIFICATION AND LIABILITY. The only liability of the
Designated Stockholders under Sections 11.2, 11.4 and 11.5 shall be limited
to the amount actually recovered by the Indemnitee(s) under the
Representation and Warranty Insurance.
11.4 INTEREST. Any Indemnitee provided indemnification pursuant to this
Section 11 with respect to any Damages shall also be entitled to receive
interest on the amount of such Damages (for the period commencing as of the
date of a claim for recovery by such Indemnitee and ending on the date on
which the liability to such Indemnitee is fully satisfied pursuant hereto) at
a floating rate equal to the rate of interest publicly announced by Bank of
America, N.T. & S.A. from time to time as its prime, base or reference rate.
11.5 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against
the Surviving Corporation, against Parent or against any other Person) with
respect to which any Indemnitee may be entitled to payment pursuant to this
Section 11, Parent shall have the right, at its election, to proceed with the
defense of such claim or Legal Proceeding on its own. If Parent so proceeds
with the defense of any such claim or Legal Proceeding:
(a) all reasonable expenses relating to the defense of such claim
or Legal Proceeding shall be borne and paid exclusively out of the
Representation and Warranty Insurance;
(b) the parties shall use reasonable efforts to make available to
Parent any documents and materials in their possession or control that may be
necessary to the defense of such claim or Legal Proceeding; and
(c) Parent shall have the right to settle, adjust or compromise
such claim or Legal Proceeding as permitted under the terms of the
Representation and Warranty Insurance.
11.6 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT. No
Indemnitee (other than Parent or any successor thereto or assign thereof)
shall be permitted to assert any indemnification claim or exercise any other
remedy under this Agreement unless Parent (or any successor thereto or assign
thereof) shall have consented to the assertion of such indemnification claim
or the exercise of such other remedy.
SECTION 12. MISCELLANEOUS PROVISIONS.
12.1 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.
12.2 FEES AND EXPENSES. 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
47.
<PAGE>
incurred 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 Parent and its Representatives with respect to the Company's business (and
the furnishing of information to Parent and its Representatives in connection
with such investigation and review), (b) the negotiation, preparation and
review of this Agreement (including the Company Disclosure Schedule) 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 any Consent required to
be obtained in connection with any of such transactions, and (d) the
consummation of the Merger; provided, and Parent shall bear the filing 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 stockholder under the
HSR Act shall be borne exclusively by the Company.
12.3 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled.
12.4 NOTICES. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and
shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail, by courier or express delivery service or by
facsimile) to the address or facsimile 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:
The Titan Corporation
Attn: Legal Department
3033 Science Park Road
San Diego, CA 92121
Telephone: (619) 552-9500
Facsimile: (619) 552-9759
with a copy to: Cooley Godward LLP
Attn: M. Wainwright Fishburn, Esq.
4365 Executive Drive, Suite 1100
San Diego, California 92121
Telephone: (619) 550-6000
Facsimile: (619) 453-3555
48.
<PAGE>
if to the Company:
Horizons Technology, Inc.
Attn: Chief Executive Officer
3990 Ruffin Road
San Diego, CA 92123
Telephone: (619) 292-8331
Facsimile: (619) 292-9439
with a copy to: Jenkens & Gilchrist, P.C.
Attn: Donald M. Barnes
Andrew L. Lynch
1919 Pennsylvania Avenue, N.W., Ste. 600
Washington, D.C. 20006-3404
Telephone: (202) 326-1500
Facsimile: (202) 326-1555
if to the Designated Stockholders (respectively):
J.P. (Pat) Boyce
111 West Quince Street
San Diego, CA 92103
Dr. James T. Palmer
6157 Calle Vera Cruz
La Jolla, CA 92037
Earl A. Pontius
444 Old Stonebrook
Nagog Woods, MA 01718
12.5 CONFIDENTIALITY. Without limiting the generality of anything
contained in Section 7.3, on and at all times after the Closing Date, each
Designated Stockholder shall keep confidential, and shall not use or disclose
to any other Person, any non-public document or other non-public information
in such Designated Stockholder's possession that relates to the business of
the Company or Parent; provided, however, agreement among the parties with
respect to confidentiality and proprietary information shall remain in full
force and effect, unaffected by the execution of this Agreement or by the
Merger.
12.6 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
49.
<PAGE>
12.7 HEADINGS. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
12.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
12.9 GOVERNING LAW. 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), except to the
extent the Delaware General Corporation Law governs.
12.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon:
the Company and its successors and assigns (if any); the Designated
Stockholders and their respective personal representatives, executors,
administrators, estates, heirs, successors and assigns (if any); Parent and
its successors and assigns (if any); and Merger Sub and its successors and
assigns (if any). This Agreement shall inure to the benefit of: the Company;
the Company's stockholders (to the extent set forth in Section 1.5); the
holders of assumed Company Options and Company Warrants (to the extent set
forth in Section 1.6); the Designated Stockholders; Parent; Merger Sub; the
other Indemnitees (subject to Section 11.2); and the respective successors
and assigns (if any) of the foregoing. Parent may not assign any or all of
its rights under this Agreement to an unrelated Entity, in whole or in part,
without obtaining the prior written consent of the Company; and neither the
Company nor any Designated Stockholder may assign any or all of its rights
hereunder, in whole or in part, without obtaining the prior written consent
of Parent.
12.11 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.
12.12 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
50.
<PAGE>
executed and delivered on behalf of such Person; and any such waiver shall
not be applicable or have any effect except in the specific instance in which
it is given.
12.13 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.
12.14 SEVERABILITY. In the event that any provision of this
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as
to which it is determined to be invalid, unlawful, void or unenforceable,
shall not be impaired or otherwise affected and shall continue to be valid
and enforceable to the fullest extent permitted by law.
12.15 PARTIES IN INTEREST. Except for the provisions of Sections
1.5, 1.6 and 11, none of the provisions of this Agreement is intended to
provide any rights or remedies to any Person other than the parties hereto
and their respective successors and assigns (if any).
12.16 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 thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof; provided, however, that any agreement
with respect to confidentiality or proprietary information executed on behalf
of Parent and the Company prior to the date hereof shall not be superseded by
this Agreement and shall remain in effect in accordance with its terms and
until the earlier of (a) the Effective Time, or (b) the date on which such
agreement is terminated in accordance with its terms.
12.17 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.
51.
<PAGE>
The parties hereto have caused this Agreement to be executed and
delivered as of February 26, 1998.
THE TITAN CORPORATION,
a Delaware corporation
By: /s/Eric M. DeMarco, Chief Financial Officer
-------------------------------------------
Eric M. DeMarco, Chief Financial Officer
SUNRISE ACQUISITION SUB, INC,
a Delaware corporation
By: /s/Cheryl F. Barr, Secretary
------------------------------------------
------------------------------------------
[Print Name and Title]
HORIZONS TECHNOLOGY, INC.,
a Delaware corporation
By: /s/James T. Palmer, CEO
------------------------------------------
------------------------------------------
[Print Name and Title]
THE DESIGNATED STOCKHOLDERS:
/s/J.P. (Pat) Boyce
------------------------------------------
J.P. (Pat) Boyce
/s/Dr. James T. Palmer
------------------------------------------
Dr. James T. Palmer
/s/Earl A. Pontius
------------------------------------------
Earl A. Pontius
52.
<PAGE>
EXHIBIT A
DESIGNATED STOCKHOLDERS
James T. Palmer
J. Patrick Boyce
Earl A. Pontius
A-1
<PAGE>
EXHIBIT B
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit B):
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 material Contract: (a) to which the Company or any other Acquired
Corporation is a party; (b) by which the Company or any other Acquired
Corporation or any assets of any of them is or may become bound or under
which the Company or any other Acquired Corporation has, or may become
subject to, any obligation; or (c) under which the Company or any other
Acquired Corporation has or may acquire any right or interest.
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license, disposition or acquisition of all or a
material portion of the Company's business or assets;
(b) the issuance, disposition or acquisition of (i) any capital
stock or other equity security of the Company (other than common stock
issued to employees of the Company, upon exercise of Company Options or
otherwise, in routine transactions in accordance with the Company's past
practices), (ii) any option, call, warrant or right (whether or not
immediately exercisable) to acquire any capital stock or other equity
security of the Company (other than stock options granted to employees of
the Company in routine transactions in accordance with the Company's past
practices), or (iii) any security, instrument or obligation that is or may
become convertible into or exchangeable for any capital stock or other
equity security of the Company; or
(c) any merger, consolidation, business combination, reorganization
or similar transaction involving the Company.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit B is attached (including the Company
Disclosure Schedule), as it may be amended from time to time.
COMMERCIAL CONTRACT. "Commercial Contract" shall mean any customer
Contract [relating to the Company's commercial division] entered into by the
Company that contemplates or includes (A) the payment or delivery of cash or
other consideration in an amount of having a value in excess of $10,000 in the
aggregate, or (B) the performance of services having a value in excess of
$10,000 in the aggregate.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall mean the
schedule (dated as of the date of the Agreement) delivered to Parent on behalf
of the Company.
B-1
<PAGE>
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or any other Acquired
Corporation or otherwise used by the Company or any other Acquired
Corporation.
COMPANY STOCKHOLDERS' MEETING. "Company Stockholders' Meeting" shall
have the meaning set forth in Section 7.2.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental
Authorization).
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, decline in
value, lost opportunity, 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.
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 (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
ESOP LENDER. "ESOP Lender" shall mean the lender with respect to any
loan arrangement by and between the Company and such ESOP Lender ("ESOP
Outside Loan Agreement").
ESOP LOANS. "ESOP Loans" shall mean any loan from an ESOP Lender to the
Company pursuant to an ESOP Outside Loan Agreement and any loan from the
Company to the Company ESOP ("ESOP Inside Loan Agreement").
ESOP SHARES. "ESOP Shares" shall mean any equity securities of any
Acquired Corporation held beneficially or of record by the Company ESOP.
ESOP STOCK PURCHASE AGREEMENT. "ESOP Stock Purchase Agreement" shall
any stock agreement relating to the ESOP Shares.
ESOP TRANSACTION DOCUMENTS. "ESOP Transaction Documents" shall mean any
and all of the ESOP Stock Purchase Agreement, ESOP Outside Loan Agreement,
ESOP Inside Loan Agreement and such other agreements entered into in
connection with the transactions
B-2
<PAGE>
contemplated thereby or the consummation thereof or performance thereunder,
and all amendments, modifications and supplements thereto.
ESOP TRANSACTIONS. "ESOP Transactions" shall mean the transactions
contemplated by the ESOP Transaction Documents and such other transactions
entered into in connection with the consummation thereof or performance
thereunder.
ESOP TRUST. "ESOP Trust" shall mean the trust established pursuant to
the Company ESOP to hold the assets of the Company ESOP.
ESOP TRUSTEE. "ESOP Trustee" shall mean the trustee(s) of the ESOP
Trust pursuant to the Company ESOP.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
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 or subcontractor otherwise has or may acquire
any right or interest; and shall constitute a Contract as determined herein.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any: (a) permit, license, 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, 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, instrumentality, official, organization, unit, body or
Entity and any court or other tribunal).
HSR ACT. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
INDEMNITEES. "Indemnitees" shall mean Parent and any other insured
party under the Representation and Warranty Insurance.
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-3
<PAGE>
(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 as a
director, officer, partner, executor, or trustee of such Person (or in any
similar capacity) has knowledge of such fact or other matter.
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.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on the Company if such violation or other
matter (considered together with all other matters that would constitute
exceptions to the representations and warranties set forth in the Agreement
or in the Company Closing Certificate 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 business, condition, assets, liabilities, operations,
financial performance or prospects of the Acquired Corporations, considered
as a whole.
MATERIAL COMPANY CONTRACT. "Material Company Contract" shall have the
meaning set forth in Section 2.10(a).
NYSE. "NYSE" shall mean the New York Stock Exchange.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
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, application,
trade secret, know-how, customer list, franchise, system, computer software,
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.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
B-4
<PAGE>
RELATED PARTY. "Related Party" shall mean (i) each of the Designated
Stockholders; (ii) each individual who is, or who has at any time since
January 31, 1995 been, an officer any of the Acquired Corporations; (iii)
each member of the immediate family of each of the individuals referred to in
clauses "(i)" and "(ii)" above; and (iv) any trust or other Entity (other
than the Acquired Corporations) in which any one of the individuals referred
to in clauses "(i)", "(ii)" and "(iii)" above holds (or in which more than
one of such individuals collectively hold), beneficially or otherwise, a
material voting, proprietary or equity interest.
S-4 REGISTRATION STATEMENT. "S-4 Registration Statement" shall have the
meaning set forth in Section 7.7(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.
STOCKHOLDERS. "Stockholders" shall mean all stockholders of the Company
immediately prior to the Closing whose shares of Company Common Stock are
converted into shares of Parent Common Stock at the Closing as a result of
the Merger, and shall include the Designated Stockholders.
SUPERIOR PROPOSAL. "Superior Proposal" shall have the meaning set forth
in Section 10.1(e).
TAX. "Tax" 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,
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.
WORKING CAPITAL. "Working Capital" shall mean tangible current assets
less current liabilities, excluding any intercompany payables and
receivables, prepaid salaries and notes receivable from affiliated parties,
as determined in accordance with GAAP; provided, however, that, consistent
with the Company's presentation with respect to working capital set forth in
Appendix 2.4(a)(ii) to the Company Disclosure Schedule, current liabilities
shall not include accrued rent for any period subsequent to January 31, 1998,
"reserves" of $100,000 or up to $175,000 of costs and expenses ("Merger
Expenses") of the Company associated with the Merger. Notwithstanding the
foregoing, the Merger Expenses shall include financial advisor costs and
expenses not in excess of $25,000. Further, $50,000 in premiums for
insurance policies obtained pursuant to the terms of this Agreement shall be
included as current liabilities as part of the Working Capital calculation.
B-5
<PAGE>
EXHIBIT C
DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
<TABLE>
<CAPTION>
DIRECTORS
- -----------------------
<S> <C>
Earl A. Pontius
Gene W. Ray
John L. Slack
J. S. Webb
OFFICERS TITLE
- ----------------------- ------------------------------------
J. S. Webb Chief Executive Officer
Earl A. Pontius President, Chief Operating Officer
Eugene B. Haignere Vice President
David C. Clapp Vice President
Richard G. Galloway Vice President
William A. Hillmer Assistant Treasurer
Lisabeth A. Marinelli Assistant Vice President
Judy F. McLaughlin Assistant Vice President, Corporate Secretary
John E. Pettigrew Vice President
Rick J. Pope Vice President
Robert L. Vaughan Vice President/Group Controller
Gunars Vinkels Vice President
Sue E. Wood Assistant Secretary
</TABLE>
C-1
<PAGE>
EXHIBIT D-1
AFFILIATE AGREEMENT
This Affiliate Agreement (this "Agreement") is entered into as of
___________, 1998, by and between THE TITAN CORPORATION, a Delaware
corporation ("Parent"), and the undersigned officer ("Officer") of HORIZONS
TECHNOLOGY, INC., a Delaware corporation (the "Company").
A. Pursuant to that certain Agreement and Plan of Merger and
Reorganization (the "Merger Agreement"), dated as of February __, 1998, by
and among Parent; SUNRISE ACQUISITION SUB, INC. ("Merger Sub"), a Delaware
corporation and a wholly-owned subsidiary of Parent; the Company; and certain
stockholders of 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). Officer understands the
definitions of 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.
C. Officer 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.
NOW, THEREFORE, Officer hereby certifies and agrees as follows:
1. Capitalized terms used in this Agreement and not otherwise defined
shall have the meanings given them in the Merger Agreement.
2. Officer certifies and agrees that:
1.1 Officer has full power and capacity to execute and deliver this
Agreement.
1.2 Officer has discussed with counsel the requirements, limitations
and restrictions on his ability to sell, transfer or otherwise dispose of the
Shares he may receive and understands the requirements, limitations and
restrictions this Agreement places upon Officer's ability to transfer, sell
or otherwise dispose of such Shares.
1.3 Officer will not, publicly or privately, sell, transfer or
otherwise dispose of, or reduce Officer's interest in or risk relating to,
any Shares held by Officer 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).
D-1
<PAGE>
1.4 Until the earlier of (i) the Closing Date or (ii) the termination
of the Merger Agreement, Officer will not sell, transfer or otherwise dispose
of, or reduce Officer's interest in or risk relating to, any Company Common
Stock and/or Series A Preferred Stock held by Officer.
1.5 Subject to Section 2(c) above, Officer will not sell, pledge,
transfer or otherwise dispose of any of the Shares held by Officer unless at
such time as such transfer shall be in conformity with the provisions of Rule
145(d) (or any successor rule then in effect), to the extent such Rule is
applicable to Officer.
3. Officer further certifies that he is the beneficial owner of the
Company Common Stock and/or Series A Preferred Stock set forth below, or, if
not set forth below, that he is not the beneficial owner of any Company
Common Stock and/or Series A Preferred Stock.
4. Each party hereto acknowledges that (i) it will be impossible to
measure in money the damage to Parent if Officer 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; provided
however, each party shall use reasonable efforts to notify the other in the
event of a breach of this Agreement.
5. 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.
6. 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.
7. 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.
D-2
<PAGE>
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]
OFFICER
_______________________________________
_______________________________________
[Print Name]
Address:_______________________________
_______________________________________
_______________________________________
Shares of Company Common Stock
Beneficially Owned: _____________
Shares of Series A Preferred Stock
Beneficially Owned: _____________
D-3
<PAGE>
EXHIBIT D-2
PERSONS TO EXECUTE AFFILIATE AGREEMENTS
James T. Palmer
J. Patrick Boyce
Earl A. Pontius
D-4
<PAGE>
EXHIBIT E
FORM OF TAX REPRESENTATION LETTER
TO BE EXECUTED BY PARENT AND MERGER SUB
Cooley Godward, LLP Jenkens & Gilchrist, P.C.
One Maritime Plaza, 20th Fl. 1919 Pennsylvania Ave. N.W., Ste. 600
San Francisco, California 94111-3580 Washington, D.C. 20006-3404
RE: MERGER PURSUANT TO THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
(THE "REORGANIZATION AGREEMENT") DATED FEBRUARY __, 1998, AMONG THE TITAN
CORPORATION, A DELAWARE CORPORATION ("PARENT"), SUNRISE ACQUISITION SUB,
INC., A DELAWARE CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF PARENT
("MERGER SUB"), HORIZONS TECHNOLOGY, INC., A DELAWARE CORPORATION (THE
"COMPANY"), AND CERTAIN STOCKHOLDERS OF THE COMPANY AND THE RELATED
CERTIFICATE OF MERGER BETWEEN MERGER SUB AND THE COMPANY (THE "CERTIFICATE
OF MERGER").
Gentlemen:
This letter is supplied to you in connection with your rendering of opinions
regarding certain federal income tax consequences of the Merger. Unless
otherwise indicated, capitalized terms not defined herein have the meanings
set forth in the Reorganization Agreement. The Reorganization Agreement and
the Certificate of Merger, including exhibits and schedules attached thereto,
are collectively referred to as the "AGREEMENTS."
After consulting with their counsel and auditors regarding the meaning of and
factual support for the following representations, the undersigned hereby
certify and represent that the following facts are now true and will continue
to be true as of the Effective Time of the Merger and thereafter where
relevant:
1. Pursuant to the Merger, Merger Sub will merge with and into the
Company, and the Company will acquire all of the assets and liabilities of
Merger Sub. Specifically, the assets transferred to the Company pursuant to
the Merger will represent at least ninety percent (90%) of the fair market
value of the net assets and at least seventy percent (70%) of the fair market
value of the gross assets held by Merger Sub immediately prior to the Merger.
In addition, at least ninety percent (90%) of the fair market value of the
net assets and at least seventy percent (70%) of the fair market value of the
gross assets held by the Company immediately prior to the Merger will
continue to be held by the Company immediately after the Merger. For the
purpose of determining the percentage of the Company's and Merger Sub's net
and gross assets held by the Company immediately following the Merger, the
following assets will be treated as property held by Merger Sub or the
Company, as the case may be, immediately prior but not subsequent to the
Merger: (i) assets disposed of by the Company or Merger Sub (other than
assets transferred from Merger Sub to the Company in the Merger) prior to or
subsequent to the Merger and in contemplation thereof (including without
limitation any asset disposed of by the Company, other than in the ordinary
course of business, pursuant to a plan or intent existing during the period
ending at the Effective Time of the Merger and beginning with the
E-1
<PAGE>
commencement of negotiations (whether formal or informal) with Parent
regarding the Merger (the "PRE-MERGER PERIOD"); (ii) assets used by the
Company or Merger Sub to pay stockholders perfecting appraisal rights or
other expenses or liabilities incurred in connection with the Merger; and
(iii) assets used to make distribution, redemption or other payments in
respect of stock of the Company or rights to acquire such stock (including
payments treated as such for tax purposes) that are made in contemplation of
the Merger or that are related thereto;
2. Parent's principal reasons for participating in the Merger are bona
fide business purposes not related to taxes;
3. Prior to the Merger, Parent will be in "CONTROL" of Merger Sub. As
used in this letter, "CONTROL" shall consist of direct ownership of shares of
stock possessing at least eighty percent (80%) of the total combined voting
power of all classes of stock entitled to vote and at least eighty percent
(80%) of the total number of shares of all other classes of stock of the
corporation. For purposes of determining Control, a person shall not be
considered to own shares of voting stock if rights to vote such shares (or to
restrict or otherwise control the voting of such shares) are held by a third
party (including a voting trust) other than an agent of such person;
4. In the Merger, shares of stock of the Company representing Control
of the Company will be exchanged solely for shares of Parent Common Stock.
For purposes of this paragraph, shares of stock of the Company exchanged in
the Merger for cash and other property (including, without limitation, cash
paid to stockholders of the Company perfecting appraisal rights, if any, or
in lieu of fractional shares of Parent Common Stock) will be treated as
shares of stock of the Company outstanding on the date of the Merger but not
exchanged for shares of Parent Common Stock;
5. Parent has no plan or intention to cause the Company to issue
additional shares of stock after the Merger, or take any other action, that
would result in Parent losing Control of the Company;
6. Parent has no plan or intention to reacquire any of its stock
issued pursuant to the Merger;
7. Except for transfers described in both Section 368(a)(2)(C) of the
Code and Treasury Regulation Section 1.368-2(j)(4), Parent has no plan or
intention to: (a) liquidate the Company; (b) merge the Company with or into
another corporation including Parent or its affiliates; (c) sell, distribute
or otherwise dispose of the stock of the Company, to cause the Company to
sell or otherwise dispose of the stock of the Company; or (d) cause the
Company to sell or otherwise dispose of any of its assets or of any assets
acquired from Merger Sub, except for dispositions made in the ordinary course
of business or payment of expenses incurred by the Company pursuant to the
Merger;
8. In the Merger, Merger Sub will have no liabilities assumed by the
Company and will not transfer to the Company any assets subject to
liabilities, except to the extent incurred in connection with the
transactions contemplated by the Agreements;
9. Parent intends that, following the Merger, the Company will
continue its historic business or use a significant portion of its historic
business assets in a business;
E-2
<PAGE>
10. During the past five (5) years, none of the outstanding shares of
capital stock of the Company, including the right to acquire or vote any such
shares have, directly or indirectly, been owned by Parent or affiliates of
Parent;
11. Parent is not an investment Company within the meaning of Section
368(a)(F)(iii) and (iv) of the Code;
12. No stockholder of the Company is acting as agent for Parent in
connection with the Merger or the approval thereof; Parent will not reimburse
any stockholder of the Company for any stock of the Company such stockholder
may have purchased or for other obligations such stockholder may have
incurred;
13. Neither Parent nor Merger Sub is, or will be at the Effective Time
of the Merger, under the jurisdiction of a court in a Title 11 or similar
case within the meaning of Section 368(a)(3)(A) of the Code;
14. Except for repurchases or redemptions of Parent Common Stock that
are consistent with past practices and pursuant to pre-existing purchase
programs that were not created or modified in connection with the Merger,
neither Merger Sub nor Parent nor any "RELATED PERSON" of Merger Sub or
Parent (as such term is defined by Treasury Regulation Section 1.368-1(e)(3))
will repurchase or redeem any of the Parent Common Stock to be issued to the
stockholders of the Company in connection with the Merger;
15. Except with respect to (i) payments of cash to stockholders of the
Company perfecting appraisal rights and (ii) payments of cash to stockholders
of the Company in lieu of fractional shares of Parent Common Stock, one
hundred percent (100%) of the stock of the Company outstanding immediately
prior to the Merger will be exchanged solely for Parent Common Stock. Thus,
except as set forth in the preceding sentence, Merger Sub and Parent intend
that no consideration be paid or received (directly or indirectly, actually
or constructively) for stock of the Company other than Parent Common Stock;
16. The total fair market value of all consideration other than Parent
Common Stock received by stockholders of the Company in the Merger
(including, without limitation, cash paid to stockholders of the Company
perfecting appraisal rights) will be less than ten percent (10%) of the
aggregate fair market value of stock of the Company outstanding immediately
prior to the Merger;
17. The fair market value of the Parent Common Stock received by each
stockholder of the Company will be approximately equal to the fair market
value of the stock of the Company surrendered in exchange therefor, and the
aggregate consideration received by stockholders of the Company in exchange
for their stock of the Company will be approximately equal to the fair market
value of all of the outstanding shares of stock of the Company immediately
prior to the Merger;
18. Each of Merger Sub, Parent, the Company and each stockholder of the
Company will each pay separately his, her or its own expenses relating to the
Merger;
E-3
<PAGE>
19. There is no intercorporate indebtedness existing between Parent and
the Company or between Merger Sub and the Company that was issued, acquired
or will be settled at a discount as a result of the Merger, and Parent will
assume no liabilities of the Company or any stockholder of the Company in
connection with the Merger;
20. The terms of the Reorganization Agreement and the agreements
related thereto are the product of arm's length negotiations;
21. None of the compensation received by any stockholder-employee of
the Company will be separate consideration for, or allocable to, any of their
shares of stock of the Company; none of the shares of Parent Common Stock
received by any stockholder-employee of the Company will be separate
consideration for, or allocable to, any employment agreement or any covenants
not to compete; and the compensation paid to any stockholder-employee of the
Company will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services;
22. The payment of cash in lieu of fractional shares of Parent Common
Stock is solely for the purpose of avoiding the expense and inconvenience to
Parent of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid
in the transaction to the Company stockholders instead of issuing fractional
shares of Parent Common Stock will not exceed one percent (1%) of the total
consideration that will be issued in the transaction to the Company
stockholders in exchange for their shares of Company capital stock. The
fractional share interests of each Company stockholder will be aggregated,
and no Company stockholder will receive cash in an amount equal to or greater
than the value of one full share of Parent Common Stock;
23. With respect to each instance, if any, in which shares of stock of
the Company have been purchased by a stockholder of Parent (a "STOCKHOLDER")
during the Pre-Merger Period (a "STOCK PURCHASE"): (i) the Stock Purchase
was made by such Stockholder on its own behalf and not as a representative,
or for the benefit, of Parent; (ii) the purchase price paid by such
Stockholder pursuant to the Stock Purchase was the product of arm's length
negotiations, was funded by such Stockholder's own assets, was not advanced,
and will not be reimbursed, either directly or indirectly, by Parent; (iii)
at no time was such Stockholder or any other party required or obligated to
surrender to Parent the Company capital stock acquired in the Stock Purchase,
and neither such Stockholder nor any other party will be required to
surrender to Parent the Parent Common Stock for which such shares of stock of
the Company will be exchanged in the Merger; and (iv) the Stock Purchase was
not a formal or informal condition to consummation of the Merger and was
entered into solely to satisfy the separate interests of such Stockholder and
the seller; and
24. Parent and Merger Sub are authorized to make all of the
representations set forth herein.
The undersigned recognize that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the
Agreements and documents related thereto, and (ii) your opinions will be
subject to certain limitations and qualifications including that they may not
be relied upon if any such representations are not accurate in all material
respects.
E-4
<PAGE>
The undersigned recognize that your opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except
as expressly set forth in such opinions.
Very truly yours,
THE TITAN CORPORATION,
a Delaware corporation
By:_____________________________________
Title:__________________________________
SUNRISE ACQUISITION SUB, INC.,
a Delaware corporation
By:_____________________________________
Title:__________________________________
E-5
<PAGE>
EXHIBIT F
FORM OF TAX REPRESENTATION LETTER
TO BE EXECUTED BY THE COMPANY
Cooley Godward llp Jenkens & Gilchrist, P.C.
One Maritime Plaza, 20th Fl. 1919 Pennsylvania Ave. N.W., Suite 600
San Francisco, California CA 94111-3580 Washington, D.C. 20006-3404
RE: MERGER PURSUANT TO THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
(THE "REORGANIZATION AGREEMENT"), DATED FEBRUARY __, 1998, AMONG THE TITAN
CORPORATION, INC., A DELAWARE CORPORATION ("PARENT"), SUNRISE ACQUISITION
SUB, INC., A DELAWARE CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF PARENT
("MERGER SUB"), HORIZONS TECHNOLOGY, INC., A DELAWARE CORPORATION (THE
"COMPANY"), AND CERTAIN STOCKHOLDERS OF THE COMPANY, AND THE RELATED
CERTIFICATE OF MERGER BETWEEN THE COMPANY AND MERGER SUB (THE "CERTIFICATE
OF MERGER").
Gentlemen:
This letter is supplied to you in connection with your rendering of opinions
regarding certain federal income tax consequences of the Merger. Unless
otherwise indicated, capitalized terms not defined herein have the meanings
set forth in the Reorganization Agreement or the Certificate of Merger. The
Reorganization Agreement and the Certificate of Merger, including exhibits
and schedules attached thereto, are collectively referred to as the
"AGREEMENTS."
After consulting with its counsel and auditors regarding the meaning of and
factual support for the following representations, the undersigned hereby
certifies and represents that the following facts are now true and will
continue to be true as of the Effective Time of the Merger and thereafter
where relevant:
1. Pursuant to the Merger, Merger Sub will merge with and into the
Company, and the Company will acquire all of the assets and liabilities of
Merger Sub. Specifically, the assets transferred to the Company pursuant to
the Merger will represent at least ninety percent (90%) of the fair market
value of the net assets and at least seventy percent (70%) of the fair market
value of the gross assets held by Merger Sub immediately prior to the Merger.
In addition, at least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value of the gross
assets held by the Company immediately prior to the Merger will continue to be
held by the Company immediately after the Merger. For the purpose of
determining the percentage of the Company's and Merger Sub's net and gross
assets held by the Company immediately following the Merger, the following
assets will be treated as property held by Merger Sub or the Company, as the
case may be, immediately prior but not subsequent to the Merger: (i) assets
disposed of by the Company or Merger Sub (other than assets transferred from
Merger Sub to the Company in the Merger) prior to or subsequent to the Merger
and in contemplation thereof (including without limitation any asset disposed
of by the Company, other than in the ordinary course of business, pursuant to a
plan or intent existing during the period ending on the Effective Time of the
Merger and beginning with the
F-1
<PAGE>
commencement of negotiations (whether formal or informal) with Parent
regarding the Merger (the "PRE-MERGER PERIOD"); (ii) assets used by the
Company or Merger Sub to pay stockholders perfecting appraisal rights or
other expenses or liabilities incurred in connection with the Merger; and
(iii) assets used to make distribution, redemption or other payments in
respect of stock of the Company or rights to acquire such stock (including
payments treated as such for tax purposes) that are made in contemplation of
the Merger or that are related thereto;
2. Other than in the ordinary course of business or pursuant to its
obligations under the Agreements, the Company has made no transfer of any of
its assets (including any distribution of assets with respect to, or in
redemption of, stock) in contemplation of the Merger or during the Pre-Merger
Period;
3. The Company's principal reasons for participating in the Merger are
bona fide business purposes unrelated to taxes;
4. On the Effective Time of the Merger, the Company will have no
outstanding equity interests other than those disclosed in Section 2.3 of the
Reorganization Agreement. At the time of the Merger, except as specified in
the Reorganization Agreement, the Company will have no outstanding warrants,
options, or convertible securities or any other type of right outstanding
pursuant to which any person could acquire shares of the Company capital
stock or any other equity interest in the Company, other than those disclosed
in Section 2.3 of the Reorganization Agreement or the Disclosure Schedule
with respect thereto;
5. In the Merger, shares of stock of the Company representing "CONTROL"
of the Company will be exchanged solely for shares of voting stock of Parent.
At the Effective Time of the Merger, there will exist no rights to acquire
the Company capital stock or to vote (or restrict or otherwise control the
vote of) shares of stock of the Company which, if exercised, would affect
Parent's acquisition and retention of control of the Company. For purposes
of this paragraph, shares of the stock of Company exchanged in the Merger for
cash and other property (including, without limitation, cash paid to
stockholders of the Company perfecting appraisal rights, if any, or in lieu
of fractional shares of Parent Common Stock) will be treated as shares of
stock of the Company outstanding on the date of the Merger but not exchanged
for shares of voting stock of Parent. As used in this letter, "CONTROL"
shall consist of direct ownership of shares of stock possessing at least
eighty percent (80%) of the total combined voting power of shares of all
classes of stock entitled to vote and at least eighty percent (80%) of the
total number of shares of all other classes of stock of the corporation. For
purposes of determining Control, a person shall not be considered to own
shares of voting stock if rights to vote such shares (or to restrict or
otherwise control the voting of such shares) are held by a third party
(including a voting trust) other than an agent of such person;
6. The total fair market value of all consideration other than shares
of Parent Common Stock received by stockholders of the Company in the Merger
(including, without limitation, cash paid to Company stockholders perfecting
appraisal rights or in lieu of fractional shares of Parent Common Stock) will
be less than ten percent (10%) of the aggregate fair market value of shares
of stock of the Company outstanding immediately prior to the Merger;
F-2
<PAGE>
7. The Company has no plan or intention to issue additional shares of
stock after the Merger, or take any other action, that would result in Parent
losing Control of the Company;
8. Except for transfers described in both Section 368(a)(2)(C) of the
Code and Treasury Regulation Section 1.368-2(j)(4), the Company has no plan
or intention to sell or otherwise dispose of any of its assets or of any of
the assets acquired from Merger Sub in the Merger except for dispositions
made in the ordinary course of business or to pay expenses incurred by the
Company pursuant to the Merger;
9. The Company intends to continue its historic business or use a
significant portion of its historic business assets in a business following
the Merger;
10. The liabilities of the Company have been incurred by the Company in
the ordinary course of its business;
11. The fair market value of the Company's assets will, on the
Effective Time of the Merger, exceed the aggregate liabilities of the Company
plus the amount of liabilities, if any, to which such assets are subject;
12. The Company is not and will not be on the Effective Time of the
Merger an "INVESTMENT COMPANY" within the meaning of Section
368(a)(2)(F)(iii) and (iv) of the Code;
13. The Company is not and will not be on the Effective Time of the
Merger under the jurisdiction of a court in a Title 11 or similar case within
the meaning of Section 368(a)(3)(A) of the Code;
14. The Company has made no extraordinary distributions within the
meaning of Temporary Federal Treasury Regulation Section 1.368-1T(e) with
respect to its stock, prior to and in connection with the Merger;
15. The Company has not redeemed and no "RELATED PERSON" with respect
to the Company, as such term is defined by Treasury Regulation Section
1.368-1(e)(3), (without regard to Section 1.368-1(e)(3)(i)(a)), has purchased
any Company capital stock prior to and in connection with the Merger;
16. Except with respect to (i) payments of cash to stockholders of the
Company in lieu of fractional shares of Parent Common Stock, and (ii)
payments of cash to stockholders of the Company perfecting appraisal rights,
one hundred percent (100%) of the shares of stock of the Company outstanding
immediately prior to the Merger will be exchanged solely for shares of Parent
Common Stock. Thus, except as set forth in the preceding sentence, the
Company intends that no consideration be paid or received (directly or
indirectly, actually or constructively) for shares of stock of the Company
other than shares of Parent Common Stock;
17. The fair market value of the shares of Parent Common Stock received
by each stockholder of the Company will be approximately equal to the fair
market value of the shares of stock of the Company surrendered in exchange
therefor and the aggregate consideration received by stockholders of the
Company in exchange for their shares of stock of the Company will be
F-3
<PAGE>
approximately equal to the fair market value of all of the outstanding shares
of stock of the Company immediately prior to the Merger;
18. Each of Merger Sub, Parent, the Company and each stockholder of the
Company will each pay separately his, her or its own expenses relating to the
Merger;
19. There is no intercorporate indebtedness existing between Parent and
the Company or between Merger Sub and the Company that was issued, acquired,
or will be settled at a discount as a result of the Merger; Parent will
assume no liabilities of the Company or any stockholder of the Company in
connection with the Merger;
20. The terms of the Reorganization Agreement and the other agreements
relating thereto are the product of arm's length negotiations;
21. None of the compensation received by any stockholder-employees of
the Company will be separate consideration for, or allocable to, any of their
shares of stock of the Company; none of the shares of Parent Common Stock
received by any stockholder-employees of the Company will be separate
consideration for, or allocable to, any employment agreement or any covenants
not to compete; and the compensation paid to any stockholder-employees of the
Company will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services;
22. With respect to each instance, if any, in which shares of stock of
the Company have been purchased by a stockholder of Parent (a "STOCKHOLDER")
during the Pre-Merger period (a "STOCK PURCHASE"): (i) to the best knowledge
of the Company, (A) the Stock Purchase was made by such Stockholder on its
own behalf, rather than as a representative, or for the benefit, of Parent,
(B) the Stock Purchase was entered into solely to satisfy the separate
interests of such Stockholder and the seller, and (C) the purchase price paid
by such Stockholder pursuant to the Stock Purchase was the product of arm's
length negotiations; and (ii) the Stock Purchase was not a formal or informal
condition to consummation of the Merger; and
23. The Company is authorized to make all of the representations set
forth herein.
The undersigned recognizes that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the
Agreements and documents related thereto, and (ii) your opinions will be
subject to certain limitations and qualifications including that they may not
be relied upon if any such representations are not accurate in all material
respects.
Notwithstanding anything herein to the contrary, the undersigned makes no
representations regarding any actions or conduct of the Company pursuant to
Parent's exercise of control over the Company after the Merger.
F-4
<PAGE>
The undersigned recognizes that your opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except
as expressly set forth in such opinions.
Very truly yours,
HORIZONS TECHNOLOGY, INC.,
a Delaware corporation
By:____________________________________
Title:_________________________________
F-5
<PAGE>
EXHIBIT G
ACKNOWLEDGMENT AND RELEASE
THIS ACKNOWLEDGMENT AND RELEASE ("Release") is being executed and
delivered as of ______________, 1998, by __________________________________
("Releasor") in favor of, and for the benefit of, HORIZONS TECHNOLOGY, INC., a
Delaware corporation (the "Corporation"), THE TITAN CORPORATION, a Delaware
corporation ("Parent"), and the other Releasees (as defined in Section 2).
RECITALS
A. Contemporaneously with the execution and delivery of this Release,
pursuant to an Agreement and Plan of Merger and Reorganization, dated as of
February ___, 1998, among the Corporation, Parent, Sunrise Acquisition Sub.,
Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger
Sub"), and certain other stockholders of the Corporation (the "Merger
Agreement"), Merger Sub is merging into the Corporation (the merger of Merger
Sub into the Corporation being referred to in this Release as the "Merger").
As a result of the Merger, the Corporation's stockholders are receiving shares
of common stock of Parent in exchange for their shares of common stock of the
Corporation, and the Corporation will survive as a wholly owned subsidiary of
Parent.
B. Parent has required, as a condition to consummating the Merger and
the other transactions contemplated by the Merger Agreement, that Releasor
execute and deliver this Release.
AGREEMENT
In order to induce Parent to consummate the transactions contemplated by
the Merger Agreement, and for other valuable consideration (the receipt and
sufficiency of which are hereby acknowledged by Releasor), Releasor hereby
covenants and agrees as follows:
1. RELEASE. Releasor, for himself and for each of his Associated
Parties (as defined in Section 2), hereby generally, irrevocably,
unconditionally and completely releases and forever discharges each of the
Releasees (as defined in Section 2) from, and hereby irrevocably,
unconditionally and completely waives and relinquishes, each of the Released
Claims (as defined in Section 2).
2. DEFINITIONS.
(a) The term "Associated Parties," when used herein with respect to
Releasor, shall mean and include: (i) Releasor's predecessors, successors,
executors, administrators, assigns, heirs and estate; and (ii) each entity of
which Releasor owns, at least 50% of the outstanding voting interests.
(b) The term "Releasees" shall mean and include: (i) Parent; (ii) the
Corporation; (iii) each of the subsidiaries of Parent; and (iv) the past and
present directors, officers,
G-1
<PAGE>
employees, agents, attorneys and representatives of the respective entities
identified or otherwise referred to in clauses "(i)" through "(iii)" of this
sentence, other than Releasor.
(c) The term "Released Claims" shall mean and include each and every
claim that has arisen or arises out of any circumstance, agreement, activity,
action, omission, event or matter occurring or existing on or prior to the date
of this Release PROVIDED, HOWEVER, that the Released Claims shall not include:
(i) Releasor's rights, if any, against Parent under the Merger
Agreement;
(ii) Releasor's rights against the Corporation under any other
agreement being entered into by Releasor and the Corporation contemporaneously
with the execution and delivery of this Release; or based upon obligations of
the Corporation to make payments under existing compensation or benefit plans
or as required under applicable law; or
(iii) any right of indemnification Releasor may have against the
Corporation under the Corporation's Certificate of Incorporation or otherwise
in his capacity as an officer or director of the Corporation as such rights
shall survive the Merger as expressly set forth in the Merger Agreement.
3. REPRESENTATIONS AND WARRANTIES. Releasor represents and warrants
that:
(a) Releasor has not assigned, transferred, conveyed or otherwise
disposed of any claim against any of the Releasees, or any direct or indirect
interest in any such claim, in whole or in part;
(b) to the best of Releasor's knowledge, no other person or entity has
any interest in any of the Released Claims;
(c) this Release has been duly and validly executed and delivered by
Releasor;
(d) this Release is a valid and binding obligation of Releasor and
Releasor's Associated Parties, and is enforceable against Releasor and each of
his Associated Parties 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 general
equity principles and to limitations on availability of equitable relief,
including specific performance;
(e) neither the execution and delivery of this Release nor the
performance hereof will result in any violation or breach of any agreement or
other instrument to which Releasor is a party or by which Releasor is bound;
4. NOTICES. Any notice or other communication required or permitted to
be delivered to Releasor, the Corporation or Parent under this Release 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 of the party to
receive the notice.
G-2
<PAGE>
5. SEVERABILITY. If any provision of this Release or any part of any
such provision is held under any circumstances to be invalid or unenforceable
in any jurisdiction, then (a) such provision or part thereof shall, with
respect to such circumstances and in such jurisdiction, be deemed amended to
conform to applicable laws so as to be valid and enforceable to the fullest
possible extent and (b) the invalidity or unenforceability of such provision or
part thereof shall not affect the validity or enforceability of the remainder
of such provision or the validity or enforceability of any other provision of
this Release. Each provision of this Release is separable from every other
provision of this Release, and each part of each provision of this Release is
separable from every other part of such provision.
6. GOVERNING LAW; WAIVER OF SECTION 1542 AND RELATED STATUTES. This
Release shall be construed in accordance with, and governed in all respects by,
the laws of the State of California (without giving effect to principles of
conflicts of laws). Notwithstanding the foregoing, Releasor expressly waives
and relinquishes all rights and benefits that may be afforded by Section 1542
of the Civil Code of the State of California and any similar statute applicable
to this Release (including, without limitation, any applicable statute, rule or
regulation of the State of Minnesota), and does so understanding and
acknowledging the significance of this specific waiver of such statute(s).
Section 1542 of the Civil Code of the State of California states as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected his settlement with the
debtor.
7. WAIVER. No failure on the part of any Releasee to exercise any
power, right, privilege or remedy under this Release, and no delay on the part
of any Releasee in exercising any power, right, privilege or remedy under this
Release, 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. No Releasee shall be deemed to have waived any
claim arising out of this Release, or any power, right, privilege or remedy
under this Release, 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 party; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
8. CAPTIONS. The captions contained in this Release are for convenience
of reference only, shall not be deemed to be a part of this Release and shall
not be referred to in connection with the construction or interpretation of
this Release.
9. ENTIRE AGREEMENT. This Release sets forth the entire understanding
of the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings between the parties relating to the subject
matter hereof.
10. AMENDMENTS. This Release may not be amended, modified, altered, or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of Releasor, Parent and the Corporation.
G-3
<PAGE>
11. BINDING NATURE. This Release will be binding upon Releasor and
Releasor's Associated Parties and will inure to the benefit of each of the
Releasees.
12. CONSTRUCTION.
(a) For purposes of this Release, whenever the context requires: the
singular number shall include the plural, and vice versa.
(b) As used in this Release, 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."
(c) Except as otherwise indicated, all references in this Release to
"Sections" are intended to refer to Sections of this Release.
Releasor has executed this Release as of the date first above written.
________________________________
[Releasor]
Name:___________________________
Address:________________________
________________________
G-4
<PAGE>
EXHIBIT H
SUBSTANTIVE PROVISIONS OF THE OPINION OF
JENKENS & GILCHRIST, P.C.
[Capitalized terms defined as in the Merger Agreement]
13. 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. 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.
14. The authorized capital stock of the Company consists (i) 12,000,000
shares of Common Stock, $.01 par value, of which [7,996,953] shares have been
issued and are outstanding as of the date hereof and (ii) 2,500,000 shares of
Preferred Stock (with par value $.01, all of which have been designated "Series
A Preferred Stock"), of which 500,000 shares have been issued and are
outstanding as of the date hereof. All of the outstanding shares of Company
Common Stock and Series A Preferred Stock have been duly authorized and validly
issued, and are fully paid and nonassessable. All of the outstanding shares of
capital stock or other securities of the Acquired Corporations have been duly
authorized and validly issued, are fully paid and nonassessable and are owned
by the Company.
15. 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.
16. The Company has the requisite corporate power and authority to
perform its obligations under the Merger Agreement and documents executed by
the Company in connection therewith (collectively, the "Agreements"). The
execution, delivery and performance of the Agreements by the Company have been
duly authorized by all necessary action on the part of the Company's
stockholders and board of directors. The Agreements have been duly and validly
executed and delivered by the Company. The Company Agreements constitute the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with their terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other
similar laws affecting creditors' rights, and subject to
H-1
<PAGE>
(i) general equity principles and limitations on availability of equitable
relief, including specific performance, and (ii) limitations on the
availability of indemnity under applicable laws.
17. 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 Certificate 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 governmental statute, rule or regulation applicable to the Company,
order, writ, injunction, decree or arbitration award applicable to the Company
or its assets, excluding in the case of 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.
18. 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.
19. 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.
20. 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 Certificate of Merger with the Secretary of State of the State of
Delaware as contemplated by the Merger Agreement, the Merger will have been
validly effected in accordance with Delaware Law.
H-2
<PAGE>
EXHIBIT I
_______________, 1998
Ladies and Gentlemen:
We have acted as counsel for The Titan Corporation, a Delaware corporation
("Parent"), in connection with the merger of Sunrise Acquisition Sub, Inc.
("Merger Sub"), a Delaware corporation and a wholly-owned subsidiary of Parent,
with and into Horizon Technology, Inc., a Delaware corporation (the "Company"),
pursuant to an Agreement and Plan of Merger and Reorganization, amended as of
February __, 1998 among Parent, Merger Sub and the Company (the "Merger
Agreement"). We are rendering this opinion pursuant to Section 8.5(f) 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 State of California and 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
I-1
<PAGE>
antitrust, trade regulation or unfair competition; or (iii) as to
the enforceability of any of the agreements attached as exhibits to the Merger
Agreement.
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.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. Each of Parent and Merger Sub is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware.
2. Each of Parent and Merger Sub 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 execution, delivery and performance of
the Merger Agreement by Merger Sub have been duly authorized by all necessary
action on the part of Merger Sub's sole director and stockholder. The Merger
Agreement has been duly and validly executed and delivered by each of Parent
and Merger Sub.
3. The Merger Agreement 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 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) limitations on the availability of indemnity under
applicable laws.
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
Certificate of Incorporation or Bylaws of Merger Sub, or (b) to our knowledge
violate any governmental statute, rule or regulation applicable to Parent,
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 effect 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.
I-2
<PAGE>
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
I-3
<PAGE>
APPENDIX B
[LETTERHEAD]
February 26, 1998
The Board of Directors of Horizons Technology, Inc.
c/o Mr. Pat Boyce, Senior Vice President
Horizons Technology, Inc.
3990 Ruffin Road
San Diego, California 92123-1826
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of the common shares and the Series A Preferred
Shares (collectively the "Shareholders") of Horizons Technology, Inc.
("HTI" or the "Company"), of the consideration to be received in connection
with a merger between the Company and The Titan Corporation ("Titan"). 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 plan of merger ("Proposed Transaction").
We understand that under the Proposed Transaction, HTI will merge with and
into Titan and each issued and outstanding share of HTI common stock and HTI
preferred stock will be exchanged for Titan common stock. The number of
shares of Titan common stock to be received by the Shareholders will based
upon the Applicable Fraction, as defined in the merger agreement dated
February 26, 1998, by and among HTI and Titan (the "Merger Agreement").
The Applicable Fraction pertaining to each preferred share shall be the
fraction having the numerator equal to $5.00 per share and the denominator
equal to the "Designated Parent Stock Price," as defined in the Merger
Agreement.
The Applicable Fraction pertaining to HTI common stock shall be the fraction
(A) having the numerator equal to the amount by which (x) $23,850,000 minus
the "Balance Sheet Deduction" plus $65,240 exceeds (y) the Average Preferred
Stock Valuation and (B) having a denominator equal to the amount determined
by multiplying (1) the "Adjusted Company Share Amount" by (2) the Designated
Parent Stock Price.
The "Balance Sheet Deduction" shall be (A) $4,500,000 plus or minus, as
described below, (B) the amount by which the Company's Working Capital
(determined prior to the Closing as set forth in the Merger Agreement) is
less than (in which case such amount shall be added to the amount determined
in (A) above) or greater than (in which case such amount shall be subtracted
from the amount determined in (A) above) negative $2,150,000; provided,
however, no such adjustment shall be made unless the Company's Working
Capital is at least $200,000 less than or greater than, as the case may be,
negative $2,150,000 (and in such case such adjustment shall be
<PAGE>
The Board of Directors of Horizons Technology, Inc.
February 26, 1998
Page 2
made with respect to the entire amount less than or greater than, as
appropriate, negative $2,150,000).
The terms and conditions of the Proposed Transaction are set forth in more
detail in the Merger Agreement.
In connection with this opinion, we have, among other things:
- Reviewed the Merger Agreement and related documents;
- Reviewed certain publicly available information concerning Titan which we
believe to be relevant to our analysis;
- Reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of the
Company;
- Analyzed certain financial assumptions prepared by the Company;
- Conducted discussions with members of management of the Company and Titan
concerning current and future business operations;
- Reviewed the reported prices and trading activity for the common stock of
Titan;
- Reviewed the historical market prices and trading activity for 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;
- 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, respectively;
- Performed certain financial analyses with respect to the Company's
projected future operating performance, including discounted cash flow
analyses;
- Reviewed such other financial studies and analyses and performed such other
investigations and took into account such other matters as we deemed
necessary.
In preparing our opinion, THE SLAVITT ELLINGTON GROUP 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 Titan. We have not been
engaged to, and therefore we have not, verified the accuracy or completeness of
any such information.
<PAGE>
The Board of Directors of Horizons Technology, Inc.
February 26, 1998
Page 3
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'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 performing its analyses, THE SLAVITT ELLINGTON GROUP made numerous
assumptions with respect to the defense communications and information
technology industry, the various commercial industries in which the Company
and Titan operate, general business and economic conditions and government
regulations, which are beyond the control of the Company. The analyses
performed by THE SLAVITT ELLINGTON GROUP 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 THE SLAVITT ELLINGTON GROUP's analysis of the fairness,
from a financial point of view, to the Shareholders, of the consideration
paid pursuant to the Agreement. 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.
In rendering our opinion, THE SLAVITT ELLINGTON GROUP assumed the planned
initial public offering of Linkabit Wireless, Inc., a wholly-owned subsidiary
of Titan, would be completed at terms which are fair to Titan's shareholders
and therefore would not materially impact the Titan'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, THE SLAVITT ELLINGTON GROUP has also assumed that
the Proposed Transaction will be accounted for as a "pooling-of-interests"
business combination in accordance with Generally Accepted Accounting
Principles and that the Proposed Transaction will be consummated on the terms
contained in the Merger Agreement, without any waiver of any material terms
or conditions by the Company.
Our opinion is necessary based on economic, market and other conditions in
effect on, and the information made available to us as of the date of our
opinion. 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 received by the Shareholders pursuant to the Merger
Agreement. We have received a fee for the analysis supporting our opinion of
fairness which is not contingent on our findings, or the consummation of the
transaction. We have performed valuations of the Company in prior years for
a different purpose. We have considered those prior valuations in connection
with this opinion.
<PAGE>
The Board of Directors of Horizons Technology, Inc.
February 26, 1998
Page 4
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
the Shareholders should vote with respect to the Proposed 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 Proposed Transaction.
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 Shareholders.
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,
THE SLAVITT ELLINGTON GROUP
By: /s/ CHRISTOPHER A. KRAMER
--------------------------------
Christopher A. Kramer
Managing Director
<PAGE>
STATEMENT OF LIMITING CONDITIONS
In accordance with recognized professional ethics, the fee for this service
is not contingent upon our opinion, and neither THE SLAVITT ELLINGTON GROUP
nor any of its employees has a present or intended financial interest in the
Company or Titan.
We have relied upon the Company's audited and internally prepared interim
financial statements and other information provided by Management or its
representatives in the course of this investigation, without further
independent verification, as correctly reflecting the Company's business
conditions and operating results for the respective periods.
We have relied upon the Company's audited financial statements prepared by
the Company's Certified Public Accountants and on their opinion, without
further independent verification, that the consolidated financial statements
of the Company present fairly in all material respects the financial position
of the Company and subsidiaries as of January 31, 1998, and that the results
of their operations and their cash flows for the year then ended are in
conformity with generally accepted accounting principles. Additionally, we
have had been provided with an internally generated forecast summary that was
prepared by the management of Titan and we have relied upon management's
representation as to its accuracy without further verification.
We have relied upon the Company management's representation that since
January 31, 1998, there has been no material, adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in
the operating results of the Company, and that to the Company's management's
knowledge there is no fact relating to the Company which would reasonably be
expected to result in a material, adverse effect upon the Company that has
not already been disclosed to us.
We have relied upon Titan's SEC filed financial statements prepared by
Titan's Certified Public Accountants and on their opinion, without further
independent verification, that the consolidated financial statements of Titan
present fairly in all material respects the financial position of Titan and
subsidiaries as of the last filing date (September 30, 1997), and that the
results of their operations and their cash flows for the quarter then ended
are in conformity with generally accepted accounting principles.
We have relied upon management's representation that since September 30,
1997, there has been no material, adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in
the operating results of the Titan, and that to the Company's management's
knowledge there is no fact relating to Titan which would reasonably be
expected to result in a material, adverse effect upon the Company that has
not already been disclosed to us.
<PAGE>
All public financial and statistical information used is from sources we deem
reliable. We make no representation as to our sources' accuracy or
completeness and have accepted their information without further independent
verification. We have had no access to the management of companies other than
the Company and Titan, and have based our comparisons and evaluations of
these other companies on information available to the public, without further
verification.
The conclusions are based upon the assumption that present Company management
and Titan management would continue to maintain the character and integrity
of the enterprise throughout any sale, reorganization, or reduction of the
owner's equity interest, and that Titan will continue to be operated as a
going concern after any sale, reorganization, or reduction of the owner's
equity interest in connection with the Company.
Our opinion is valid only for the stated purpose and date of this fairness
opinion. It is our understanding that this opinion will be used by the Board
to access the fairness, from a financial point of view, to the shareholders
of the Company, of the consideration to be received in connection with a
merger between the Company and Titan. The fairness opinion, as determined
within our opinion letter, shall not be used for any other purposes.
Though some similarities may exist between the opinion as set forth for this
purpose and others, it would be incorrect to use this opinion for any other
purpose due to specific timing, performance, and marketability issues that
arise in evaluation of a company. Accordingly, any use of the opinion as
determined within this opinion letter for other purposes would be inaccurate
and possibly misleading.
Our opinion does not constitute a recommendation to any Shareholder as to how
the Shareholder should vote on the Proposed Transaction. SEG has not
expressed an opinion as to the prices at which any security of Titan might
trade in the future.
Future services regarding the subject matter of our opinion, including, but
not limited to, testimony or attendance in court shall not be required of THE
SLAVITT ELLINGTON GROUP unless further arrangements have been made in writing.
Neither all nor any part of the contents of this opinion letter shall be
conveyed to the public through advertising, public relations, news, sales,
mail, direct transmittal, or other media without the prior written consent
and approval of THE SLAVITT ELLINGTON GROUP.
<PAGE>
APPENDIX C
[LETTERHEAD]
February 26, 1998
The Board of Directors of Horizons Technology, Inc.
c/o Mr. Pat Boyce, Senior Vice President
Horizons Technology, Inc.
3990 Ruffin Road
San Diego, California 92123-1826
Ladies and Gentlemen:
In accordance with your instructions, we have made a determination of the
fair market value of the Series A Preferred Shares of Horizons
Technology, Inc. (the "Company") as of February 26, 1998. It is our
understanding that this appraisal will be used by the Board of Directors of
Horizons Technology, Inc. (the "Board") in connection with a propsed merger
between the Company and the Titan Corporation. The fair market value, as
determined within our opinion, shall not be used for any other
purposes.
The term "fair market value" is defined as the amount at which the capital
stock of a business enterprise would change hands between a willing buyer and
a willing seller when the former is not under any compulsion to buy and the
latter is not under any compulsion to sell, and both parties are able, as
well as willing, to trade and are well informed about the business enterprise
and its surrounding market.
The scope of our engagement included discussions with Management regarding
the history and nature of the business enterprise, its expected future
operations, a review of financial statements bearing upon historical
operations, and the review of all other factors that we deemed necessary
under the circumstances.
All financial statements and other records and documents were provided by and
are the responsibility of the Company. This information has been accepted,
without additional verification, as correctly reflecting the history and
nature of the business enterprise and the results of operations and financial
condition of the Company.
Based upon our investigation, premises and analyses performed, and subject to
the attached Statement of Limiting Conditions, it is our opinion that the
fair market value of the Series A Preferred Shares of Horizons
Technology, Inc. as of February 26, 1998, is reasonably stated in the
amount of:
FIVE AND 00/100 DOLLARS ($5.00) PER SHARE.
<PAGE>
The Board of Directors of Horizons Technology, Inc.
February 26, 1998
Page 2
We retain a copy of this letter in our files, together with field data from
which it was prepared. These records are considered confidential by us, and
will not be released except as appropriate in the performance of this
engagement or as required by law or legal process.
Respectfully submitted,
THE SLAVITT ELLINGTON GROUP
<PAGE>
STATEMENT OF LIMITING CONDITIONS
In accordance with recognized professional ethics, the fee for this service
is not contingent upon our conclusion of value, and neither THE SLAVITT
ELLINGTON GROUP nor any of its employees has a present or intended financial
interest in the Company.
We have relied upon the Company's audited and internally prepared interim
financial statements and other information provided by Management or its
representatives in the course of this investigation, without further
independent verification, as correctly reflecting the Company's business
conditions and operating results for the respective periods.
We have relied upon the Company's audited financial statements prepared by
the Company's Certified Public Accountants and on their opinion, without
further independent verification, that the consolidated financial statements
of the Company present fairly in all material respects the financial position
of the Company and subsidiaries as of January 31, 1998, and that the results
of their operations and their cash flows for the year then ended are in
conformity with generally accepted accounting principles.
We have relied upon the Company's management's representation that since
January 31, 1998, there has been no material, adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in
the operating results of the Company, and that to the Company's management's
knowledge there is no fact relating to the Company which would reasonably be
expected to result in a material, adverse effect upon the Company that has
not already been disclosed to us.
All public financial and statistical information used is from sources we deem
reliable. We make no representation as to our sources' accuracy or
completeness and have accepted their information without further independent
verification.
The conclusions are based upon the assumption that present Management would
continue to maintain the character and integrity of the enterprise throughout
any sale, reorganization, or reduction of the owner's equity interest, and
that the Company will continue to be operated as a going concern.
Our opinion of value in this opinion letter is valid only for the stated
purpose and date of the appraisal. It is our understanding that this
appraisal will be used by the Board to meet the requirement of a qualified
plan and for general corporate planning purposes. The fair market value, as
determined within our opinion, shall not be used for any other
purposes. Though some similarities may exist between value as set forth for
this purpose and others, it would be incorrect to use the price per share as
determined within our opinion for any other purpose due to specific timing,
performance, and marketability issues that arise in evaluating the fair
<PAGE>
market value of a company. Accordingly, any use of the value as determined
within this opinion for other purposes would be inaccurate and possibly
misleading.
Our determination of fair market value as reported herein does not represent
investment advice of any kind to any person and does not constitute a
recommendation as to the purchase or sale of shares of the Company or as to
any other course of action.
Future services regarding the subject matter of our opinion, including, but
not limited to, testimony or attendance in court shall not be required of THE
SLAVITT ELLINGTON GROUP unless further arrangements have been made in writing.
Neither all nor any part of the contents of this opinion letter shall be
conveyed to the public through advertising, public relations, news, sales,
mail, direct transmittal, or other media without the prior written consent
and approval of THE SLAVITT ELLINGTON GROUP.
<PAGE>
APPENDIX D
DELAWARE CODE ANNOTATED
Copyright (c) 1975-1997 by The State of Delaware
All rights reserved.
*** THIS SECTION IS CURRENT THROUGH THE 1997 SUPPLEMENT ***
*** (1997 REGULAR SESSION OF THE 139TH GENERAL ASSEMBLY) ***
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
8 Del. C. Section 262 (1997)
Section 262. Appraisal rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of
a member of a nonstock corporation; and the words "depository receipt" mean a
receipt or other instrument issued by a depository representing an interest
in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
were either (i) 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 (ii) held of record by
more than 2,000 holders; and further provided that no appraisal rights shall
be available for any shares of stock of the constituent corporation surviving
a merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of
Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
<PAGE>
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be 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;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation
<PAGE>
who are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice
is given on or after the effective date of the merger or consolidation, such
notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal
of such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective date
of the merger or consolidation notifying each of the holders of any class or
series of stock of such constituent corporation that are entitled to
appraisal rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in
advance, a record date that shall be not more than 10 days prior to the date
the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to
the effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall
be entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
<PAGE>
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and
may proceed to trial upon the appraisal prior to the final determination of
the stockholder entitled to an appraisal. Any stockholder whose name appears
on the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of
stock to the Register in Chancery, if such is required, may participate fully
in all proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
<PAGE>
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger
or consolidation as provided in subsection (e) of this section or thereafter
with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
<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
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.1 Agreement and Plan of Merger and Reorganization by and among the
Registrant, Sunrise Acquisition Sub, Inc. (Sunrise Sub) and Horizons
Technology, Inc.(Horizons), dated as of February 26, 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 Certificate of Incorporation of Sunrise Sub.
3.4 Bylaws of Sunrise Sub.
3.5 Certificate of Incorporation of Horizons.
3.6 Bylaws of Horizons.
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 Jenkens & Gilchrist, a Professional Corporation.
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
II-2
<PAGE>
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 Titan with Gene W. Ray,
Eric M. DeMarco, Philip J. Englund, Ronald B. Gorda, Cornelius L.
Hensel, Frederick L. Judge and Ira Frazer, 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 Titan'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
Titan'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
Titan'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 Titan'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 Titan'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
Titan'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 Titan'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.
10.31 Formal modification dated December 23, 1996, of the Amended and
Restated Loan and Security Agreement dated
II-3
<PAGE>
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 22, 1994 between Horizons and Ruffin Tech Center
Ltd.
21.1 Subsidiaries of Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
23.2 Consent of The Slavitt Ellington Group
24.1 Power of Attorney (included in Part II of the Registration
Statement).
99.1 Form of Proxy Card for Horizons Meeting - Holders of Horizons Common
Stock
99.2 Form of Proxy Card for Horizons Meeting. - Holders of Horizons
Series A Preferred Stock
99.3 Form of Proxy Card for Horizons Meeting. - Participants of the
Horizons ESOP.
- --------------
* 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.
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/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-4
<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 March 9, 1998.
THE TITAN CORPORATION
By:
/s/ Gene W. Ray
-------------------------------------
Gene W. Ray,
Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gene W. Ray, Eric M. DeMarco and Ira
Frazer, and each or any one of them, as his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and
in his name, place, and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments, exhibits thereto and other
documents in connection therewith) to this Registration Statement and any
subsequent registration statement filed by the registrant pursuant to Rule
462(b) of the Securities Act of 1933, as amended, which relates to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, 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.
<TABLE>
<CAPTION>
Signature Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ J.S. Webb
- ---------------------------------------
J. S. Webb Chairman of the Board of Directors March 9, 1998
/s/ Gene W. Ray
- ---------------------------------------
Gene W. Ray President and Chief Executive Officer (Principal Executive March 9, 1998
Officer) and Director
/s/ Eric M. DeMarco
- ---------------------------------------
Eric M. DeMarco Senior Vice President and Chief Financial Officer March 9, 1998
/s/ Charles R. Allen (Principal Financial and Accounting Officer)
- ---------------------------------------
Charles R. Allen Director March 9, 1998
/s/ Joseph F. Caligiuri
- ---------------------------------------
Joseph F. Caligiuri Director March 9, 1998
/s/ Daniel J. Fink
- ---------------------------------------
Daniel J. Fink Director March 9, 1998
s/ Robert E. La Blanc
- ---------------------------------------
Robert E. La Blanc Director March 9, 1998
/s/ Thomas G. Pownall
- ---------------------------------------
Thomas G. Pownall Director March 9, 1998
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.1 Agreement and Plan of Merger and Reorganization by and among the
Registrant, Sunrise Acquisition Sub, Inc. (Sunrise Sub) and
Horizons Technology, Inc.(Horizons), dated as of February 26, 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 Certificate of Incorporation of Sunrise Sub.
3.4 Bylaws of Sunrise Sub.
3.5 Certificate of Incorporation of Horizons.
3.6 Bylaws of Horizons.
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 Jenkens & Gilchrist, a Professional Corporation.
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
<PAGE>
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 Titan with Gene W. Ray,
Eric M. DeMarco, Philip J. Englund, Ronald B. Gorda, Cornelius L.
Hensel, Frederick L. Judge and Ira Frazer, 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 Titan'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 Titan'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 Titan'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 Titan'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 Titan'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
Titan'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 Titan'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.
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.
<PAGE>
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 22, 1994 between Horizons and Ruffin Tech Center
Ltd.
21.1 Subsidiaries of Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
23.2 Consent of The Slavitt Ellington Group
24.1 Power of Attorney (included in Part II of the Registration
Statement).
99.1 Form of Proxy Card for Horizons Meeting - Holders of Horizons
Common Stock
99.2 Form of Proxy Card for Horizons Meeting. - Holders of Horizons
Series A Preferred Stock
99.3 Form of Proxy Card for Horizons Meeting. - Participants of the
Horizons ESOP.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
THE TITAN CORPORATION,
a Delaware corporation;
SUNRISE ACQUISITION SUB, INC.
a Delaware corporation;
HORIZONS TECHNOLOGY, INC.,
a Delaware corporation;
and
CERTAIN STOCKHOLDERS OF HORIZONS TECHNOLOGY, INC.
_____________________________
Dated as of February 26, 1998
_____________________________
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
SECTION 1. DESCRIPTION OF TRANSACTION. . . . . . . . . . . . . . . . . . . . . 2
1.1 Merger of Merger Sub into the Company . . . . . . . . . . . . . . . 2
1.2 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Closing; Effective Time . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Certificate of Incorporation and Bylaws; Directors and Officers . . 2
1.5 Payment and Conversion of Shares. . . . . . . . . . . . . . . . . . 3
1.6 Employee Stock Options and Company Warrants . . . . . . . . . . . . 4
1.7 Closing of the Company's Transfer Books . . . . . . . . . . . . . . 5
1.8 Exchange of Certificates. . . . . . . . . . . . . . . . . . . . . . 5
1.9 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.10 Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.11 Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . 7
1.12 Further Action. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . 7
2.1 Due Organization; Subsidiaries; Etc. . . . . . . . . . . . . . . . 7
2.2 Certificate of Incorporation and Bylaws; Records. . . . . . . . . . 8
2.3 Capitalization, Etc. . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 10
2.5 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . 11
2.6 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.7 Bank Accounts; Receivables. . . . . . . . . . . . . . . . . . . . . 11
2.8 Equipment; Leasehold. . . . . . . . . . . . . . . . . . . . . . . . 11
2.9 Proprietary Assets. . . . . . . . . . . . . . . . . . . . . . . . . 12
2.10 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.11 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.12 Compliance with Legal Requirements. . . . . . . . . . . . . . . . . 17
2.13 Governmental Authorizations . . . . . . . . . . . . . . . . . . . . 17
2.14 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.15 Employee and Labor Matters; Benefit Plans . . . . . . . . . . . . . 19
2.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . 21
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
2.17 ESOP Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.19 Related Party Transactions. . . . . . . . . . . . . . . . . . . . . 23
2.20 Legal Proceedings; Orders . . . . . . . . . . . . . . . . . . . . . 24
2.21 Authority; Binding Nature of Agreement. . . . . . . . . . . . . . . 24
2.22 Non-Contravention; Consents . . . . . . . . . . . . . . . . . . . . 24
2.23 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.24 Accounting Matters. . . . . . . . . . . . . . . . . . . . . . . . . 26
2.25 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE DESIGNATED
STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . 26
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB . . . . . . 27
4.1 Due Organization; Etc . . . . . . . . . . . . . . . . . . . . . . . 27
4.2 Certificate of Incorporation and By-Laws. . . . . . . . . . . . . . 27
4.3 Capitalization, Etc. . . . . . . . . . . . . . . . . . . . . . . . 28
4.4 SEC Filings; Financial Statements . . . . . . . . . . . . . . . . . 28
4.5 Absence of Certain Changes or Events. . . . . . . . . . . . . . . . 29
4.6 Compliance with Legal Requirements. . . . . . . . . . . . . . . . . 29
4.7 Governmental Authorizations . . . . . . . . . . . . . . . . . . . . 29
4.8 Legal Proceedings; Orders . . . . . . . . . . . . . . . . . . . . . 29
4.9 Authority; Binding Nature of Agreement. . . . . . . . . . . . . . . 30
4.10 Valid Issuance. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.11 Non-Contravention; Consents . . . . . . . . . . . . . . . . . . . . 30
4.12 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.13 Government Contracts; Government Bids . . . . . . . . . . . . . . . 32
4.14 Accounting Matters. . . . . . . . . . . . . . . . . . . . . . . . . 32
4.15 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5. CERTAIN COVENANTS OF THE COMPANY AND THE DESIGNATED STOCKHOLDERS. . 32
5.1 Access and Investigation. . . . . . . . . . . . . . . . . . . . . . 32
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
5.2 Operation of the Company's Business . . . . . . . . . . . . . . . . 33
5.3 Notification; Updates to Company Disclosure Schedule. . . . . . . . 35
5.4 No Negotiation. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.5 ESOP Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6. CERTAIN COVENANTS OF PARENT . . . . . . . . . . . . . . . . . . . . 37
6.1 Access and Investigation. . . . . . . . . . . . . . . . . . . . . . 37
6.2 Notification; Updates to Parent Disclosure Schedule . . . . . . . . 37
SECTION 7. ADDITIONAL COVENANTS OF THE COMPANY AND PARENT. . . . . . . . . . . 38
7.1 Filings and Consents. . . . . . . . . . . . . . . . . . . . . . . . 38
7.2 Company Stockholders' Meeting . . . . . . . . . . . . . . . . . . . 38
7.3 Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . 38
7.4 Pooling of Interests. . . . . . . . . . . . . . . . . . . . . . . . 38
7.5 Affiliate Agreements. . . . . . . . . . . . . . . . . . . . . . . . 38
7.6 Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.7 Registration Statement; Proxy Statement . . . . . . . . . . . . . . 39
7.8 Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . 39
7.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.10 FIRPTA Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.11 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.12 Treatment of Employee Plans and Benefits. . . . . . . . . . . . . . 40
7.13 "Post-Closing" Insurance. . . . . . . . . . . . . . . . . . . . . . 40
7.14 Directors' and Officers' Indemnification and Insurance. . . . . . . 41
7.15 Earnings Release. . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB. . . . 41
8.1 Accuracy of Representations . . . . . . . . . . . . . . . . . . . . 41
8.2 Performance of Covenants. . . . . . . . . . . . . . . . . . . . . . 42
8.3 Stockholder Approval. . . . . . . . . . . . . . . . . . . . . . . . 42
8.4 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.5 Agreements and Documents. . . . . . . . . . . . . . . . . . . . . . 42
8.6 FIRPTA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 43
iii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
8.7 Compliance With the Securities Act. . . . . . . . . . . . . . . . . 43
8.8 Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.9 No Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.10 Effectiveness of Registration Statement . . . . . . . . . . . . . . 43
8.11 No Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 43
8.12 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.13 Average Sales Price . . . . . . . . . . . . . . . . . . . . . . . . 44
8.14 Stock Voting Agreement. . . . . . . . . . . . . . . . . . . . . . . 44
8.15 Tax Representation Letters. . . . . . . . . . . . . . . . . . . . . 44
8.16 Representation and Warranty Insurance . . . . . . . . . . . . . . . 44
SECTION 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. . . . . . . . . 44
9.1 Accuracy of Representations . . . . . . . . . . . . . . . . . . . . 44
9.2 Performance of Covenants. . . . . . . . . . . . . . . . . . . . . . 44
9.3 Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.4 Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.5 No Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.6 Effectiveness of Registration Statement . . . . . . . . . . . . . . 45
9.7 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.8 Average Sales Price . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 10. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.1 Termination Events. . . . . . . . . . . . . . . . . . . . . . . . . 46
10.2 Termination Procedures. . . . . . . . . . . . . . . . . . . . . . . 46
10.3 Termination Fees. . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.4 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 11. SURVIVAL OF REPRESENTATIONS, ETC.; INDEMNIFICATION, ETC. . . . . . 47
11.1 Survival of Representations, Etc. . . . . . . . . . . . . . . . . . 47
11.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.3 Limits on Indemnification and Liability . . . . . . . . . . . . . . 48
11.4 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.5 Defense of Third Party Claims . . . . . . . . . . . . . . . . . . . 49
iv.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
11.6 Exercise of Remedies by Indemnitees Other Than Parent . . . . . . . 49
SECTION 12. MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 49
12.1 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . 49
12.2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 49
12.3 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.5 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.6 Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . 51
12.7 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.10 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 52
12.11 Remedies Cumulative; Specific Performance . . . . . . . . . . . . . 52
12.12 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.13 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.14 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.15 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . 53
12.16 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.17 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
LIST OF EXHIBITS:
EXHIBIT A - DESIGNATED STOCKHOLDERS
EXHIBIT B - CERTAIN DEFINITIONS
EXHIBIT C - DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
EXHIBIT D-1 - FORM OF AFFILIATE AGREEMENT
EXHIBIT D-2 - PERSONS TO EXECUTE AFFILIATE AGREEMENTS
EXHIBIT E - FORM OF TAX REPRESENTATION LETTER OF COOLEY GODWARD LLP
EXHIBIT F - FORM OF TAX REPRESENTATION LETTER OF JENKENS & GILCHRIST, P.C.
EXHIBIT G - FORM OF RELEASE
EXHIBIT H - FORM OF LEGAL OPINION OF JENKENS & GILCHRIST, P.C.
EXHIBIT I - FORM OF LEGAL OPINION OF COOLEY GODWARD LLP
v.
<PAGE>
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is made
and entered into as of February 26, 1998, by and among: THE TITAN CORPORATION,
a Delaware corporation ("Parent"); SUNRISE ACQUISITION SUB, INC., a Delaware
corporation and a wholly owned subsidiary of Parent ("Merger Sub"); HORIZONS
TECHNOLOGY, INC., a Delaware corporation (the "Company"); and the parties
identified on Exhibit A (the "Designated Stockholders"). Certain capitalized
terms used in this Agreement are defined in Exhibit B.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of
Merger Sub into the Company in accordance with this Agreement and the Delaware
General Corporation Law (the "Merger"). 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"). For accounting purposes, it is intended that the Merger
be treated as a "pooling of interests."
C. This Agreement has been approved by the respective boards of
directors of Parent, Merger Sub and the Company.
D. The Designated Stockholders own a total of 5,172,500 shares of the
Common Stock (with par value $.01) of the Company ("Company Common Stock") and
no other shares of capital stock of the Company. Each Designated Stockholder
has executed and delivered to Parent a Stock Voting Agreement dated on or about
the date hereof (the "Stock Voting Agreement").
1.
<PAGE>
AGREEMENT
The parties to this Agreement 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 Delaware General
Corporation Law.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Parent, 3033 Science Park Road, San Diego, California 92121, on March 31,
1998, or at such other time and date as the Parties agree, but in no event
later than the second business day after the date that all of the conditions
set forth in Sections 8 and 9 have been satisfied or waived (the "Closing Date"
and, unless and until the Closing has occurred, the "Scheduled Closing Time").
Contemporaneously with or as promptly as practicable after the Closing, a
properly executed Certificate of Merger conforming to the requirements of the
Delaware General Corporation Law shall be filed with the Secretary of State of
the State of Delaware. The Merger shall become effective at the time such
Certificate of Merger is filed with and accepted by the Secretary of State of
the State of Delaware (the "Effective Time").
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Unless otherwise determined by Parent and the Company prior to the Effective
Time:
(a) the Certificate of Incorporation of Merger Sub in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation as of the Effective Time;
(b) the Bylaws of Merger Sub in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation as of the
Effective Time; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals identified on
Exhibit C.
1.5 PAYMENT AND CONVERSION OF SHARES.
(a) Subject to Sections 1.8(d) and 1.9, at the Effective Time, by
virtue of the Merger and without any further action on the part of Parent,
Merger Sub, the Company or any stockholder of the Company:
(i) each share of Company Common Stock outstanding immediately
prior to the Effective Time shall be converted into the right to receive the
"Applicable Fraction"
2.
<PAGE>
(as defined in Section 1.5(b)(i)) of a share of the common stock (par value
$.01 per share) of Parent ("Parent Common Stock");
(ii) each share of the Company's Series A Preferred Stock (with
par value $.01) (the "Series A Preferred Stock"), if any, outstanding
immediately prior to the Effective Time shall be converted into the right to
receive the fraction of a share of Parent Common Stock (A) having a numerator
equal to $5.00 and (B) having a denominator equal to the Designated Parent
Stock Price (as defined in Section 1.5(b)(iv)); and
(iii) each share of the common stock (with par value $.01)
of Merger Sub outstanding immediately prior to the Effective Time shall be
converted into one share of common stock of the Surviving Corporation.
(b) For purposes of this Agreement:
(i) The "Applicable Fraction" shall be the fraction: (A) having
a numerator equal to the amount by which (x) $23,850,000, minus the "Balance
Sheet Deduction," plus $65,240 (which the Company represents to be a good faith
estimate of the aggregate exercise prices of all of the Company Options),
exceeds (y) the "Aggregate Preferred Stock Valuation" and (B) having a
denominator equal to the amount determined by multiplying (1) the "Adjusted
Company Share Amount" by (2) the "Designated Parent Stock Price".
(ii) The "Aggregate Preferred Stock Valuation" shall be the
amount determined by multiplying (A) $5.00 by (B) the aggregate number of
shares of Series A Preferred Stock outstanding immediately prior to the
Effective Time.
(iii) The "Adjusted Company Share Amount" shall be the sum
of (A) the aggregate number of shares of Company Common Stock outstanding
immediately prior to the Effective Time (including any such shares that are
subject to a repurchase option or risk of forfeiture under any restricted stock
purchase agreement or other agreement), and (B) the aggregate number of shares
of Company Common Stock purchasable under or otherwise subject to all Company
Options outstanding immediately prior to the Effective Time (including all
shares of Company Common Stock that may ultimately be purchased under Company
Options that are unvested or are otherwise not then exercisable).
(iv) The "Designated Parent Stock Price" shall be (A) the
average of the closing sale prices of a share of Parent Common Stock as
reported on the New York Stock Exchange for each of the twenty consecutive
trading days immediately preceding the Closing Date (the "Average Sales
Price"), if the Average Sales Price is less than or equal to $8.00 per share
and greater than or equal to $6.00 per share; (B) $8.00 if the Average Sales
Price is greater than $8.00 per share; or (C) $6.00 if the Average Sales Price
is less than $6.00 per share.
(v) The "Balance Sheet Deduction" shall be (A) $4,500,000 plus
or minus, as described below, (B) the amount by which the Company's Working
Capital (determined prior to the Closing as set forth in Section 1.5(c) below)
is less than (in which case such amount shall be added to the amount determined
in (A) above) or greater than (in which case such amount shall be subtracted
from the amount determined in (A) above) negative
3.
<PAGE>
$2,150,000; provided, however, no such adjustment shall be made unless the
Company's Working Capital is at least $200,000 less than or greater than, as
the case may be, negative $2,150,000 (and in such case such adjustment shall
be made with respect to the entire amount less than or greater than, as
appropriate, negative $2,150,000).
(c) As soon as practicable, and prior to March 15, 1998, or at such
other time as the parties may agree, the Company shall provide to Parent a
certificate (the "Estimated Deduction Certificate") executed by the Company's
Chief Executive Officer, which shall set forth the Company's good faith best
estimate of the Balance Sheet Deduction (determined using the Company's
unaudited balance sheet as of January 31, 1998, and as provided in Section
1.5(b)(v) above), and such estimate shall be used for purposes of determining
the Applicable Fraction; provided, however, that if Parent determines that the
Estimated Deduction Certificate underestimates the Balance Sheet Deduction (as
determined by the Parent's audit of the Company's records to be completed
within 15 days following delivery of such Estimated Deduction Certificate),
Parent and the Company shall cooperate to mutually determine the appropriate
Applicable Fraction consistent with the foregoing provisions (and any
disagreement between them shall be resolved via arbitration).
1.6 EMPLOYEE STOCK OPTIONS AND COMPANY WARRANTS. At the Effective Time,
each stock option that is then outstanding under the Company's 1988 Amended
Stock Option Plan, whether vested or unvested (a "Company Option"), and each
warrant to purchase shares of Company Common Stock ("Company Warrants") that
does not by its terms terminate in connection with the Merger, shall be assumed
(or substituted in the case of Company Warrants) by Parent in accordance with
the terms (as in effect as of the date of this Agreement) of the Company's 1988
Amended Stock Option Plan and the stock option agreement by which such Company
Option is evidenced, or the Company Warrant (as applicable). All rights with
respect to Company Common Stock under outstanding Company Options and such
surviving Company Warrants shall thereupon be converted into rights with
respect to Parent Common Stock. Accordingly, from and after the Effective
Time, (a) each Company Option and Company Warrant assumed (as substituted in
the case of Company Warrants) by Parent may be exercised solely for shares of
Parent Common Stock, (b) the number of shares of Parent Common Stock subject to
each such assumed Company Option and Company Warrant shall be equal to the
number of shares of Company Common Stock that were subject to such Company
Option or Company Warrant (as applicable) immediately prior to the Effective
Time multiplied by the Applicable Fraction, rounded down to the nearest whole
number of shares of Parent Common Stock, (c) the per share exercise price for
the Parent Common Stock issuable upon exercise of each such assumed Company
Option and Company Warrant shall be determined by dividing the exercise price
per share of Company Common Stock subject to such Company Option or Company
Warrant (as applicable), as in effect immediately prior to the Effective Time,
by the Applicable Fraction, and rounding the resulting exercise price up to the
nearest whole cent, and (d) all restrictions on the exercise of each such
assumed Company Option and Company Warrant shall continue in full force and
effect, and the term, exercisability, vesting schedule and other provisions of
such Company Option or Company Warrant (as applicable) shall otherwise remain
unchanged; provided, however, that each such assumed Company Option and Company
Warrant shall, in accordance with its terms, be subject to further adjustment
as appropriate to reflect any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction
4.
<PAGE>
effected by Parent after the Effective Time. The Company and Parent shall
take all action that may be necessary (under the Company's 1988 Amended
Stock Option Plan and otherwise) to effectuate the provisions of this Section
1.6. Following the Closing, Parent will send to each holder of an assumed
Company Option a written notice setting forth (i) the number of shares of
Parent Common Stock subject to such assumed Company Option, and (ii) the
exercise price per share of Parent Common Stock issuable upon exercise of
such assumed Company Option.
1.7 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have
any rights as stockholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of
any such shares of the Company's capital 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 the Company's capital
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 1.8.
1.8 EXCHANGE OF CERTIFICATES.
(a) At or as soon as practicable after the Effective Time, Parent,
or a transfer agent designated by Parent (the "Transfer Agent") will send to
the holders of Company Stock Certificates (i) a letter of transmittal in
customary form and containing such provisions as Parent may reasonably specify,
and (ii) instructions for use in effecting the surrender of Company Stock
Certificates in exchange for certificates representing Parent Common Stock.
Upon surrender of a Company Stock Certificate to Parent for exchange, together
with a duly executed letter of transmittal and such other documents as may be
reasonably required by Parent or the Transfer Agent, the holder of such Company
Stock Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of whole shares of Parent Common Stock that
such holder has the right to receive pursuant to the provisions of this Section
1, and the Company Stock Certificate so surrendered shall be canceled. Until
surrendered as contemplated by this Section 1.8, each Company Stock Certificate
shall be deemed, from and after the Effective Time, to represent only the right
to receive upon such surrender a certificate representing shares of Parent
Common Stock (and cash in lieu of any fractional share of Parent Common Stock)
as contemplated by this Section 1. 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 may reasonably direct) as indemnity against any claim that may be
made against Parent or the Surviving Corporation with respect to such Company
Stock Certificate.
(b) 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, and no cash
payment in lieu of any fractional share shall be paid to any such holder, until
such holder surrenders such Company Stock Certificate in accordance with
5.
<PAGE>
this Section 1.8 (at which time such holder shall be entitled to receive all
such dividends and distributions and such cash payment).
(c) 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 capital
stock of the Company 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 Designated Parent Stock Price.
(d) Parent and the Surviving Corporation (or the Transfer Agent on
their behalf) shall be entitled to deduct and withhold from any consideration
payable or otherwise deliverable to any holder or former holder of capital
stock of the Company pursuant to this Agreement such amounts as Parent or the
Surviving Corporation may be required to deduct or withhold therefrom under the
Code or under any provision of state, local or foreign tax law (or, in the
alternative, Parent or the Transfer Agent, at Parent's option may request tax
information and other documentation to ensure no withholding is necessary). To
the extent such amounts are so deducted or withheld, such amounts shall be
treated for all purposes under this Agreement as having been paid to the Person
to whom such amounts would otherwise have been paid.
(e) Neither Parent nor the Surviving Corporation shall be liable to
any holder or former holder of capital stock of the Company 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.
1.9 DISSENTING SHARES.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any shares of capital stock of the Company that, as of the Effective
Time, are or may become "dissenting shares" within the meaning of applicable
law, shall not be converted into or represent the right to receive Parent
Common Stock in accordance with Section 1.5 (or cash in lieu of fractional
shares in accordance with Section 1.8(c)), and the holder or holders of such
shares shall be entitled only to such rights as may be granted to such holder
or holders pursuant to applicable law; provided, however, that if the status of
any such shares as "dissenting shares" shall not be perfected, or if any such
shares shall lose their status as "dissenting shares," then, as of the later of
the Effective Time or the time of the failure to perfect such status or the
loss of such status, such shares shall automatically be converted into and
shall represent only the right to receive (upon the surrender of the
certificate or certificates representing such shares) Parent Common Stock in
accordance with Section 1.5 (and cash in lieu of fractional shares in
accordance with Section 1.8(c)).
(b) The Company shall give Parent (i) prompt notice of any written
demand received by the Company prior to the Effective Time to require the
Company to purchase shares of capital stock of the Company pursuant to
applicable law and of any other demand, notice or instrument delivered to the
Company prior to the Effective Time pursuant to applicable law, and
6.
<PAGE>
(ii) the opportunity to participate in all negotiations and proceedings with
respect to any such demand, notice or instrument. The Company shall not make
any payment or settlement offer prior to the Effective Time with respect to
any such demand unless Parent shall have consented in writing to such payment
or settlement offer.
1.10 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 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 TREATMENT. For accounting purposes, the Merger is
intended to be treated 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 or desirable 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.
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 disclosure schedule prepared by the Company and delivered by
the Company to Parent on the date of this Agreement (the "Company Disclosure
Schedule"):
2.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(a) Each of the Company and its majority-owned subsidiaries
(including any subsidiaries of such subsidiaries) (each of the Company and such
subsidiaries is individually referred to herein as "Acquired Corporation" and
collectively as the "Acquired Corporations") is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all necessary power and authority: (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 Company Contracts. For purposes of
this Agreement, a company's "subsidiaries" shall mean and include all Entities
in which such company owns a majority interest or has the power to vote a
majority of the interests.
(b) Since January 1, 1993, except as set forth in Part 2.1 of the
Company Disclosure Schedule, the Company has not conducted any business under
or otherwise used, for any purpose or in any jurisdiction, any fictitious name,
assumed name or other name, other than the name "Horizons Technology, Inc."
(c) Each of the Acquired Corporations is qualified, authorized,
registered or licensed to do business as a foreign corporation in any
jurisdiction where so required under applicable law, except where the failure
to be so qualified, authorized, registered or licensed has
7.
<PAGE>
not had and will not have a Material Adverse Effect on the Acquired
Corporation. Each of the Acquired Corporations is in good standing as a
foreign corporation in each of such jurisdictions.
(d) Part 2.1 of the Company Disclosure Schedule accurately sets
forth (i) the names of each of the Acquired Corporations, (ii) the names of the
members of each of the Acquired Corporations' board of directors, (iii) the
names of the members of each committee of each of the Acquired Corporations'
board of directors, and (iv) the names and titles of each of the Acquired
Corporations' officers.
(e) Except for the equity interests identified in Part 2.1 of the
Company Disclosure Schedule, each of the Acquired Corporations does not own,
beneficially or otherwise, any shares or other securities of, or any direct or
indirect equity interest in, any Entity. Each of the Acquired Corporations has
not agreed and is not obligated to make any future investment in or capital
contribution to any Entity. Each of the Acquired Corporations has not
guaranteed and is not responsible or liable for any obligation of any of the
Entities in which it owns any equity interest.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered or made available to Parent accurate and complete copies of: (1) the
Company's Certificate of Incorporation and bylaws, including all amendments
thereto, and all charter documents and bylaws and amendments thereto relating
to the other Acquired Corporations; (2) the stock records of each of the
Acquired Corporations, and (3) the minutes and other records of the meetings
and other proceedings (including any actions taken by written consent) of the
stockholders of each of the Acquired Corporations, the board of directors of
each of the Acquired Corporations and all committees of the board of directors
of each of the Acquired Corporations. There have been no formal meetings (or
other proceedings required under applicable law to be reflected in the
Company's minute book) of the stockholders of any of the Acquired Corporations,
the board of directors of any of the Acquired Corporations or any committee of
the board of directors of any of the Acquired Corporations that are not
accurately reflected in such minutes or other records. There has not been any
violation of any of the provisions of the Certificate of Incorporation or
bylaws or other charter documents of any of the Acquired Corporations, and each
of the Acquired Corporations has not taken any action that is inconsistent in
any material respect with any resolution adopted by the its stockholders, its
board of directors or any committee of its board of directors. The stock
records and minute books of the Acquired Corporations are accurate, up-to-date
and complete in all material respects.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of: (i)
12,000,000 shares of Common Stock (with par value $.01), of which 7,496,953
shares have been issued and are outstanding as of the date of this Agreement;
and (ii) 2,500,000 shares of Preferred Stock (with par value $.01), all of
which have been designated "Series A Preferred Stock," of which 500,000 shares
have been issued and are outstanding as of the date of this Agreement. Except
as set forth in Part 2.3 of Company Disclosure Schedule, each outstanding share
of Series A Preferred Stock is convertible into one share of Company Common
Stock. All of the outstanding shares of Company Common Stock and Series A
Preferred Stock have been duly authorized and validly issued, and are fully
paid and non-assessable. The Company has made available to
8.
<PAGE>
Parent an accurate and complete description of the terms of each repurchase
option which is held by the Company and to which any of such shares is
subject as well as any obligation by the Company to pay dividends on any of
its stock.
(b) The Company has reserved 1,225,760 shares of Company Common
Stock for issuance under its 1988 Amended Stock Option Plan, of which options
to purchase 27,700 shares are outstanding as of the date of this Agreement.
The Company has reserved 158,364 shares of Company Common Stock for issuance
under outstanding warrants to purchase Company Common Stock. Part 2.3 of the
Company Disclosure Schedule accurately sets forth, with respect to each Company
Option and Company Warrant that is outstanding as of the date of this
Agreement: (i) the name of the holder of such Company Option or Company
Warrant; (ii) the total number of shares of Company Common Stock that are
subject to such Company Option or Company Warrant and the number of shares of
Company Common Stock with respect to which such Company Option or Company
Warrant is immediately exercisable; (iii) the date on which such Company Option
or Company Warrant was granted and the term of such Company Option or Company
Warrant; (iv) the exercise schedule or period, as applicable, for such Company
Option or Company Warrant; (v) the exercise price per share of Company Common
Stock purchasable under such Company Option or Company Warrant; and (vi)
whether such Company Option has been designated an "incentive stock option" as
defined in Section 422 of the Code. Except as set forth above and in Part 2.3
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) 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 (as defined in
Exhibit B hereto) 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. All of the Company Warrants except the
Company Warrants issued to Imperial Bank shall terminate and be of no further
force and effect as of the Closing.
(c) All outstanding shares of Company Common Stock and Series A
Preferred Stock, and all outstanding Company Options and Company Warrants, 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 Contracts.
(d) Except as set forth in Part 2.3 of the Company Disclosure
Schedule, since January 31, 1993, the Company has never repurchased, redeemed
or otherwise reacquired any shares of capital stock or other securities of the
Company. All securities so reacquired by the Company were reacquired in
compliance with (i) the applicable provisions of the Delaware General
Corporation Law and all other applicable Legal Requirements, and (ii) all
requirements set forth in applicable restricted stock purchase agreements and
other applicable Contracts.
(i) 321,322 shares of the Company Common Stock, and no other
securities of the Company, have been issued to and are held by the Company's
Employee Stock Ownership Plan and Trust (the "Company ESOP") and 300,000 Shares
of the Company's Series
9.
<PAGE>
A Preferred Stock, and no other securities of the Company, have been issued
and are held by the Company's Retirement Plan.
(ii) All of the outstanding shares of capital stock of each of
the subsidiaries of the Company are validly issued (in compliance with all
applicable securities laws and other Legal Requirements and applicable Company
Contracts), fully paid and nonassessable and are owned beneficially and of
record by the Company, free and clear of any Encumbrance.
2.4 FINANCIAL STATEMENTS
(a) The Company has delivered or made available to Parent the
following financial statements and notes (collectively, the "Company Financial
Statements"):
(i) the audited balance sheets of the Company as of January 31,
1997 and 1996, and the related audited income statements, statements of
stockholders' equity and statements of cash flows of the Company for the years
then ended, together with the notes thereto and the unqualified report and
opinion of Ernst & Young LLP relating thereto; and
(ii) the unaudited balance sheet of the Company as of January 2,
1998 (the "Unaudited Interim Balance Sheet"), and the related unaudited income
statement of the Company for the eleven months then ended.
(b) The Company Financial Statements are accurate and complete in
all material respects except as adjusted per agreement with Parent and present
fairly the financial position of the Company and the other Acquired
Corporations as of the respective dates thereof and the results of operations
and (in the case of the financial statements referred to in Section 2.4(a)(i))
cash flows of the Company and the other Acquired Corporations for the periods
covered thereby. The Company Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods covered (except that the financial
statements referred to in Section 2.4(a)(ii) do not contain footnotes).
2.5 ABSENCE OF CHANGES. Since December 31, 1997 there has not been
(a) any change, or any development or combination of developments that has had
or would reasonably be expected to have a Material Adverse Effect on the
Company, or (b) any material 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.
2.6 TITLE TO ASSETS
(a) Each of the Acquired Corporations owns, and has good, valid and
marketable title to, all assets purported to be owned by it, including: (i)
all assets reflected on the Unaudited Interim Balance Sheet; (ii) all assets
referred to in Parts 2.1, 2.7(b) and 2.9 of the Company Disclosure Schedule and
all of its rights under the Contracts identified in Part 2.10 of the Company
Disclosure Schedule; and (iii) all other assets reflected in its books and
records as being owned by such Acquired Corporation. Except as set forth in
Part 2.6 of the Company
10.
<PAGE>
Disclosure Schedule, all of said assets are owned by the Acquired
Corporations free and clear of any liens or other Encumbrances, except for
any lien for current taxes not yet due and payable.
(b) Part 2.6 of the Company Disclosure Schedule identifies all
material assets that are material to the business of the Acquired Corporations
and that are being leased or licensed to any of the Acquired Corporations.
2.7 BANK ACCOUNTS; RECEIVABLES
(a) The Company has provided to Parent accurate records for each
account (including account numbers) maintained by or for the benefit of any of
the Acquired Corporations at any bank or other financial institution.
(b) The Company has provided to Parent accurate records reflecting a
breakdown and aging of all accounts receivable, notes receivable and other
receivables of the Acquired Corporations as of December 31, 1997. Except as
set forth in Part 2.7(b) of the Company Disclosure Schedule, all existing
accounts receivable of the Acquired Corporations (including those accounts
receivable reflected on the Unaudited Interim Balance Sheet that have not yet
been collected and those accounts receivable that have arisen since December
31, 1997 and have not yet been collected) (i) represent valid obligations of
customers of the Acquired Corporations arising from bona fide transactions
entered into in the ordinary course of business, and (ii) are current and to
the best knowledge of the Company will be collected in full when due, without
any counterclaim or set off (net of a reasonable allowance for doubtful
accounts).
2.8 EQUIPMENT; LEASEHOLD
(a) All material items of equipment and other tangible assets owned
by or leased to the Acquired Corporations are adequate for the uses to which
they are being put, are in good condition and repair (ordinary wear and tear
excepted) and are adequate for the conduct of the Acquired Corporations'
businesses, in the manner in which such businesses are currently being
conducted.
(b) None of the Acquired Corporations own any real property or any
interest in real property, except for the leasehold created under the real
property leases identified in Part 2.10 of the Company Disclosure Schedule.
2.9 PROPRIETARY ASSETS
(a) Part 2.9(a)(i) of the Company Disclosure Schedule sets forth,
with respect to each Company Proprietary Asset registered with any Governmental
Body or for which an application has been filed with any Governmental Body, (i)
a brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application.
Part 2.9(a)(ii) of the Company Disclosure Schedule identifies and provides a
brief description of all other material Company Proprietary Assets owned by the
Company or any other Acquired Corporation. Part 2.9(a)(iii) of the Company
Disclosure Schedule identifies and provides a brief description of each
material Proprietary Asset licensed to the Company or any other Acquired
Corporation by any Person (except for any Proprietary Asset that is licensed to
11.
<PAGE>
the Company or any other Acquired Corporation under any third party software
license generally available to the public at a cost of less than $10,000), and
identifies the license agreement under which such Proprietary Asset is being
licensed to the Company or any other Acquired Corporation. Except as set forth
in Part 2.9(a)(iv) of the Company Disclosure Schedule the Company (or any other
Acquired Corporation, as appropriate) has good, valid and marketable title to
all of the Company Proprietary Assets identified in Parts 2.9(a)(i) and
2.9(a)(ii) of the Company Disclosure Schedule, free and clear of all liens and
other Encumbrances, and has a valid right (contractual or otherwise) to use all
Proprietary Assets identified in Part 2.9(a)(iii) of the Company Disclosure
Schedule. Except as set forth in Part 2.9(a)(v) of the Company Disclosure
Schedule, no Acquired Corporation is obligated to make any payment to any
Person for the use of any Company Proprietary Asset. Except as set forth in
Part 2.9(a)(vi) of the Company Disclosure Schedule, no Acquired Corporation has
developed jointly with any other Person any Company Proprietary Asset with
respect to which such other Person has any rights.
(b) The Acquired Corporations have taken all measures and
precautions reasonably necessary to protect and maintain the confidentiality
and secrecy of all Company Proprietary Assets (except Company Proprietary
Assets whose value would be unimpaired by public disclosure) and otherwise to
maintain and protect the value of all Company Proprietary Assets.
(c) None of the Company Proprietary Assets infringes or conflicts
with any Proprietary Asset owned or used by any other Person. None of the
Acquired Corporations is infringing, misappropriating or making any unlawful
use of, and the Acquired Corporations have not at any time infringed,
misappropriated or made any unlawful use of, or received any notice or other
communication (in writing or otherwise) of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of, any Proprietary
Asset owned or used by any other Person. To the best of the knowledge of the
Company, no other Person is infringing, misappropriating or making any unlawful
use of, and no Proprietary Asset owned or used by any other Person infringes or
conflicts with, any Company Proprietary Asset.
(d) Except as set forth in Part 2.9(d) of the Company Disclosure
Schedule: (i) each Company Proprietary Asset conforms in all material respects
with any specification, documentation and performance standard provided with
respect thereto by or on behalf of any Acquired Corporation; and (ii) there has
not been any material claim by any customer or other Person alleging that any
Company Proprietary Asset does not conform in all material respects with any
specification, documentation, performance standard, representation or statement
made or provided by or on behalf of any Acquired Corporation, and, to the best
of the knowledge of the Company, there is no basis for any such claim. The
Company has established adequate reserves on the Unaudited Interim Balance
Sheet to cover all costs associated with any obligations that the Acquired
Corporations may have with respect to the correction or repair of programming
errors or other defects in the Company Proprietary Assets.
(e) The Company Proprietary Assets constitute all the Proprietary
Assets reasonably necessary to enable the Acquired Corporations to conduct
their businesses in the manner in which such businesses have been and are being
conducted. Except as set forth in Part 2.9(e) of the Company Disclosure
Schedule, (i) the Acquired Corporations have not licensed any of the Company
Proprietary Assets to any Person on an exclusive basis, and (ii) the Acquired
12.
<PAGE>
Corporations have not entered into any covenant not to compete or Contract
limiting the ability to exploit fully any Proprietary Assets or to transact
business in any market or geographical area or with any Person.
(f) Except as set forth in Part 2.9(f) of the Company Disclosure
Schedule, (i) all current and former employees of the Acquired Corporations
have executed and delivered to the Acquired Corporations an agreement that is
substantially identical to the standard form of Confidential Information and
Invention Assignment Agreement or similar agreement used by the Company and
previously delivered to Parent, and (ii) all current and former consultants and
independent contractors to the Acquired Corporations have executed and
delivered to the Acquired Corporations an agreement that is substantially
identical to the standard form of Consultant Confidential Information and
Invention Assignment Agreement or similar agreement used by the Company and
previously delivered to Parent.
2.10 CONTRACTS
(a) Part 2.10 of the Company Disclosure Schedule identifies each
Contract of the Company or any of the other Acquired Corporations material to
the Acquired Corporations, considered as a whole (each a "Material Company
Contract"), including the following (to the extent material):
(i) each Company Contract relating to the employment of, or
the performance of services by, any employee, consultant or independent
contractor;
(ii) each Company Contract relating to the acquisition,
transfer, use, development, sharing or license of any Proprietary Asset;
(iii) each Company Contract imposing any material
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 with any other Person, or
(C) develop or distribute any technology;
(iv) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
(v) each Company Contract relating to the creation of any
Encumbrance with respect to any asset of any of the Acquired Corporations;
(vi) each Company Contract involving or incorporating any
guaranty, any pledge, any performance or completion bond, any indemnity or any
surety arrangement;
(vii) each Company Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits, losses, costs
or liabilities;
(viii) each Company Contract 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 Related Party (as defined in Section 2.19);
13.
<PAGE>
(ix) any other Company Contract that was entered into by any
Acquired Corporation outside the ordinary course of business or was
inconsistent with any such Acquired Corporation's past practices;
(b) The Acquired Corporations have delivered or made available to
Parent accurate and complete copies of all written Contracts identified in Part
2.10 of the Company Disclosure Schedule, including all amendments thereto.
Each Contract identified in Part 2.10 of the Company Disclosure Schedule is
valid and in full force and effect, and, to the best of the knowledge of the
Company, is enforceable by the Acquired Corporations 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) Except as set forth in Part 2.10 of the Company Disclosure
Schedule:
(i) none of the Acquired Corporations has materially violated
or breached, or committed any material default under, any Company Contract,
and, to the best of the knowledge of the Company, no other Person has
materially violated or breached, or committed any material default under, any
Company Contract;
(ii) to the best of the knowledge of the Company, no event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time) will, or would reasonably be expected to, (A) result in a
material violation or breach of any of the provisions of any Material Company
Contract, (B) give any Person the right to declare a default or exercise any
remedy under any Material Company Contract, (C) give any Person the right to
accelerate the maturity or performance of any Material Company Contract, or
(D) give any Person the right to cancel, terminate or modify any Material
Company Contract;
(iii) since January 31, 1997, none of the Acquired
Corporations has received any notice or other communication regarding any
material violation or breach of, or default under, any Company Contract; and
(iv) none of the Acquired Corporations has waived any of its
material rights under any Material Company Contract.
(d) No Person is renegotiating any amount paid or payable to the
Company under any Material Company Contract or any other material term or
provision of any Material Company Contract.
(e) The Contracts identified in Part 2.10 of the Company Disclosure
Schedule collectively constitute all of the Contracts reasonably necessary to
enable the Acquired Corporations to conduct their businesses in the manner in
which they are currently being conducted.
(f) The Company has made available to Parent all material
documentation regarding any bid, offer, award, written proposal or term sheet
which has been submitted or received by the Acquired Corporations since January
31, 1997.
14.
<PAGE>
(g) The Company has made available to Parent all material
documentation regarding the Acquired Corporations' current backlog under
Company Contracts.
(h) Since January 1, 1992, except as set forth in Part 2.10(h) of
the Company Disclosure Schedule:
(i) none of the Acquired Corporations has had any
determination of noncompliance or entered into any consent order;
(ii) each of the Acquired Corporations has complied in all
material respects with all Legal Requirements with respect to all Government
Contracts and Government Bids;
(iii) none of the Acquired Corporations has, 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 of the
Acquired Corporations in any certification, representation or disclosure
statement submitted by it with respect to any Government Contract or
Government Bid were current, accurate and complete as of the date of
submission;
(v) neither the Acquired Corporations nor any of their
current employees (while, or to the best of the Company's knowledge, prior to
becoming an employee) has been debarred or suspended from doing business with
any Governmental Body, and, to the best of the knowledge of the Company, no
circumstances exist that would sustain a debarment or suspension of any of
the Acquired Corporations or any employee of any of the Acquired Corporations;
(vi) no negative determinations of responsibility have been
issued against any of the Acquired Corporations in connection with any
Government Contract or Government Bid;
(vii) no material direct or indirect costs incurred by any
Acquired Corporation have been questioned (by written document or formal
proceeding) or disallowed as a result of a finding or determination of any
kind by any Governmental Body;
(viii) Since January 1, 1997, no Governmental Body, and no
prime contractor or higher-tier subcontractor of any Governmental Body, has
withheld or set off, or threatened to withhold or set off, any amount due to
any Acquired Corporation under any Government Contract;
15.
<PAGE>
(ix) none of the Acquired Corporations is undergoing or has
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);
(x) except as set forth in Part 2.10 of the Company
Disclosure Schedule none of the Acquired Corporations has entered into any
financing arrangement with respect to the performance of any Government
Contract;
(xi) no payment has been made by any Acquired Corporation, or
to the best knowledge of the Company, to any Person (other than to any bona
fide employee or agent (as defined in subpart 3.4 of the FAR) of the Company)
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;
(xii) each of the Acquired Corporations' cost accounting
system has not been determined by any Governmental Body not to be in
compliance with any Legal Requirement;
(xiii) each of the Acquired Corporations has complied with
all applicable regulations and other Legal Requirements and with all
applicable contractual requirements relating to the placement of legends or
restrictive markings on technical data, computer software and other
Proprietary Assets, except where any failure to do so has not and would not
reasonably be expected to have a Material Adverse Effect on the Company;
(xiv) in each case in which any Acquired Corporation has
delivered or otherwise provided any technical data, computer software or
Company Proprietary Asset to any Governmental Body in connection with any
Government Contract, such Acquired Corporation has taken reasonable measures
to mark such technical data, computer software or Company 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 Company Proprietary Asset;
(xv) each of the Acquired Corporations has reached agreement
with the cognizant government representatives approving and "closing" all
indirect costs charged to Government Contracts for 1991, 1992, and 1993, and
those years are closed;
(xvi) none of the Acquired Corporations is nor will they
be required to make any filing with or give any notice to, or to obtain any
Consent from, any Governmental Body under or in connection with any
Government Contract or Government Bid as a result of or by virtue of (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.
16.
<PAGE>
2.11 LIABILITIES. Each of the Acquired Corporations has no material
accrued, contingent or other liabilities of any nature, either matured or
unmatured (whether or not required to be reflected in financial statements in
accordance with generally accepted accounting principles, and whether due or
to become due), not otherwise reflected in the Company Financial Statements
or provided in the Company Disclosure Schedule.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of the Acquired
Corporations is, and has at all times since December 31, 1993 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 the Company. Except as set forth in Part 2.12 of
the Company Disclosure Schedule, since December 31, 1993, each of the
Acquired Corporations has 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 Requirements, except where the failure to
comply with such Legal Requirements has not had and will not have a Material
Adverse Effect on the Company.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Company Disclosure
Schedule identifies each material Governmental Authorization held by each of
the Acquired Corporations. The Governmental Authorizations identified in
Part 2.13 of the Company Disclosure Schedule are valid and in full force and
effect, and collectively constitute all Governmental Authorizations necessary
to enable each of the Acquired Corporations 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 of the Acquired
Corporations is, and at all times since December 31, 1993 has been, in
substantial compliance with the terms and requirements of the respective
Governmental Authorizations identified in Part 2.13 of the Company Disclosure
Schedule. Since December 31, 1993, the Company has 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.
2.14 TAX MATTERS
(a) All Tax Returns required to be filed by or on behalf of any
Acquired Corporation with any Governmental Body with respect to any taxable
period ending on or before the Closing Date (the "Company Returns") (i) have
been or will be filed on or before the applicable due date (including any
extensions of such due date), and (ii) have been, or will be when filed,
prepared in all material respects in compliance with all applicable Legal
Requirements. All amounts shown on the Company Returns to be due on or
before the Closing Date have been or will be paid on or before the Closing
Date. The Company has delivered or made available to Parent accurate and
complete copies of all Company Returns filed since December 31, 1990 which
have been requested by Parent.
(b) The Company Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the
dates thereof in accordance with generally accepted accounting principles.
17.
<PAGE>
(c) Except as set forth in Part 2.14 of the Company Disclosure
Schedule, there have been no examinations or audits of any Company Return
since December 31, 1990. The Company has delivered to Parent accurate and
complete copies of all audit reports and similar documents (to which it has
access) relating to the Company Returns. Except as set forth in Part 2.14 of
the Company Disclosure Schedule, no extension or waiver of the limitation
period applicable to any of the Company Returns has been granted and no such
extension or waiver has been requested from any Acquired Corporation.
(d) Except as set forth in Part 2.14 of the Company Disclosure
Schedule, since January 31, 1993 no material claim or Proceeding is pending
or has been threatened against or with respect to any Acquired Corporation in
respect of any Tax. There are no unsatisfied liabilities for Taxes
(including liabilities for interest, additions to tax and penalties thereon
and related expenses) with respect to any notice of deficiency or similar
document received by any Acquired Corporation with respect to any Tax (other
than liabilities for Taxes asserted under any such notice of deficiency or
similar document which are being contested in good faith by any such Acquired
Corporation and with respect to which adequate reserves for payment have been
established). There are no liens for Taxes upon any of the assets of any
Acquired Corporation except liens for current Taxes not yet due and payable.
Each of the Acquired Corporations has not entered into or become bound by any
agreement or consent pursuant to Section 341(f) of the Code. Each of the
Acquired Corporations has not been, and will not be, required to include any
adjustment in taxable income for any tax period (or portion thereof) pursuant
to Section 481 or 263A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions or events occurring, or
accounting methods employed, prior to the Closing.
(e) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of any Acquired Corporation that, considered
individually or considered collectively with any other such Contracts, will,
or could reasonably be expected to, give rise directly or indirectly to the
payment of any amount that would not be deductible pursuant to Section 280G
or Section 162 of the Code. Each of the Acquired Corporations is not, and
has never been, a party to or bound by any tax indemnity agreement, tax
sharing agreement, tax allocation agreement or similar Contract.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS
(a) Part 2.15(a) of the Company Disclosure Schedule identifies
each salary, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, severance pay, or termination pay plan (collectively,
the "Compensation Plans"), and each hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, including the Company
ESOP, the "Plans") sponsored, maintained, contributed to or required to be
contributed to by any Acquired Corporation for the benefit of any employee of
any Acquired Corporation ("Employee"), except for Plans which would not
require the Acquired Corporations to make payments or provide benefits having
a value in excess of $25,000 in the aggregate.
(b) Except as set forth in Part 2.15(a) of the Company Disclosure
Schedule, the Acquired Corporations do not maintain, sponsor or contribute to,
and, to the best of the
18.
<PAGE>
knowledge of Company, have not at any time in the past maintained, sponsored
or contributed to, any employee pension benefit plan (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not excluded from coverage under specific Titles or
Merger Subtitles of ERISA) for the benefit of Employees or former Employees
(a "Pension Plan").
(c) Each of the Acquired Corporations maintains, sponsors or
contributes only to those employee welfare benefit plans (as defined in
Section 3(1) of ERISA, whether or not excluded from coverage under specific
Titles or Merger Subtitles of ERISA) for the benefit of Employees or former
Employees which are described in Part 2.15(c) of the Company Disclosure
Schedule (the "Welfare Plans"), none of which is a multiemployer plan (within
the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to Parent:
(i) an accurate and complete copy of such Plan (including all
amendments thereto);
(ii) an accurate and complete copy of the annual report, if
required under ERISA, with respect to such Plan for the last 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 Plan, and all
material employee communications relating to such Plan;
(iv) if such 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
the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to
such Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and record keeping
agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect
to such Plan (if such Plan is intended to be qualified under Section 401(a)
of the Code).
(e) No Acquired Corporation is required to be, and, to the best of
the knowledge of the Company, 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. No Acquired Corporation has
ever been a member of an "affiliated service group" within the meaning of
Section 414(m) of the Code. To the best of the knowledge of the Company, the
Acquired Corporations have never 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
19.
<PAGE>
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).
(f) The Acquired Corporations do not have any plan or commitment
to create any additional 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.
(g) Except as set forth in Part 2.15(g) of the Company Disclosure
Schedule, no Welfare Plan provides death, medical or health benefits (whether
or not insured) with respect to any current or former 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
Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which
are borne by current or former Employees (or the Employees' beneficiaries)).
(h) With respect to each of the Welfare Plans 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.
(i) Each of the Compensation Plans and the 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.
(j) Each of the Compensation Plans and the Plans intended to be
qualified under Section 401(a) of the Code has received a favorable
determination from the Internal Revenue Service, the Company is not aware of
any reason why any such determination letter should be revoked.
(k) Except as set forth in Part 2.15(k) of the Company Disclosure
Schedule, 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 any Acquired Corporation (whether or not under any
Plan), or materially increase the benefits payable under any Compensation
Plan or Plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(l) The Company has provided to Parent documentation showing all
salaried employees of the Acquired Corporations, and correctly reflecting, in
all material respects, their salaries, any other compensation payable to them
(including compensation payable pursuant to bonus, deferred compensation or
commission arrangements), their dates of employment and their positions. The
Acquired Corporations are not a party to any collective bargaining contract
or other Contract with a labor union involving any of its Employees. All of
the Company's employees are "at will" employees.
20.
<PAGE>
(m) Part 2.15(m) of the Company Disclosure Schedule identifies
each Employee who is not fully available to perform work because of
disability or other leave and sets forth the basis of such leave and the
anticipated date of return to full service.
(n) Each of the Acquired Corporations is 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.
(o) Except as set forth in Part 2.15(o) of the Company Disclosure
Schedule, each of the Acquired Corporations has good labor relations, and the
Company has no reason to believe that (i) the consummation of the Merger or
any of the other transactions contemplated by this Agreement will have a
material adverse effect on any Acquired Corporation's labor relations, or
(ii) any Acquired Corporation's employee(s) intend(s) to terminate his or her
employment with the Acquired Corporation
2.16 ENVIRONMENTAL MATTERS. Each of the Acquired Corporations is in
compliance in all material respects with all applicable Environmental Laws,
which compliance includes the possession by each of the Acquired Corporations
of all permits and other Governmental Authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof. Each of the Acquired Corporations has not received any notice or
other communication (in writing or otherwise), whether from a Governmental
Body or citizens group, that alleges that any of the Acquired Corporations is
not in compliance with any Environmental Law, and, to the best of the
knowledge of the Company, there are no circumstances that may prevent or
interfere with the Acquired Corporations' compliance with any Environmental
Law in the future. To the best of the knowledge of the Company, no current
or prior owner of any property leased or controlled by any of the Acquired
Corporations has received any notice or other communication (in writing or
otherwise), whether from a Government Body, citizens group, employee or
otherwise, that alleges that such current or prior owner or any of the
Acquired Corporations is not in compliance with any Environmental Law. All
Governmental Authorizations currently held by each of the Acquired
Corporations pursuant to Environmental Laws are identified in Part 2.16 of
the Company Disclosure Schedule. (For purposes of this Section 2.16: (i)
"Environmental Law" means any federal, state, local or foreign Legal
Requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface
or subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern; and (ii) "Materials of Environmental Concern" include
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products and any other substance that is now or hereafter regulated
by any Environmental Law or that is otherwise a danger to health,
reproduction or the environment.)
2.17 ESOP MATTERS
(a) The Company ESOP is duly organized and existing under applicable
law, is a stock bonus plan qualified under Section 401(a) of the Code and is an
"employee stock
21.
<PAGE>
ownership plan" as defined in Section 4975(e)(7) of the Code. The Company
ESOP was formed and is, and at all times has been, maintained primarily for
the benefit of the Company ESOP participants and beneficiaries, within the
meaning of Section 4975(d)(3)(A) of the Code, Treasury Regulations Section
54.4975-7 and Section 408(b)(3) of ERISA. The shares of each Acquired
Corporation's stock held by the Company ESOP (the "ESOP Shares") constitute
"employer securities" within the meaning of Section 409(l) of the Code. The
Company has heretofore delivered to Parent accurate and complete copies of
all documents (and all amendments, modifications and supplements thereto)
material to the creation of the Company ESOP and ESOP Trust and the ESOP
Transactions, including, but not limited to, (a) the Company ESOP plan
document and trust agreement, (b) each request heretofore filed with the IRS
requesting the issuance of a favorable determination letter with respect to
the qualified status or continuing qualified status of the Company ESOP,
including all supporting documentation filed herewith, (c) any request filed
with the IRS under the Voluntary Compliance Resolution Program ("VCR") or the
Closing Agreement Program ("CAP"), (d) documentation of any correction of
Company ESOP defects under the IRS' Administrative Program Regarding Self
Correction ("APRSC").
(b) Except as set forth in Part 2.17(b) of the Company Disclosure
Schedule, (a) as of the Closing Date, no ESOP Transaction has occurred and no
ESOP Loan exists with respect to the Company ESOP and (b) as of the Closing
Date no ESOP Loan or ESOP Transaction is under negotiation and neither the
Company nor any Acquired Corporation have any plan or commitment to enter
into an ESOP Transaction or an ESOP Loan. No ESOP Transaction was, or has
resulted in, or will result in a prohibited transaction under Section 4975(c)
of the Code, Sections 406 or 407 of ERISA, or the regulations thereunder.
Any ESOP Loans and any related guarantees constitutes an "exempt loan" under
Treasury Regulation Section 54.4975-7(b)(1)(iii). The use of the proceeds of
any ESOP Loans by the Acquired Corporations and the Company ESOP,
respectively, and the pledge of the ESOP Shares as security for the ESOP
Loans, did not and does not constitute or result in a violation of the
provisions of the Code or ERISA or any regulations thereunder.
(c) All ESOP Loans have been fully paid, and no further amounts
are due thereunder. Neither any of the Acquired Corporations nor the Company
ESOP is or has been in breach or violation of any ESOP Transaction Document,
there are no remaining unperformed obligations of the Acquired Corporations
or the Company ESOP under any ESOP Transaction Document, and there are no
amounts as to which any Acquired Corporation or the Company ESOP are or may
be liable under any ESOP Transaction Documents.
(d) At the Closing Date, there have been no transactions under
Internal Revenue Code Section 1042 with respect to the Company ESOP.
(e) All Legal Requirements applicable to any Acquired Corporation
and/or to the ESOP Trustee requiring prudence of fiduciaries, including,
without limitation, as to valuation matters and other similar matters
relating to discretionary judgments not involving legal judgments, have been
complied with, and the Acquired Corporations are not and shall not be subject
to any liability as a fiduciary or co-fiduciary under ERISA with respect to
matters arising prior to and through the Closing Date in connection with the
Company ESOP. Neither the execution and delivery of this Agreement nor the
consummation of the transactions described
22.
<PAGE>
herein or any other agreement between or among the parties to this Agreement,
or the performance of the terms hereof or thereof, will conflict with,
violate, or result in a breach of the Company ESOP plan document, any ESOP
Transaction Documents or any agreement or other instrument by which the
Acquired Corporations, the Company ESOP, the ESOP Trustee or the ESOP Trust
may be bound, and will not constitute a breach by any Person acting as a
fiduciary, within the meaning of ERISA, with respect to the Company ESOP of
any fiduciary responsibility or similar duty or obligation owed by such
Person to the participants of the Company ESOP under ERISA or otherwise.
2.18 INSURANCE. Part 2.18 of the Company Disclosure Schedule identifies
all insurance policies maintained by, at the expense of or for the benefit of
the Acquired Corporations and identifies any material claims made thereunder,
and the Company has delivered or made available to Parent accurate and
complete copies of the insurance policies identified on Part 2.18 of the
Company Disclosure Schedule. Each of the insurance policies identified in
Part 2.18 of the Company Disclosure Schedule is in full force and effect.
Since January 31, 1993, each of the Acquired Corporations has not received
any notice or other communication regarding any actual or possible (a)
cancellation or invalidation of any insurance policy, (b) refusal of any
coverage or rejection of any claim under any insurance policy, or (c)
material adjustment in the amount of the premiums payable with respect to any
insurance policy.
2.19 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.19 of
the Company Disclosure Schedule: (a) no Related Party has, and no Related
Party has at any time since January 31, 1995 had, any direct or indirect
interest in any material asset used in or otherwise relating to the
businesses of the Acquired Corporations; (b) no Related Party is, or has at
any time since January 31, 1995 been, indebted to any of the Acquired
Corporations; (c) since January 31, 1995, no Related Party has entered into,
or has had any direct or indirect financial interest in, any Material Company
Contract, transaction or business dealing involving any of the Acquired
Corporations; (d) no Related Party is competing, or has at any time since
January 31, 1995 competed, directly or indirectly, with any of the Acquired
Corporations; and (e) no Related Party has any claim or right against any of
the Acquired Corporations (other than rights under Company Options or Company
Warrants and rights to receive compensation for services performed as an
employee of any of the Acquired Corporations). (For purposes of this Section
2.19 each of the following shall be deemed to be a "Related Party": (i)
each of the Designated Stockholders; (ii) each individual who is, or who has
at any time since January 31, 1995 been, an officer any of the Acquired
Corporations; (iii) each member of the immediate family of each of the
individuals referred to in clauses "(i)" and "(ii)" above; and (iv) any trust
or other Entity (other than the Acquired Corporations) in which any one of
the individuals referred to in clauses "(i)", "(ii)" and "(iii)" above holds
(or in which more than one of such individuals collectively hold),
beneficially or otherwise, a material voting, proprietary or equity interest.
No Related Party shall have any liability or obligation to Parent with
respect to this Section 2.19.)
2.20 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 2.20 of the Company Disclosure
Schedule, there is no pending Legal Proceeding, and (to the best of the
knowledge of the Company) no Person has threatened to commence any Legal
Proceeding: (i) that involves any of the Acquired Corporations or any of the
assets owned or used by any of the Acquired Corporations or (to the
23.
<PAGE>
best knowledge of the Company) any Person whose liability any of the Acquired
Corporations has or may have retained or assumed, either contractually or by
operation of law; or (ii) that 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 of the knowledge of the Company, except as set forth in Part 2.20 of
the Company Disclosure Schedule, 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.
(b) Except as set forth in Part 2.20 of the Company Disclosure
Schedule, no material Legal Proceeding has been commenced by or has been
pending against any of the Acquired Corporations since January 1, 1997.
(c) There is no order, writ, injunction, judgment or decree to
which any of the Acquired Corporations, or any of the assets owned or used by
any of the Acquired Corporations, is subject. To the best of the knowledge of
the Company, no officer or other employee of any of the Acquired Corporations
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 any such Acquired Corporation's business.
2.21 AUTHORITY; BINDING NATURE OF AGREEMENT. Subject to the approval of
the stockholders of the Company, the Company has the absolute and
unrestricted right and authority to enter into and to perform its obligations
under this Agreement; and the execution, delivery and performance by the
Company of this Agreement have been duly authorized by all necessary action
on the part of the Company and its board of directors. This Agreement
constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company 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.
2.22 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.22 of
the Company Disclosure Schedule, neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in
this Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly
(with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of the Company's Certificate of Incorporation or bylaws, or
(ii) any resolution adopted by the Company's stockholders, the Company's
board of directors or any committee of each of the Company's board of
directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or
obtain any relief under, any material Legal Requirement or any order, writ,
injunction, judgment or decree to which the Company, or any of the assets
owned or used by any of the Acquired Corporations, is subject;
24.
<PAGE>
(c) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any material
Governmental Authorization that is held by any of the Acquired Corporations
or that otherwise relates to any of the Acquired Corporations' business or to
any of the assets owned or used by any of the Acquired Corporations;
(d) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of any Company Contract that
is or would constitute a Material Company Contract, or give any Person the
right to (i) declare a default or exercise any remedy under any such Company
Contract, (ii) accelerate the maturity or performance of any such Company
Contract, or (iii) cancel, terminate or modify any such Company Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by any of the
Acquired Corporations (except for minor liens that will not, in any case or
in the aggregate, materially detract from the value of the assets subject
thereto or materially impair the operations of any such Acquired Corporation).
Except as set forth in Part 2.22 of the Company Disclosure Schedule, the
Acquired Corporations are 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 (x) the execution, delivery or performance of this Agreement
or any of the other agreements referred to in this Agreement, or (y) the
consummation of the Merger or any of the other transactions contemplated by
this Agreement.
2.23 FULL DISCLOSURE
(a) This Agreement (including the Company Disclosure Schedule)
does not (i) contain any representation, warranty or information that is
false or misleading with respect to any material fact, or (ii) omit to state
any material fact or necessary in order to make the representations,
warranties and information contained and to be contained herein and therein
(in the light of the circumstances under which such representations,
warranties and information were or will be made or provided) not false or
misleading.
(b) The information supplied by the Company for inclusion in the
S-4 Registration Statement (as defined in Section 7.7) will not, as of the
date the S-4 Registration Statement becomes effective or as of the date of
the Company Stockholders' Meeting (as defined in Section 7.2), (i) contain
any statement that is inaccurate or misleading with respect to any material
fact, or (ii) omit to state any material fact necessary in order to make such
information (in the light of the circumstances under which it is provided)
not false or misleading.
2.24 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."
2.25 BROKERS. No broker, finder or financial adviser retained by the
Company is entitled to any brokerage, finder's or other fee or commission
from the Company in connection with the transactions contemplated by this
Agreement; except the Company has retained the
25.
<PAGE>
Slavitt Ellington Group to give fairness opinions and valuations in
connection with the Merger for a fee not to exceed $50,000.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE DESIGNATED STOCKHOLDERS.
3.1 REPRESENTATIONS AND WARRANTIES. The Designated Stockholders
represent and warrant to and for the benefit of the Parent that to the best
of their actual knowledge, and based upon review of relevant information and
records of the Company as deemed appropriate by the Designated Stockholders,
the representations and warranties of the Company contained herein (as
qualified by the Company Disclosure Schedule) are true and correct in all
material respects, and do not set forth facts that are false or misleading in
any material respect, nor do they omit to set forth facts the absence of
which would make such representations and warranties materially false or
misleading. Notwithstanding the generality of the foregoing, the Designated
Stockholders represent and warrant to the best of their actual knowledge, and
based upon review of relevant information and records of the Company as
deemed appropriate by the Designated Stockholders, as follows:
(a) The Company has made available to Parent the Company Financial
Statements and the Company Financial Statements are accurate and complete in
all material respects and present fairly the financial position of the
Company and the other Acquired Corporations as of the respective dates
thereof and the results of operations and (in the case of the financial
statements referred to in Section 2.4(a)(i)) cash flows of the Company and
the other Acquired Corporations for the periods covered thereby. The Company
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered (except that the financial statements referred to in Section
2.4(a)(ii) do not contain footnotes and are subject to normal and recurring
year-end audit adjustments, which will not, individually or in the aggregate,
be material in magnitude).
(b) Except as set forth in Part 2.12 of the Company Disclosure
Schedule, to the best knowledge of the Designated Stockholders, each of the
Acquired Corporations is, and has at all times since January 31, 1993 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 the Company.
(c) Except as would not have a Material Adverse Effect on the
Company, each of the Acquired Corporations owns, and has good, valid and
marketable title to, all assets purported to be owned by it, including: (i)
all assets reflected on the Unaudited Interim Balance Sheet; (ii) all
assets referred to in Parts 2.1, 2.7(b) and 2.9 of the Company Disclosure
Schedule and all of its rights under the Contracts identified in Part 2.10 of
the Company Disclosure Schedule; and (iii) all other assets reflected in its
books and records as being owned by such Acquired Corporation. Except as set
forth in Part 2.6 of the Company Disclosure Schedule, all of said assets are
owned by the Acquired Corporations free and clear of any liens or other
Encumbrances, except for any lien for current taxes not yet due and payable.
(d) None of the Acquired Corporations has materially violated or
breached or committed any material default under, any Material Company
Contract.
26.
<PAGE>
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub (each of the Parent and Merger Sub is individually
referred to herein as "Acquiring Corporation" and collectively as the
"Acquiring Corporations") jointly and severally represent and warrant to the
Company that, except as set forth in the disclosure schedule prepared by the
Parent and delivered by the Parent to the Company on the date of this
Agreement (the "Parent Disclosure Schedule"):
4.1 DUE ORGANIZATION; ETC
(a) Each of the Acquiring Corporations is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has all necessary power and authority: (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 Company Contracts by which it is bound.
(b) Each of the Acquiring Corporations is qualified, authorized,
registered or licensed to do business as a foreign corporation in any
jurisdiction where so required under applicable law, except where the failure
to be so qualified, authorized, registered or licensed has not had and will
not have a Material Adverse Effect on the Acquiring Corporation. Each of the
Acquiring Corporations is in good standing as a foreign corporation in each
of such jurisdictions.
4.2 CERTIFICATE OF INCORPORATION AND BY-LAWS. True, correct and
complete copies of the Certificates of Incorporation and By-laws, each as
amended to date, of Parent and Merger Sub have been made available to the
Company. The Certificates of Incorporation and By-laws of Parent and each of
the other Acquiring Corporations are in full force and effect. Neither
Parent nor any of the other Acquiring Corporations is in violation of any
provision of its Certificate of Incorporation or By-laws.
4.3 CAPITALIZATION, ETC. The authorized capital stock of Parent
consists of: (i) 45,000,000 shares of Common Stock, $.01 par value per
share, 16,725,179 shares were issued and are outstanding as of January 30,
1998, 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, (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 were issued and are outstanding as of January 30,
1998, and (C) 500,000 shares of which have been designated as Series B
Cumulative Convertible Redeemable Preferred Stock, all of which were issued
as of January 30, 1998. Each outstanding share of $1.00 Cumulative
Convertible Preferred Stock is convertible at any time into two-thirds (2/3)
of a share of Parent's common stock. The Series B Preferred Stock is
convertible at the holder's option into shares of Parent's common stock at a
conversion price of $9.00 per share. In November 1996, Parent issued
$34,500,000 of convertible subordinated debentures. The debentures are
convertible into common stock at a conversion price of $3.50 per share. 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
27.
<PAGE>
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. Parent has outstanding options
to purchase 1,860,598 shares of common stock as of the date hereof, with
exercise prices ranging between $2.625 to $9.50. In addition, Parent has
issued 100,000 warrants to acquire common stock at an exercise price of $3.50
per share. 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).
4.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered or made available to the Company accurate
and complete copies (excluding copies of exhibits) of each report,
registration statement (on a form other than Form S-8) and definitive proxy
statement filed by Parent with the SEC between January 1, 1997 and the date
of this Agreement (the "Parent SEC Documents"). As of the time it was filed
with the SEC (or, if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing): (i) each of the Parent SEC
Documents complied in all material respects with the applicable requirements
of the Securities Act or the Exchange Act (as the case may be); and (ii) none
of the Parent SEC Documents contained any untrue statement of a material fact
or omitted 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) The consolidated financial statements 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 generally accepted accounting principles 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 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; 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 of Parent and its
subsidiaries for the periods covered thereby.
4.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1997,
there has not been (a) any change, or any development or combination of
developments, 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.
28.
<PAGE>
4.6 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of the Acquiring
Corporations is, and has at all times since December 31, 1993 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 Parent. Except as set forth in Part 4.6 of the
Parent Disclosure Schedule, since December 31, 1993, each of the Acquiring
Corporations has 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 Requirements, except where the failure to comply
with such Legal Requirements has not had and will not have a Material Adverse
Effect on Parent.
4.7 GOVERNMENTAL AUTHORIZATIONS. The Governmental Authorizations held
by the Acquiring Corporations are valid and in full force and effect, and
collectively constitute all Governmental Authorizations necessary to enable
each of the Acquiring Corporations 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 of the Acquiring Corporations is in
substantial compliance with the terms and requirements of such Governmental
Authorizations.
4.8 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 4.8 of the Parent Disclosure
Schedule, there is no pending Legal Proceeding, and (to the best of the
knowledge of the Acquiring Corporations) no Person has threatened to commence
any Legal Proceeding that has had or would reasonably be expected to have a
Material Adverse Effect on Parent: (i) that involves any of the Acquiring
Corporations or any of the assets owned or used by any of the Acquiring
Corporations or (to the best knowledge of the Company) any Person whose
liability any of the Acquiring Corporations has or may have retained or
assumed, either contractually or by operation of law; or (ii) that
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 of the knowledge of
the Company, except as set forth in Part 4.8 of the Parent Disclosure
Schedule, 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.
(b) Except as set forth in Part 4.8 of the Parent Disclosure
Schedule, no material Legal Proceeding has ever been commenced by or has ever
been pending against any of the Acquiring Corporations since January 1, 1997.
(c) There is no order, writ, injunction, judgment or decree to
which any of the Acquiring Corporations, or any of the assets owned or used
by any of the Acquiring Corporations, is subject. To the best of the
knowledge of the Company, no officer or other employee of any of the
Acquiring Corporations 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 any such Acquiring
Corporation's business.
4.9 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the absolute and unrestricted right and authority to perform their obligations
under this Agreement;
29.
<PAGE>
and the execution, delivery and performance by Parent and Merger Sub of this
Agreement (including the contemplated issuance of Parent Common Stock in the
Merger in accordance with this Agreement) have been duly authorized by all
necessary action on the part of Parent and Merger Sub and their respective
boards of directors. No vote of Parent's stockholders is needed to approve
the Merger. This Agreement constitutes the legal, valid and binding
obligation of Parent and Merger Sub, enforceable against them 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.
4.10 VALID ISSUANCE. The Parent Common Stock to be issued in the Merger
will, when issued in accordance with the provisions of this Agreement, be
validly issued, fully paid and nonassessable, as described herein.
4.11 NON-CONTRAVENTION; CONSENTS. Except as set forth in 4.11 of the
Parent Disclosure Schedule, neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in
this Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly
(with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of the Acquiring Corporations' Certificates of
Incorporation or bylaws, or (ii) any resolution adopted by either Acquiring
Corporations' stockholders, board of directors or any committee of either of
the Acquiring Corporation's board of directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or
obtain any relief under, any material Legal Requirement or any order, writ,
injunction, judgment or decree to which the Company, or any of the assets
owned or used by any of the Acquiring Corporations, is subject;
(c) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any material
Governmental Authorization that is held by any of the Acquiring Corporations
or that otherwise relates to any of the Acquiring Corporations' business or
to any of the assets owned or used by any of the Acquiring Corporations;
(d) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of any Contract material to
the Acquiring Corporations, or give any Person the right to (i) declare a
default or exercise any remedy under any such Contract, (ii) accelerate the
maturity or performance of any such Contract, or (iii) cancel, terminate or
modify any such Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by any of the
Acquiring Corporations (except for minor liens that will not, in any case or
in the aggregate, materially detract from the value of the assets subject
thereto or materially impair the operations of any such Acquiring
Corporation).
30.
<PAGE>
Except as set forth in Part 4.11 of the Parent Disclosure Schedule, and
except as may be required by the Securities Act, the Exchange Act, state
securities or "blue sky" laws, the HSR Act and the New York Stock Exchange
Rules and Regulations, the Acquiring Corporations are 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 (x) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in
this Agreement, or (y) the consummation of the Merger or any of the other
transactions contemplated by this Agreement.
4.12 FULL DISCLOSURE.
(a) This Agreement (including the Parent Disclosure Schedule) does
not (i) contain any representation, warranty or information that is false or
misleading with respect to any material fact, or (ii) omit to state any
material fact or necessary in order to make the representations, warranties
and information contained and to be contained herein and therein (in the
light of the circumstances under which such representations, warranties and
information were or will be made or provided) not false or misleading.
(b) The information supplied by the Acquiring Corporations for
inclusion in the S-4 Registration Statement (as defined in Section 7.7) will
not, as of the date the S-4 Registration Statement becomes effective, (i)
contain any statement that is inaccurate or misleading with respect to any
material fact, or (ii) omit to state any material fact necessary in order to
make such information (in the light of the circumstances under which it is
provided) not false or misleading.
4.13 GOVERNMENT CONTRACTS; GOVERNMENT BIDS. Except as set forth in Part
4.13 of the Parent Disclosure Schedule:
(a) None of the Acquiring Corporations have had any determination
of noncompliance or entered into any consent order;
(b) the Acquiring Corporations have complied in all material
respects with all Legal Requirements with respect to all Government Contracts
and Government Bids;
(c) 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;
(d) neither the Acquiring Corporations nor any of their current
respective employees (while, or to the best of Parent's knowledge prior to
becoming an employee) have been debarred or suspended from doing business
with any Governmental Body, and, to the best of the knowledge of Parent, no
circumstances exist that would sustain a debarment or suspension of any
Acquiring Corporation or any employee of any Acquiring Corporation; and
31.
<PAGE>
4.14 ACCOUNTING MATTERS. To the knowledge of Parent, Parent has not
taken and has not agreed, and does not plan, and will not take any action
that would prevent Parent from accounting for the business combination to be
effected by the Merger as a "pooling of interest."
4.15 BROKERS. No broker, finder or financial adviser retained by Parent
and Merger Sub is entitled to any brokerage, finder's or other fee or
commission from Parent and Merger Sub in connection with the transactions
contemplated by this Agreement.
SECTION 5. CERTAIN COVENANTS OF THE COMPANY AND THE DESIGNATED STOCKHOLDERS
5.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "Pre-Closing Period"), the Company
shall, and shall cause its Representatives to: (a) provide Parent and
Parent's Representatives with reasonable access to the Company's
Representatives, personnel and assets and to all existing books, records, Tax
Returns, work papers and other documents and information relating to the
Company; and (b) provide Parent and Parent's Representatives with copies of
such existing books, records, Tax Returns, work papers and other documents
and information relating to the Company, and with such additional financial,
operating and other data and information regarding the Company, as Parent may
reasonably request.
5.2 OPERATION OF THE COMPANY'S BUSINESS. During the Pre-Closing
Period, except pursuant to prior written consent of Parent, the Company
shall, and shall cause each of the other Acquired Corporations to:
(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) in each case, in all material respects 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
good will with all suppliers, customers, landlords, creditors, employees and
other Persons having business relationships with it;
(c) use reasonable efforts to keep in full force all insurance
policies identified in Part 2.18 of the Company Disclosure Schedule;
(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 (except that the Company may repurchase Company Common Stock
from former employees pursuant to the terms of existing restricted stock
purchase agreements);
(e) not sell, issue or authorize the issuance of (i) any capital
stock or other security, (ii) any option 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 (except that the Company
shall be permitted (x) to grant stock options to employees in accordance with
its
32.
<PAGE>
past practices, (y) to issue Company Common Stock to employees upon the
exercise of outstanding Company Options or Company Warrants, and (z) to issue
shares of Company Common Stock upon the conversion of shares of Series A
Preferred Stock);
(f) not amend or waive any of its rights under, or permit the
acceleration of vesting under, (i) any provision of the Company's 1988
Amended Stock Plan, (ii) any provision of any agreement evidencing any
outstanding Company Option or Company Warrants, or (iii) any provision of any
restricted stock purchase agreement;
(g) except as otherwise provided herein, not amend or permit the
adoption of any amendment to the Company's Certificate of Incorporation or
bylaws, or effect or permit the Company to become a party to any Acquisition
Transaction, recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction; to which each of the Designated
Stockholders also covenants;
(h) not form any subsidiary or acquire any equity interest or
other interest in any other Entity;
(i) not make any capital expenditure, 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 $150,000 in the aggregate;
(j) not (i) enter into, or permit any of the assets owned or used
by it to become bound by, any Contract that is or would constitute a Material
Company Contract, or (ii) amend or prematurely terminate, or waive any
material right or remedy under, any such Material Company Contract;
(k) except in compliance with the limits of subsection (i) above,
not (i) acquire, lease or license any right or other asset from any other
Person, (ii) sell or otherwise dispose of, or lease or license, any right or
other asset to any other Person, or (iii) waive or relinquish any right,
except for assets acquired, leased, licensed or disposed of by the Acquired
Corporations pursuant to Contracts that are not Material Company Contracts;
(l) not (i) lend money to any Person or (ii) incur or guarantee
any indebtedness for borrowed money (except that the Company may make routine
borrowings in the ordinary course of business under its line of credit with
Imperial Bank);
(m) except as set forth in the Company Disclosure Schedule, not
(i) establish, adopt or amend any Employee Benefit Plan, (ii) pay any bonus
or make any profit-sharing payment, cash incentive payment 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 for items accrued and approved by Parent or
pursuant to agreements in effect on the date hereof, or in accordance with
the Company's past practices, or (iii) hire any new indirect employee whose
aggregate annual compensation from the Company is expected to exceed $40,000;
33.
<PAGE>
(n) not change any of its methods of accounting or accounting
practices in any material respect; and, with respect to determinations of
Working Capital, not change any of its methods of accounting or accounting
practices whatsoever, except the Company shall change its methods of
accounting or accounting practices with respect to determinations of Working
Capital to the extent reasonably requested by Parent to ensure compliance
with Generally Accepted Accounting Principles, consistently applied ("GAAP");
(o) not make any Tax election;
(p) not commence or settle any material Legal Proceeding; and
(q) not agree or commit to take any of the actions described in
clauses "(d)" through "(p)" above.
5.3 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 of the Designated
Stockholders in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty made
by the Company or any of the Designated Stockholders 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 (and each Designated Stockholder shall promptly notify Parent in
writing of any breach of any covenant or obligation of such Designated
Stockholder set forth herein); and
(iv) any event, condition, fact or circumstance that would
make the timely satisfaction of any of the conditions set forth in Section 8
or Section 9 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required
to be disclosed pursuant to Section 5.3(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
34.
<PAGE>
purpose of (i) determining the accuracy of any of the representations and
warranties made by the Company or any of the Designated Stockholders in this
Agreement, or (ii) determining whether any of the conditions set forth in
Section 8 has been satisfied; provided, however, that if Closing occurs, the
Company Disclosure Schedule shall be deemed to be modified at such time by
such update.
5.4 NO NEGOTIATION. During the Pre-Closing Period, neither the Company
nor any of the Designated Stockholders shall, directly or indirectly:
(a) solicit or encourage the initiation of any inquiry, proposal
or offer from any Person (other than Parent) relating to a possible
Acquisition Transaction;
(b) participate in any discussions or negotiations or enter into
any agreement with, or provide any non-public information or afford access to
the properties, books or records of Company to any Person (other than Parent)
relating to or in connection with a possible Acquisition Transaction; or
(c) consider, entertain or accept (subject to Section 10.1(e)) any
proposal or offer from any Person (other than Parent) relating to a possible
Acquisition Transaction.
The parties acknowledge that any breach of the foregoing provisions by any
officer, director or agent (including any employee of the Company acting as
agent) of any of the Acquired Corporations shall be deemed a breach by the
Company.
This Section 5.4 does not prohibit the Company from furnishing information
regarding the Company or entering into discussions with any Person in
response to an unsolicited bona fide written proposal or offer relating to a
possible Acquisition Transaction submitted by such Person if the Board of
Directors of the Company concludes in good faith, after consultation with
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 stockholders under applicable law.
The Company shall promptly notify Parent in writing of any material inquiry,
proposal or offer relating to a possible Acquisition Transaction that is
received by the Company or any of the Designated Stockholders during the
Pre-Closing Period.
5.5 ESOP COVENANTS
(a) The Company shall take such action as is necessary to ensure
that the requirements of Section 409(e) of the Code and the fiduciary
provisions of ERISA are satisfied in connection with the voting of the ESOP
Shares upon the Merger at the Company Stockholders' Meeting.
(b) The Company agrees to take, during the Pre-Closing Period and
thereafter, such actions, if any, as Parent deems reasonably necessary in
Parent's discretion to obtain assurances satisfactory to Parent as to (i) the
qualification of the Company ESOP under Section 401(a) and 4975(e)(7) of the
Code and (ii) the compliance by the Company, the Company ESOP and the ESOP
Trust with applicable Legal Requirements, including ERISA and
35.
<PAGE>
the Code, in connection with the establishment, operation and maintenance of
the Company ESOP and the availability of the intended benefits and
consequences associated with the Company ESOP and the ESOP Transactions. No
such actions taken by Parent or the Company shall in any way limit or
diminish the rights of any Indemnitees under this Agreement to recover or be
indemnified for Indemnitee Damages, as defined herein.
SECTION 6. CERTAIN COVENANTS OF PARENT
6.1 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 (b) provide the Company and the Company's Representatives with copies of
such existing books, records, Tax Returns, work papers and other documents
and information relating to Parent, and with such additional financial,
operating and other data and information regarding Parent, as the Company may
reasonably request.
6.2 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;
(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 8
or Section 9 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required
to be disclosed pursuant to Section 6.2(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)
36.
<PAGE>
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 9 has been satisfied.
SECTION 7. ADDITIONAL COVENANTS OF THE COMPANY AND PARENT
7.1 FILINGS AND CONSENTS. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (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 all commercially reasonable
efforts to obtain all Consents (if any) required to be obtained (pursuant to
any applicable Legal Requirement or Contract, or otherwise) by such party in
connection with the Merger and the other transactions contemplated by this
Agreement. The Company shall (upon request) promptly deliver to Parent a
copy of each such filing made, each such notice given and each such Consent
obtained by the Company during the Pre-Closing Period.
7.2 COMPANY STOCKHOLDERS' MEETING. The Company shall, in accordance
with its Certificate of Incorporation and By-laws, the applicable
requirements of the Delaware General Corporation Law and SEC requirements
with respect to preparation and mailing of the Prospectus/Proxy Statement,
call and hold a special meeting of its stockholders (or if agreed upon by the
Company and Parent, solicit the vote of its stockholders by way of written
consent) as promptly as practicable for the purpose of permitting them to
consider and to vote upon and approve the Merger and this Agreement (for
purposes of this Agreement, such meeting, or the time at which the Company
shall have received such written consent from the stockholders of the Company
shall be referred to as the "Company Stockholders' Meeting"). As soon as
permissible under the rules of the Delaware General Corporation Law, the
Company shall solicit the vote of its stockholders with respect to the Merger
and the transactions contemplated hereby.
7.3 PUBLIC ANNOUNCEMENTS. During the Pre-Closing Period, (a) neither
the Company nor any of the Designated Stockholders shall (and the Company
shall not permit any of its Representatives to) issue any press release or
make any public statement regarding this Agreement or the Merger, or
regarding any of the other transactions contemplated by this Agreement,
without Parent's prior written consent, which shall not be unreasonably
withheld, and (b) Parent will use reasonable efforts to consult with the
Company prior to issuing any press release or making any public statement
regarding the Merger.
7.4 POOLING OF INTERESTS. During the Pre-Closing Period, no party to
this Agreement shall take any action that could reasonably be expected to
have an adverse effect on the ability of Parent to account for the Merger as
a "pooling of interests."
7.5 AFFILIATE AGREEMENTS. Each Designated Stockholder shall execute
and deliver to Parent, and the Company shall use all commercially reasonable
efforts to cause each other Person identified on Exhibit D-2 (and any other
Person that could reasonably be deemed to be an "affiliate" of the Company
for purposes of the Securities Act), to execute and deliver to Parent, as
promptly as practicable after the execution of this Agreement, an Affiliate
Agreement in the form of Exhibit D-1.
37.
<PAGE>
7.6 BEST EFFORTS. During the Pre-Closing Period, (a) the Company and
the Designated Stockholders shall use their best efforts to cause the
conditions set forth in Section 8 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 9 to be satisfied on a timely basis.
7.7 REGISTRATION STATEMENT; 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 stockholders in the Merger (the "S-4 Registration
Statement"), in which a Prospectus/Proxy Statement will be included as a
prospectus (the "Prospectus/Proxy Statement"), 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 Prospectus/Proxy
Statement) 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. The Company will use
all reasonable efforts to cause the Prospectus/Proxy Statement to be mailed
to the Company's stockholders, 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 stockholders that may be required or
reasonably requested in connection with any action contemplated by this
Section 7.7. 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 Prospectus/Proxy Statement, 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 stockholders 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 stockholders entitled to notice of and to
vote upon this Agreement and the Merger as provided herein; 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.
7.8 REGULATORY APPROVALS. In addition to the obligations of the
parties set forth in the preceding section, 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
38.
<PAGE>
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.
7.9 TAX MATTERS. Prior to Closing and prior to the filing of the S-4
Registration Statement, and as soon as practicable after the execution of
this Agreement, Parent and the Company shall execute and deliver, to Cooley
Godward LLP and to Jenkens & Gilchrist, P.C., tax representation letters in
substantially the form of Exhibit E and Exhibit F, respectively (which will
be relied upon in connection with the legal opinions contemplated by Sections
8.5(e) and 9.3(b)).
7.10 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)(l)(i) of the
United States Treasury Regulations, and (b) the Company may deliver to the
Internal Revenue Service the notification required under Section
1.897-2(h)(2) of the United States Treasury Regulations.
7.11 RELEASE. At the Closing, each of the Designated Stockholders shall
execute and deliver to the Company a Release in the form of Exhibit G.
7.12 TREATMENT OF EMPLOYEE PLANS AND BENEFITS. Except as otherwise
agreed to by Parent and the Company, Parent shall ensure that upon the
Closing, the benefit plans and benefit arrangements of employees of the
Company will remain unchanged. By year end, benefits will be reviewed in
consonance with Parent benefit plans and arrangements, applicable law and
marketplace factors.
7.13 "POST-CLOSING" INSURANCE. The parties hereto will cooperate and
otherwise use best efforts to ensure that, prior to the Closing, either
Company, Parent or Merger Sub shall obtain a one (1) year (subject to the
timing requirements of Section 10 and 11 hereof) insurance policy (with an
aggregate coverage limit in excess of $5 million) effective no later than the
Effective Time, covering, pursuant to terms reasonably acceptable to Parent
and the Designated
39.
<PAGE>
Stockholders, the representations and warranties of the Designated
Stockholders set forth in Section 4 hereof (the "Representation and Warranty
Insurance"). The parties hereto agree to comply with the provisions of the
Representation and Warranty Insurance and to not take action that would limit
its availability or effectiveness.
7.14 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) Parent and the Company agree to provide indemnification in
favor of any director or officer of the Company and its Subsidiaries (the
"Indemnified Parties"), as currently provided in their respective
certificates of incorporation or by-laws, or in an agreement between an
Indemnified Party and the Company or one of its Subsidiaries set forth in
Part 7.15 of the Company Disclosure Schedule, and rights to indemnification
shall survive the Merger and shall continue in full force and effect for a
period of six years after the Effective Time; provided that in the event any
claim or claims are asserted or made within such six-year period, all rights
to indemnification in respect to any such claim shall continue until final
disposition of such claim.
(b) Parent agrees that from and after the Effective Time, the
Surviving Corporation shall cause to be maintained in effect for one year
after the Effective Time a policy of directors' and officers' liability
insurance covering the directors and officers of the Company (as of
immediately prior to the Effective Time) in their capacity as such; and
Parent shall secure such policy prior to the Closing.
7.15 EARNINGS RELEASE. Parent shall use best efforts to, as soon as
practicable following the Closing, issue a press release disclosing, or
otherwise publish as contemplated by applicable rules and regulations
relating to "pooling of interests" accounting, thirty days' operations of the
Surviving Corporation; which disclosure shall be no later than the time of
filing of Parent's report on Form 10-Q for the quarter next ended following
the date that is 30 days following the Closing.
SECTION 8. 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:
8.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Company and the Designated Stockholders 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, or any similar qualifications, contained or
incorporated directly or indirectly in such representations and warranties),
and shall be accurate in all material respects as of the Scheduled Closing
Time as if made at the Scheduled Closing Time (without giving double effect
to any update to the Company Disclosure Schedule not consented to in writing
by Parent, and without giving effect to any "Material Adverse Effect" or
other materiality qualifications, or any similar qualifications, contained or
incorporated directly or indirectly in such representations and warranties).
40.
<PAGE>
8.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations
that the Company and the Designated Stockholders are required to comply with
or to perform at or prior to the Closing shall have been complied with and
performed in all respects at or prior to Closing.
8.3 STOCKHOLDER APPROVAL. The principal terms of the Merger shall have
been duly approved at the Company Stockholders' Meeting as necessary for
approval under the Delaware General Corporation Law (at least a majority of
the Company Common Stock, voting as a class, and two-thirds (2/3) of the
Series A Preferred Stock, voting as a class); and the holders of not more
than 10% of the outstanding shares of the Company shall have exercised
dissenters rights as described in Section 1.9.
8.4 CONSENTS. All material Consents required to be obtained in
connection with the Merger and the other transactions contemplated by this
Agreement (including the Consents identified in Part 2.22 of the Company
Disclosure Schedule) shall have been obtained and shall be in full force and
effect.
8.5 AGREEMENTS AND DOCUMENTS. Parent and the Company, as provided
herein, shall have received the following agreements and documents, each of
which shall be in full force and effect:
(a) Affiliate's Agreements in the form of Exhibit D-1 executed by
any Person who could reasonably be deemed to be an "affiliate" of the Company
for purposes of the Securities Act;
(b) a Release in the form of Exhibit G, executed by the Designated
Stockholders;
(c) to the extent reasonably requested by Parent, confidential
invention and assignment agreements, reasonably satisfactory in form and
content to Parent, executed by all employees of the Company and by all
consultants and independent contractors to the Company who have not already
signed such agreements (including the individuals identified in Part 2.9(f)
of the Company Disclosure Schedule);
(d) a legal opinion of Jenkens & Gilchrist, P.C., dated as of the
Closing Date, in the form of Exhibit H;
(e) a legal opinion of Cooley Godward LLP dated as of the Closing
Date, to the effect that the Merger will constitute a reorganization within
the meaning of Section 368 of the Code (it being understood that, in
rendering such opinion, such counsel may rely upon the tax representation
letters referred to in Section 7.9);
(f) a letter from Arthur Andersen LLP, dated as of the Closing
Date, confirming that no transaction entered into by the Company, and no
other fact or circumstance relating to the Company, will prevent Parent from
accounting for the Merger as a "pooling of interests" in accordance with
generally accepted principles, Accounting Principles Board Opinion No. 16 and
all published rules, regulations and policies of the SEC;
41.
<PAGE>
(g) a certificate executed by the Company's Chief Executive
Officer (solely in his capacity as such and not in his capacity as a
Designated Stockholder) and containing the representation and warranty that
each of the representations and warranties set forth in Section 2 is accurate
in all respects as of the Closing Date as if made on the Closing Date and
that the conditions set forth in Sections 8.1, 8.2, 8.3 and 8.4 have been
duly satisfied (the "Company Closing Certificate"); and
(h) if requested by Parent, written resignations of all officers
and directors of the Acquired Corporations and the Company ESOP Trustees and
401(k) Trustees, effective as of the Effective Time, except as otherwise
provided herein or otherwise agreed by Parent and the Company.
8.6 FIRPTA COMPLIANCE. The Company shall have filed with the Internal
Revenue Service the notification referred to in Section 7.10(b).
8.7 COMPLIANCE WITH THE SECURITIES ACT. All applicable requirements of
the Securities Act and state securities laws shall have been satisfied.
8.8 LISTING. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for listing (subject to notice of issuance)
on the New York Stock Exchange.
8.9 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.
8.10 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.
8.11 NO LEGAL PROCEEDINGS. No Person shall have commenced or threatened
to commence any Legal Proceeding challenging or seeking the recovery of a
material amount of damages in connection with the Merger or seeking to
prohibit or limit the exercise by Parent of any material right pertaining to
its ownership of stock of the Surviving Corporation.
8.12 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act (if applicable) shall have expired or been
terminated.
8.13 AVERAGE SALES PRICE. The Average Sales Price shall be less than or
equal to $8.75 per share.
8.14 STOCK VOTING AGREEMENT. The Stock Voting Agreement shall be in
full force and effect and enforceable against each Designated Stockholder.
8.15 TAX REPRESENTATION LETTERS. Each of Parent and the Company shall
have executed and delivered a tax representation letter as set forth in
Section 7.9.
42.
<PAGE>
8.16 REPRESENTATION AND WARRANTY INSURANCE. The Representation and
Warranty Insurance shall have been purchased and shall be in full force and
effect.
SECTION 9. 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 the following conditions:
9.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement and in each of the
other agreements and instruments delivered to Company in connection herewith,
shall have been accurate in all material respects as of the date of this
Agreement (without giving effect to any "Materially Adverse Effect" or other
materiality qualifications, or any similar qualifications, contained or
incorporated directly or indirectly in such representations and warranties),
and shall be accurate in all material respects as of the Scheduled Closing
Time as if made at the Scheduled Closing Time (without giving effect to any
"Material Adverse Effect" or other materiality qualifications, or any similar
qualifications, contained in such representations and warranties).
9.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations
that Parent and Merger Sub are required to comply with or to perform at or
prior to the Closing shall have been complied with and performed in all
respects.
9.3 DOCUMENTS. The Company shall have received the following documents:
(a) a legal opinion of Cooley Godward LLP, dated as of the Closing
Date, in the form of Exhibit I;
(b) a legal opinion of Jenkens & Gilchrist, P.C., dated as of the
Closing Date, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368 of the Code (it being understood that, in
rendering such opinion, such counsel may rely upon the tax representation
letters referred to in Section 7.9); provided, however, that if such counsel
does not render such opinion, this condition shall nonetheless be deemed
satisfied with respect to the Company if Cooley Godward LLP renders such
opinion to the Company; and
(c) a certificate executed by Parent's Chief Executive Officer and
containing the representation and warranty that each of the representations
and warranties set forth in Section 4 is accurate in all respects as of the
Closing Date as if made on the Closing Date and that the conditions set forth
in Sections 9.1 and 9.2 have been duly satisfied (the "Parent Closing
Certificate"); and
9.4 LISTING. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for listing (subject to notice of issuance)
on the New York Stock Exchange.
9.5 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
43.
<PAGE>
Requirement enacted or deemed applicable to the Merger that makes
consummation of the Merger illegal.
9.6 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.
9.7 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act (if applicable) shall have expired or been
terminated.
9.8 AVERAGE SALES PRICE. The Average Sales Price shall be greater than
or equal to $5.25 per share.
SECTION 10. TERMINATION
10.1 TERMINATION EVENTS. This Agreement may be terminated prior to the
Closing without either party (except as provided in Section 10.1(e))
incurring any termination fee:
(a) by Parent if Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 8 (other than as related
to the Company Stockholders' Meeting covered by Section 7.2) has become
impossible (other than as a result of any failure on the part of Parent or
Merger Sub to comply with or perform any covenant or obligation of Parent or
Merger Sub set forth in this Agreement);
(b) by the Company if the Company reasonably determines that the
timely satisfaction of any condition set forth in Section 9 has become
impossible (other than as a result of any failure on the part of the Company
or any of the Designated Stockholders to comply with or perform any covenant
or obligation set forth in this Agreement or in any other agreement or
instrument delivered to Parent);
(c) by Parent if the Closing has not taken place on or before June
30, 1998 (other than as a result of any failure on the part of Parent to
comply with or perform any covenant or obligation of Parent set forth in this
Agreement);
(d) by the Company if the Closing has not taken place on or before
June 30, 1998 (other than as a result of the failure on the part of the
Company or any of the Designated Stockholders to comply with or perform any
covenant or obligation set forth in this Agreement or in any other agreement
or instrument delivered to Parent);
(e) by the Company (at any time prior to stockholder approval of
this Agreement, the Merger and the transactions contemplated hereby) if,
pursuant to and in compliance with Section 5.4, the Company and its Board of
Directors conclude in good faith that the Company must accept an unsolicited
bona fide written proposed Acquisition Transaction which could reasonably be
expected to result in a transaction that is more favorable to the Company's
stockholders than the Merger (any such more favorable proposed Acquisition
Transaction being referred to in this Agreement as a "Superior Proposal");
PROVIDED, HOWEVER, that if this Agreement is terminated pursuant to this
Section 10.1(e), the Company shall pay to
44.
<PAGE>
Parent a nonrefundable fee of $250,000 in cash (and no additional fee will be
required under Section 10.3) upon the Company's (or its Board of Directors')
election to accept such Superior Proposal. In reaching such conclusion, the
Board of Directors shall consult with outside legal counsel(and other
advisors as appropriate);
(f) by the mutual consent of Parent and the Company; or
(g) by Parent as provided in Section 10.3.
10.2 TERMINATION PROCEDURES. If Parent wishes to terminate this
Agreement pursuant to Section 10.1(a), Section 10.1(c) or Section 10.1(f),
Parent shall deliver to the Company prompt written notice stating that Parent
is terminating this Agreement and setting forth a brief description of the
basis on which Parent is terminating this Agreement. If the Company wishes
to terminate this Agreement pursuant to Section 10.1(b), Section 10.1(d) or
Section 10.1(e), the Company shall deliver to Parent prompt written notice
stating that the Company is terminating this Agreement and setting forth a
brief description of the basis on which the Company is terminating this
Agreement.
10.3 TERMINATION FEES.
(a) Parent may terminate this Agreement immediately (unless
already terminated as provided in subsection (iii) below) and the Company
shall pay to Parent a termination fee of $250,000, payable upon termination
of this Agreement, if (i) at any time prior to the Closing Date, Company
accepts a third party proposal or offer relating to a possible Acquisition
Transaction that it determines is more favorable than the proposal or offer
by Parent; (ii) the Company fails to complete the Company Stockholders'
Meeting as required herein or if the stockholders of the Company fail to
approve the Merger and this Agreement at the Company Stockholders' Meeting;
or (iii) the Company terminates this Agreement other than pursuant to Section
10.1.
(b) Parent shall pay to the Company a termination fee of $250,000,
payable upon termination of this Agreement, if Parent terminates this
Agreement other than pursuant to Section 10.1 or this Section 10.3.
10.4 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 10.1, all further obligations of the parties under this Agreement
shall terminate; provided, however, that: (a) neither the Company nor Parent
shall be relieved of any obligation or liability arising from any prior
breach by such party of any provision of this Agreement or any obligation to
pay a termination fee as set forth in Section 10.3; (b) the parties shall, in
all events, remain bound by and continue to be subject to the provisions set
forth in Section 12; and (c) the Company shall, in all events, remain bound
by and continue to be subject to Section 7.3.
45.
<PAGE>
SECTION 11. SURVIVAL OF REPRESENTATIONS, ETC.; INDEMNIFICATION, ETC.
11.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) Subject to the indemnification limitations set forth in
Section 11.2, the representations and warranties made by the Designated
Stockholders in Section 3 shall survive the Closing and shall expire on the
first anniversary of the Closing Date (the "Claim Deadline"); provided,
however, that if, at any time prior to the first anniversary of the Closing
Date, any Indemnitee (acting in good faith) delivers to any of the Designated
Stockholders or the appropriate Person under the terms of the Representation
and Warranty Insurance, a written notice asserting a claim for recovery under
Section 11.2, then the claim asserted in such notice shall survive the first
anniversary of the Closing until such time as such claim is fully and finally
resolved. All representations and warranties made by Parent, Merger Sub and
the Company shall terminate and expire as of the Effective Time, and any
liability of Parent, Merger Sub, or Company with respect to such
representations and warranties shall thereupon cease.
(b) The representations, warranties, covenants and obligations of
the parties hereto, and (except as provided herein) the rights and remedies
that may be exercised pursuant hereto, shall not be limited or otherwise
affected by or as a result of any information furnished to or any
investigation made by or knowledge of (except as provided herein or in the
Company Disclosure Schedule), any of the parties or any of their
Representatives.
(c) For purposes of this Agreement, each statement or other item
of information set forth in the Company Disclosure Schedule or in any update
to the Company Disclosure Schedule shall be deemed to be a representation and
warranty made by the Company in this Agreement.
11.2 INDEMNIFICATION.
(a) From and after the Effective Time (but subject to Section
10.1(a)), Indemnitees shall be held harmless and indemnified under the terms
of the Representation and Warranty Insurance from and against, and shall be
compensated and reimbursed out of the Representation and Warranty Insurance
for, any Damages which are directly or indirectly suffered or incurred by any
of the Indemnitees or to which any of the Indemnitees may otherwise become
subject (regardless of whether or not such Damages relate to any third-party
claim) and which arise from or as a result of, or are directly or indirectly
connected with: (i) any inaccuracy in or breach of any representation or
warranty of the Designated Stockholders set forth in Section 3; (ii) any
Legal Proceeding relating to any inaccuracy or breach of the type referred to
in clause "(i)" above (including any Legal Proceeding commenced by any
Indemnitee for the purpose of enforcing any of its rights under this Section
11.
(b) The Parties acknowledge and agree that, if the Surviving
Corporation suffers, incurs or otherwise becomes subject to any Damages as a
result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation of the Designated
Stockholders set forth in Section 3, then (without limiting any of the rights
of the Surviving Corporation as an Indemnitee) Parent shall also be deemed,
by virtue of its ownership
46.
<PAGE>
of the stock of the Surviving Corporation, to have incurred Damages as a
result of and in connection with such inaccuracy or breach.
11.3 LIMITS ON INDEMNIFICATION AND LIABILITY. The only liability of the
Designated Stockholders under Sections 11.2, 11.4 and 11.5 shall be limited
to the amount actually recovered by the Indemnitee(s) under the
Representation and Warranty Insurance.
11.4 INTEREST. Any Indemnitee provided indemnification pursuant to this
Section 11 with respect to any Damages shall also be entitled to receive
interest on the amount of such Damages (for the period commencing as of the
date of a claim for recovery by such Indemnitee and ending on the date on
which the liability to such Indemnitee is fully satisfied pursuant hereto) at
a floating rate equal to the rate of interest publicly announced by Bank of
America, N.T. & S.A. from time to time as its prime, base or reference rate.
11.5 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against
the Surviving Corporation, against Parent or against any other Person) with
respect to which any Indemnitee may be entitled to payment pursuant to this
Section 11, Parent shall have the right, at its election, to proceed with the
defense of such claim or Legal Proceeding on its own. If Parent so proceeds
with the defense of any such claim or Legal Proceeding:
(a) all reasonable expenses relating to the defense of such claim
or Legal Proceeding shall be borne and paid exclusively out of the
Representation and Warranty Insurance;
(b) the parties shall use reasonable efforts to make available to
Parent any documents and materials in their possession or control that may be
necessary to the defense of such claim or Legal Proceeding; and
(c) Parent shall have the right to settle, adjust or compromise
such claim or Legal Proceeding as permitted under the terms of the
Representation and Warranty Insurance.
11.6 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT. No
Indemnitee (other than Parent or any successor thereto or assign thereof)
shall be permitted to assert any indemnification claim or exercise any other
remedy under this Agreement unless Parent (or any successor thereto or assign
thereof) shall have consented to the assertion of such indemnification claim
or the exercise of such other remedy.
SECTION 12. MISCELLANEOUS PROVISIONS.
12.1 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.
12.2 FEES AND EXPENSES. 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
47.
<PAGE>
incurred 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 Parent and its Representatives with respect to the Company's business (and
the furnishing of information to Parent and its Representatives in connection
with such investigation and review), (b) the negotiation, preparation and
review of this Agreement (including the Company Disclosure Schedule) 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 any Consent required to
be obtained in connection with any of such transactions, and (d) the
consummation of the Merger; provided, and Parent shall bear the filing 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 stockholder under the
HSR Act shall be borne exclusively by the Company.
12.3 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled.
12.4 NOTICES. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and
shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail, by courier or express delivery service or by
facsimile) to the address or facsimile 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:
The Titan Corporation
Attn: Legal Department
3033 Science Park Road
San Diego, CA 92121
Telephone: (619) 552-9500
Facsimile: (619) 552-9759
with a copy to: Cooley Godward LLP
Attn: M. Wainwright Fishburn, Esq.
4365 Executive Drive, Suite 1100
San Diego, California 92121
Telephone: (619) 550-6000
Facsimile: (619) 453-3555
48.
<PAGE>
if to the Company:
Horizons Technology, Inc.
Attn: Chief Executive Officer
3990 Ruffin Road
San Diego, CA 92123
Telephone: (619) 292-8331
Facsimile: (619) 292-9439
with a copy to: Jenkens & Gilchrist, P.C.
Attn: Donald M. Barnes
Andrew L. Lynch
1919 Pennsylvania Avenue, N.W., Ste. 600
Washington, D.C. 20006-3404
Telephone: (202) 326-1500
Facsimile: (202) 326-1555
if to the Designated Stockholders (respectively):
J.P. (Pat) Boyce
111 West Quince Street
San Diego, CA 92103
Dr. James T. Palmer
6157 Calle Vera Cruz
La Jolla, CA 92037
Earl A. Pontius
444 Old Stonebrook
Nagog Woods, MA 01718
12.5 CONFIDENTIALITY. Without limiting the generality of anything
contained in Section 7.3, on and at all times after the Closing Date, each
Designated Stockholder shall keep confidential, and shall not use or disclose
to any other Person, any non-public document or other non-public information
in such Designated Stockholder's possession that relates to the business of
the Company or Parent; provided, however, agreement among the parties with
respect to confidentiality and proprietary information shall remain in full
force and effect, unaffected by the execution of this Agreement or by the
Merger.
12.6 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
49.
<PAGE>
12.7 HEADINGS. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
12.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
12.9 GOVERNING LAW. 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), except to the
extent the Delaware General Corporation Law governs.
12.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon:
the Company and its successors and assigns (if any); the Designated
Stockholders and their respective personal representatives, executors,
administrators, estates, heirs, successors and assigns (if any); Parent and
its successors and assigns (if any); and Merger Sub and its successors and
assigns (if any). This Agreement shall inure to the benefit of: the Company;
the Company's stockholders (to the extent set forth in Section 1.5); the
holders of assumed Company Options and Company Warrants (to the extent set
forth in Section 1.6); the Designated Stockholders; Parent; Merger Sub; the
other Indemnitees (subject to Section 11.2); and the respective successors
and assigns (if any) of the foregoing. Parent may not assign any or all of
its rights under this Agreement to an unrelated Entity, in whole or in part,
without obtaining the prior written consent of the Company; and neither the
Company nor any Designated Stockholder may assign any or all of its rights
hereunder, in whole or in part, without obtaining the prior written consent
of Parent.
12.11 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.
12.12 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
50.
<PAGE>
executed and delivered on behalf of such Person; and any such waiver shall
not be applicable or have any effect except in the specific instance in which
it is given.
12.13 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.
12.14 SEVERABILITY. In the event that any provision of this
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as
to which it is determined to be invalid, unlawful, void or unenforceable,
shall not be impaired or otherwise affected and shall continue to be valid
and enforceable to the fullest extent permitted by law.
12.15 PARTIES IN INTEREST. Except for the provisions of Sections
1.5, 1.6 and 11, none of the provisions of this Agreement is intended to
provide any rights or remedies to any Person other than the parties hereto
and their respective successors and assigns (if any).
12.16 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 thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof; provided, however, that any agreement
with respect to confidentiality or proprietary information executed on behalf
of Parent and the Company prior to the date hereof shall not be superseded by
this Agreement and shall remain in effect in accordance with its terms and
until the earlier of (a) the Effective Time, or (b) the date on which such
agreement is terminated in accordance with its terms.
12.17 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.
51.
<PAGE>
The parties hereto have caused this Agreement to be executed and
delivered as of February 26, 1998.
THE TITAN CORPORATION,
a Delaware corporation
By: /s/Eric M. DeMarco, Chief Financial Officer
-------------------------------------------
Eric M. DeMarco, Chief Financial Officer
SUNRISE ACQUISITION SUB, INC,
a Delaware corporation
By: /s/Cheryl F. Barr, Secretary
------------------------------------------
------------------------------------------
[Print Name and Title]
HORIZONS TECHNOLOGY, INC.,
a Delaware corporation
By: /s/James T. Palmer, CEO
------------------------------------------
------------------------------------------
[Print Name and Title]
THE DESIGNATED STOCKHOLDERS:
/s/J.P. (Pat) Boyce
------------------------------------------
J.P. (Pat) Boyce
/s/Dr. James T. Palmer
------------------------------------------
Dr. James T. Palmer
/s/Earl A. Pontius
------------------------------------------
Earl A. Pontius
52.
<PAGE>
EXHIBIT A
DESIGNATED STOCKHOLDERS
James T. Palmer
J. Patrick Boyce
Earl A. Pontius
A-1
<PAGE>
EXHIBIT B
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit B):
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 material Contract: (a) to which the Company or any other Acquired
Corporation is a party; (b) by which the Company or any other Acquired
Corporation or any assets of any of them is or may become bound or under
which the Company or any other Acquired Corporation has, or may become
subject to, any obligation; or (c) under which the Company or any other
Acquired Corporation has or may acquire any right or interest.
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license, disposition or acquisition of all or a
material portion of the Company's business or assets;
(b) the issuance, disposition or acquisition of (i) any capital
stock or other equity security of the Company (other than common stock
issued to employees of the Company, upon exercise of Company Options or
otherwise, in routine transactions in accordance with the Company's past
practices), (ii) any option, call, warrant or right (whether or not
immediately exercisable) to acquire any capital stock or other equity
security of the Company (other than stock options granted to employees of
the Company in routine transactions in accordance with the Company's past
practices), or (iii) any security, instrument or obligation that is or may
become convertible into or exchangeable for any capital stock or other
equity security of the Company; or
(c) any merger, consolidation, business combination, reorganization
or similar transaction involving the Company.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit B is attached (including the Company
Disclosure Schedule), as it may be amended from time to time.
COMMERCIAL CONTRACT. "Commercial Contract" shall mean any customer
Contract [relating to the Company's commercial division] entered into by the
Company that contemplates or includes (A) the payment or delivery of cash or
other consideration in an amount of having a value in excess of $10,000 in the
aggregate, or (B) the performance of services having a value in excess of
$10,000 in the aggregate.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall mean the
schedule (dated as of the date of the Agreement) delivered to Parent on behalf
of the Company.
B-1
<PAGE>
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or any other Acquired
Corporation or otherwise used by the Company or any other Acquired
Corporation.
COMPANY STOCKHOLDERS' MEETING. "Company Stockholders' Meeting" shall
have the meaning set forth in Section 7.2.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental
Authorization).
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, decline in
value, lost opportunity, 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.
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 (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
ESOP LENDER. "ESOP Lender" shall mean the lender with respect to any
loan arrangement by and between the Company and such ESOP Lender ("ESOP
Outside Loan Agreement").
ESOP LOANS. "ESOP Loans" shall mean any loan from an ESOP Lender to the
Company pursuant to an ESOP Outside Loan Agreement and any loan from the
Company to the Company ESOP ("ESOP Inside Loan Agreement").
ESOP SHARES. "ESOP Shares" shall mean any equity securities of any
Acquired Corporation held beneficially or of record by the Company ESOP.
ESOP STOCK PURCHASE AGREEMENT. "ESOP Stock Purchase Agreement" shall
any stock agreement relating to the ESOP Shares.
ESOP TRANSACTION DOCUMENTS. "ESOP Transaction Documents" shall mean any
and all of the ESOP Stock Purchase Agreement, ESOP Outside Loan Agreement,
ESOP Inside Loan Agreement and such other agreements entered into in
connection with the transactions
B-2
<PAGE>
contemplated thereby or the consummation thereof or performance thereunder,
and all amendments, modifications and supplements thereto.
ESOP TRANSACTIONS. "ESOP Transactions" shall mean the transactions
contemplated by the ESOP Transaction Documents and such other transactions
entered into in connection with the consummation thereof or performance
thereunder.
ESOP TRUST. "ESOP Trust" shall mean the trust established pursuant to
the Company ESOP to hold the assets of the Company ESOP.
ESOP TRUSTEE. "ESOP Trustee" shall mean the trustee(s) of the ESOP
Trust pursuant to the Company ESOP.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
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 or subcontractor otherwise has or may acquire
any right or interest; and shall constitute a Contract as determined herein.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any: (a) permit, license, 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, 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, instrumentality, official, organization, unit, body or
Entity and any court or other tribunal).
HSR ACT. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
INDEMNITEES. "Indemnitees" shall mean Parent and any other insured
party under the Representation and Warranty Insurance.
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-3
<PAGE>
(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 as a
director, officer, partner, executor, or trustee of such Person (or in any
similar capacity) has knowledge of such fact or other matter.
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.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on the Company if such violation or other
matter (considered together with all other matters that would constitute
exceptions to the representations and warranties set forth in the Agreement
or in the Company Closing Certificate 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 business, condition, assets, liabilities, operations,
financial performance or prospects of the Acquired Corporations, considered
as a whole.
MATERIAL COMPANY CONTRACT. "Material Company Contract" shall have the
meaning set forth in Section 2.10(a).
NYSE. "NYSE" shall mean the New York Stock Exchange.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
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, application,
trade secret, know-how, customer list, franchise, system, computer software,
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.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
B-4
<PAGE>
RELATED PARTY. "Related Party" shall mean (i) each of the Designated
Stockholders; (ii) each individual who is, or who has at any time since
January 31, 1995 been, an officer any of the Acquired Corporations; (iii)
each member of the immediate family of each of the individuals referred to in
clauses "(i)" and "(ii)" above; and (iv) any trust or other Entity (other
than the Acquired Corporations) in which any one of the individuals referred
to in clauses "(i)", "(ii)" and "(iii)" above holds (or in which more than
one of such individuals collectively hold), beneficially or otherwise, a
material voting, proprietary or equity interest.
S-4 REGISTRATION STATEMENT. "S-4 Registration Statement" shall have the
meaning set forth in Section 7.7(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.
STOCKHOLDERS. "Stockholders" shall mean all stockholders of the Company
immediately prior to the Closing whose shares of Company Common Stock are
converted into shares of Parent Common Stock at the Closing as a result of
the Merger, and shall include the Designated Stockholders.
SUPERIOR PROPOSAL. "Superior Proposal" shall have the meaning set forth
in Section 10.1(e).
TAX. "Tax" 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,
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.
WORKING CAPITAL. "Working Capital" shall mean tangible current assets
less current liabilities, excluding any intercompany payables and
receivables, prepaid salaries and notes receivable from affiliated parties,
as determined in accordance with GAAP; provided, however, that, consistent
with the Company's presentation with respect to working capital set forth in
Appendix 2.4(a)(ii) to the Company Disclosure Schedule, current liabilities
shall not include accrued rent for any period subsequent to January 31, 1998,
"reserves" of $100,000 or up to $175,000 of costs and expenses ("Merger
Expenses") of the Company associated with the Merger. Notwithstanding the
foregoing, the Merger Expenses shall include financial advisor costs and
expenses not in excess of $25,000. Further, $50,000 in premiums for
insurance policies obtained pursuant to the terms of this Agreement shall be
included as current liabilities as part of the Working Capital calculation.
B-5
<PAGE>
EXHIBIT C
DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
<TABLE>
<CAPTION>
DIRECTORS
- -----------------------
<S> <C>
Earl A. Pontius
Gene W. Ray
John L. Slack
J. S. Webb
OFFICERS TITLE
- ----------------------- ------------------------------------
J. S. Webb Chief Executive Officer
Earl A. Pontius President, Chief Operating Officer
Eugene B. Haignere Vice President
David C. Clapp Vice President
Richard G. Galloway Vice President
William A. Hillmer Assistant Treasurer
Lisabeth A. Marinelli Assistant Vice President
Judy F. McLaughlin Assistant Vice President, Corporate Secretary
John E. Pettigrew Vice President
Rick J. Pope Vice President
Robert L. Vaughan Vice President/Group Controller
Gunars Vinkels Vice President
Sue E. Wood Assistant Secretary
</TABLE>
C-1
<PAGE>
EXHIBIT D-1
AFFILIATE AGREEMENT
This Affiliate Agreement (this "Agreement") is entered into as of
___________, 1998, by and between THE TITAN CORPORATION, a Delaware
corporation ("Parent"), and the undersigned officer ("Officer") of HORIZONS
TECHNOLOGY, INC., a Delaware corporation (the "Company").
A. Pursuant to that certain Agreement and Plan of Merger and
Reorganization (the "Merger Agreement"), dated as of February __, 1998, by
and among Parent; SUNRISE ACQUISITION SUB, INC. ("Merger Sub"), a Delaware
corporation and a wholly-owned subsidiary of Parent; the Company; and certain
stockholders of 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). Officer understands the
definitions of 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.
C. Officer 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.
NOW, THEREFORE, Officer hereby certifies and agrees as follows:
1. Capitalized terms used in this Agreement and not otherwise defined
shall have the meanings given them in the Merger Agreement.
2. Officer certifies and agrees that:
1.1 Officer has full power and capacity to execute and deliver this
Agreement.
1.2 Officer has discussed with counsel the requirements, limitations
and restrictions on his ability to sell, transfer or otherwise dispose of the
Shares he may receive and understands the requirements, limitations and
restrictions this Agreement places upon Officer's ability to transfer, sell
or otherwise dispose of such Shares.
1.3 Officer will not, publicly or privately, sell, transfer or
otherwise dispose of, or reduce Officer's interest in or risk relating to,
any Shares held by Officer 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).
D-1
<PAGE>
1.4 Until the earlier of (i) the Closing Date or (ii) the termination
of the Merger Agreement, Officer will not sell, transfer or otherwise dispose
of, or reduce Officer's interest in or risk relating to, any Company Common
Stock and/or Series A Preferred Stock held by Officer.
1.5 Subject to Section 2(c) above, Officer will not sell, pledge,
transfer or otherwise dispose of any of the Shares held by Officer unless at
such time as such transfer shall be in conformity with the provisions of Rule
145(d) (or any successor rule then in effect), to the extent such Rule is
applicable to Officer.
3. Officer further certifies that he is the beneficial owner of the
Company Common Stock and/or Series A Preferred Stock set forth below, or, if
not set forth below, that he is not the beneficial owner of any Company
Common Stock and/or Series A Preferred Stock.
4. Each party hereto acknowledges that (i) it will be impossible to
measure in money the damage to Parent if Officer 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; provided
however, each party shall use reasonable efforts to notify the other in the
event of a breach of this Agreement.
5. 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.
6. 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.
7. 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.
D-2
<PAGE>
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]
OFFICER
_______________________________________
_______________________________________
[Print Name]
Address:_______________________________
_______________________________________
_______________________________________
Shares of Company Common Stock
Beneficially Owned: _____________
Shares of Series A Preferred Stock
Beneficially Owned: _____________
D-3
<PAGE>
EXHIBIT D-2
PERSONS TO EXECUTE AFFILIATE AGREEMENTS
James T. Palmer
J. Patrick Boyce
Earl A. Pontius
D-4
<PAGE>
EXHIBIT E
FORM OF TAX REPRESENTATION LETTER
TO BE EXECUTED BY PARENT AND MERGER SUB
Cooley Godward, LLP Jenkens & Gilchrist, P.C.
One Maritime Plaza, 20th Fl. 1919 Pennsylvania Ave. N.W., Ste. 600
San Francisco, California 94111-3580 Washington, D.C. 20006-3404
RE: MERGER PURSUANT TO THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
(THE "REORGANIZATION AGREEMENT") DATED FEBRUARY __, 1998, AMONG THE TITAN
CORPORATION, A DELAWARE CORPORATION ("PARENT"), SUNRISE ACQUISITION SUB,
INC., A DELAWARE CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF PARENT
("MERGER SUB"), HORIZONS TECHNOLOGY, INC., A DELAWARE CORPORATION (THE
"COMPANY"), AND CERTAIN STOCKHOLDERS OF THE COMPANY AND THE RELATED
CERTIFICATE OF MERGER BETWEEN MERGER SUB AND THE COMPANY (THE "CERTIFICATE
OF MERGER").
Gentlemen:
This letter is supplied to you in connection with your rendering of opinions
regarding certain federal income tax consequences of the Merger. Unless
otherwise indicated, capitalized terms not defined herein have the meanings
set forth in the Reorganization Agreement. The Reorganization Agreement and
the Certificate of Merger, including exhibits and schedules attached thereto,
are collectively referred to as the "AGREEMENTS."
After consulting with their counsel and auditors regarding the meaning of and
factual support for the following representations, the undersigned hereby
certify and represent that the following facts are now true and will continue
to be true as of the Effective Time of the Merger and thereafter where
relevant:
1. Pursuant to the Merger, Merger Sub will merge with and into the
Company, and the Company will acquire all of the assets and liabilities of
Merger Sub. Specifically, the assets transferred to the Company pursuant to
the Merger will represent at least ninety percent (90%) of the fair market
value of the net assets and at least seventy percent (70%) of the fair market
value of the gross assets held by Merger Sub immediately prior to the Merger.
In addition, at least ninety percent (90%) of the fair market value of the
net assets and at least seventy percent (70%) of the fair market value of the
gross assets held by the Company immediately prior to the Merger will
continue to be held by the Company immediately after the Merger. For the
purpose of determining the percentage of the Company's and Merger Sub's net
and gross assets held by the Company immediately following the Merger, the
following assets will be treated as property held by Merger Sub or the
Company, as the case may be, immediately prior but not subsequent to the
Merger: (i) assets disposed of by the Company or Merger Sub (other than
assets transferred from Merger Sub to the Company in the Merger) prior to or
subsequent to the Merger and in contemplation thereof (including without
limitation any asset disposed of by the Company, other than in the ordinary
course of business, pursuant to a plan or intent existing during the period
ending at the Effective Time of the Merger and beginning with the
E-1
<PAGE>
commencement of negotiations (whether formal or informal) with Parent
regarding the Merger (the "PRE-MERGER PERIOD"); (ii) assets used by the
Company or Merger Sub to pay stockholders perfecting appraisal rights or
other expenses or liabilities incurred in connection with the Merger; and
(iii) assets used to make distribution, redemption or other payments in
respect of stock of the Company or rights to acquire such stock (including
payments treated as such for tax purposes) that are made in contemplation of
the Merger or that are related thereto;
2. Parent's principal reasons for participating in the Merger are bona
fide business purposes not related to taxes;
3. Prior to the Merger, Parent will be in "CONTROL" of Merger Sub. As
used in this letter, "CONTROL" shall consist of direct ownership of shares of
stock possessing at least eighty percent (80%) of the total combined voting
power of all classes of stock entitled to vote and at least eighty percent
(80%) of the total number of shares of all other classes of stock of the
corporation. For purposes of determining Control, a person shall not be
considered to own shares of voting stock if rights to vote such shares (or to
restrict or otherwise control the voting of such shares) are held by a third
party (including a voting trust) other than an agent of such person;
4. In the Merger, shares of stock of the Company representing Control
of the Company will be exchanged solely for shares of Parent Common Stock.
For purposes of this paragraph, shares of stock of the Company exchanged in
the Merger for cash and other property (including, without limitation, cash
paid to stockholders of the Company perfecting appraisal rights, if any, or
in lieu of fractional shares of Parent Common Stock) will be treated as
shares of stock of the Company outstanding on the date of the Merger but not
exchanged for shares of Parent Common Stock;
5. Parent has no plan or intention to cause the Company to issue
additional shares of stock after the Merger, or take any other action, that
would result in Parent losing Control of the Company;
6. Parent has no plan or intention to reacquire any of its stock
issued pursuant to the Merger;
7. Except for transfers described in both Section 368(a)(2)(C) of the
Code and Treasury Regulation Section 1.368-2(j)(4), Parent has no plan or
intention to: (a) liquidate the Company; (b) merge the Company with or into
another corporation including Parent or its affiliates; (c) sell, distribute
or otherwise dispose of the stock of the Company, to cause the Company to
sell or otherwise dispose of the stock of the Company; or (d) cause the
Company to sell or otherwise dispose of any of its assets or of any assets
acquired from Merger Sub, except for dispositions made in the ordinary course
of business or payment of expenses incurred by the Company pursuant to the
Merger;
8. In the Merger, Merger Sub will have no liabilities assumed by the
Company and will not transfer to the Company any assets subject to
liabilities, except to the extent incurred in connection with the
transactions contemplated by the Agreements;
9. Parent intends that, following the Merger, the Company will
continue its historic business or use a significant portion of its historic
business assets in a business;
E-2
<PAGE>
10. During the past five (5) years, none of the outstanding shares of
capital stock of the Company, including the right to acquire or vote any such
shares have, directly or indirectly, been owned by Parent or affiliates of
Parent;
11. Parent is not an investment Company within the meaning of Section
368(a)(F)(iii) and (iv) of the Code;
12. No stockholder of the Company is acting as agent for Parent in
connection with the Merger or the approval thereof; Parent will not reimburse
any stockholder of the Company for any stock of the Company such stockholder
may have purchased or for other obligations such stockholder may have
incurred;
13. Neither Parent nor Merger Sub is, or will be at the Effective Time
of the Merger, under the jurisdiction of a court in a Title 11 or similar
case within the meaning of Section 368(a)(3)(A) of the Code;
14. Except for repurchases or redemptions of Parent Common Stock that
are consistent with past practices and pursuant to pre-existing purchase
programs that were not created or modified in connection with the Merger,
neither Merger Sub nor Parent nor any "RELATED PERSON" of Merger Sub or
Parent (as such term is defined by Treasury Regulation Section 1.368-1(e)(3))
will repurchase or redeem any of the Parent Common Stock to be issued to the
stockholders of the Company in connection with the Merger;
15. Except with respect to (i) payments of cash to stockholders of the
Company perfecting appraisal rights and (ii) payments of cash to stockholders
of the Company in lieu of fractional shares of Parent Common Stock, one
hundred percent (100%) of the stock of the Company outstanding immediately
prior to the Merger will be exchanged solely for Parent Common Stock. Thus,
except as set forth in the preceding sentence, Merger Sub and Parent intend
that no consideration be paid or received (directly or indirectly, actually
or constructively) for stock of the Company other than Parent Common Stock;
16. The total fair market value of all consideration other than Parent
Common Stock received by stockholders of the Company in the Merger
(including, without limitation, cash paid to stockholders of the Company
perfecting appraisal rights) will be less than ten percent (10%) of the
aggregate fair market value of stock of the Company outstanding immediately
prior to the Merger;
17. The fair market value of the Parent Common Stock received by each
stockholder of the Company will be approximately equal to the fair market
value of the stock of the Company surrendered in exchange therefor, and the
aggregate consideration received by stockholders of the Company in exchange
for their stock of the Company will be approximately equal to the fair market
value of all of the outstanding shares of stock of the Company immediately
prior to the Merger;
18. Each of Merger Sub, Parent, the Company and each stockholder of the
Company will each pay separately his, her or its own expenses relating to the
Merger;
E-3
<PAGE>
19. There is no intercorporate indebtedness existing between Parent and
the Company or between Merger Sub and the Company that was issued, acquired
or will be settled at a discount as a result of the Merger, and Parent will
assume no liabilities of the Company or any stockholder of the Company in
connection with the Merger;
20. The terms of the Reorganization Agreement and the agreements
related thereto are the product of arm's length negotiations;
21. None of the compensation received by any stockholder-employee of
the Company will be separate consideration for, or allocable to, any of their
shares of stock of the Company; none of the shares of Parent Common Stock
received by any stockholder-employee of the Company will be separate
consideration for, or allocable to, any employment agreement or any covenants
not to compete; and the compensation paid to any stockholder-employee of the
Company will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services;
22. The payment of cash in lieu of fractional shares of Parent Common
Stock is solely for the purpose of avoiding the expense and inconvenience to
Parent of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid
in the transaction to the Company stockholders instead of issuing fractional
shares of Parent Common Stock will not exceed one percent (1%) of the total
consideration that will be issued in the transaction to the Company
stockholders in exchange for their shares of Company capital stock. The
fractional share interests of each Company stockholder will be aggregated,
and no Company stockholder will receive cash in an amount equal to or greater
than the value of one full share of Parent Common Stock;
23. With respect to each instance, if any, in which shares of stock of
the Company have been purchased by a stockholder of Parent (a "STOCKHOLDER")
during the Pre-Merger Period (a "STOCK PURCHASE"): (i) the Stock Purchase
was made by such Stockholder on its own behalf and not as a representative,
or for the benefit, of Parent; (ii) the purchase price paid by such
Stockholder pursuant to the Stock Purchase was the product of arm's length
negotiations, was funded by such Stockholder's own assets, was not advanced,
and will not be reimbursed, either directly or indirectly, by Parent; (iii)
at no time was such Stockholder or any other party required or obligated to
surrender to Parent the Company capital stock acquired in the Stock Purchase,
and neither such Stockholder nor any other party will be required to
surrender to Parent the Parent Common Stock for which such shares of stock of
the Company will be exchanged in the Merger; and (iv) the Stock Purchase was
not a formal or informal condition to consummation of the Merger and was
entered into solely to satisfy the separate interests of such Stockholder and
the seller; and
24. Parent and Merger Sub are authorized to make all of the
representations set forth herein.
The undersigned recognize that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the
Agreements and documents related thereto, and (ii) your opinions will be
subject to certain limitations and qualifications including that they may not
be relied upon if any such representations are not accurate in all material
respects.
E-4
<PAGE>
The undersigned recognize that your opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except
as expressly set forth in such opinions.
Very truly yours,
THE TITAN CORPORATION,
a Delaware corporation
By:_____________________________________
Title:__________________________________
SUNRISE ACQUISITION SUB, INC.,
a Delaware corporation
By:_____________________________________
Title:__________________________________
E-5
<PAGE>
EXHIBIT F
FORM OF TAX REPRESENTATION LETTER
TO BE EXECUTED BY THE COMPANY
Cooley Godward llp Jenkens & Gilchrist, P.C.
One Maritime Plaza, 20th Fl. 1919 Pennsylvania Ave. N.W., Suite 600
San Francisco, California CA 94111-3580 Washington, D.C. 20006-3404
RE: MERGER PURSUANT TO THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
(THE "REORGANIZATION AGREEMENT"), DATED FEBRUARY __, 1998, AMONG THE TITAN
CORPORATION, INC., A DELAWARE CORPORATION ("PARENT"), SUNRISE ACQUISITION
SUB, INC., A DELAWARE CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF PARENT
("MERGER SUB"), HORIZONS TECHNOLOGY, INC., A DELAWARE CORPORATION (THE
"COMPANY"), AND CERTAIN STOCKHOLDERS OF THE COMPANY, AND THE RELATED
CERTIFICATE OF MERGER BETWEEN THE COMPANY AND MERGER SUB (THE "CERTIFICATE
OF MERGER").
Gentlemen:
This letter is supplied to you in connection with your rendering of opinions
regarding certain federal income tax consequences of the Merger. Unless
otherwise indicated, capitalized terms not defined herein have the meanings
set forth in the Reorganization Agreement or the Certificate of Merger. The
Reorganization Agreement and the Certificate of Merger, including exhibits
and schedules attached thereto, are collectively referred to as the
"AGREEMENTS."
After consulting with its counsel and auditors regarding the meaning of and
factual support for the following representations, the undersigned hereby
certifies and represents that the following facts are now true and will
continue to be true as of the Effective Time of the Merger and thereafter
where relevant:
1. Pursuant to the Merger, Merger Sub will merge with and into the
Company, and the Company will acquire all of the assets and liabilities of
Merger Sub. Specifically, the assets transferred to the Company pursuant to
the Merger will represent at least ninety percent (90%) of the fair market
value of the net assets and at least seventy percent (70%) of the fair market
value of the gross assets held by Merger Sub immediately prior to the Merger.
In addition, at least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value of the gross
assets held by the Company immediately prior to the Merger will continue to be
held by the Company immediately after the Merger. For the purpose of
determining the percentage of the Company's and Merger Sub's net and gross
assets held by the Company immediately following the Merger, the following
assets will be treated as property held by Merger Sub or the Company, as the
case may be, immediately prior but not subsequent to the Merger: (i) assets
disposed of by the Company or Merger Sub (other than assets transferred from
Merger Sub to the Company in the Merger) prior to or subsequent to the Merger
and in contemplation thereof (including without limitation any asset disposed
of by the Company, other than in the ordinary course of business, pursuant to a
plan or intent existing during the period ending on the Effective Time of the
Merger and beginning with the
F-1
<PAGE>
commencement of negotiations (whether formal or informal) with Parent
regarding the Merger (the "PRE-MERGER PERIOD"); (ii) assets used by the
Company or Merger Sub to pay stockholders perfecting appraisal rights or
other expenses or liabilities incurred in connection with the Merger; and
(iii) assets used to make distribution, redemption or other payments in
respect of stock of the Company or rights to acquire such stock (including
payments treated as such for tax purposes) that are made in contemplation of
the Merger or that are related thereto;
2. Other than in the ordinary course of business or pursuant to its
obligations under the Agreements, the Company has made no transfer of any of
its assets (including any distribution of assets with respect to, or in
redemption of, stock) in contemplation of the Merger or during the Pre-Merger
Period;
3. The Company's principal reasons for participating in the Merger are
bona fide business purposes unrelated to taxes;
4. On the Effective Time of the Merger, the Company will have no
outstanding equity interests other than those disclosed in Section 2.3 of the
Reorganization Agreement. At the time of the Merger, except as specified in
the Reorganization Agreement, the Company will have no outstanding warrants,
options, or convertible securities or any other type of right outstanding
pursuant to which any person could acquire shares of the Company capital
stock or any other equity interest in the Company, other than those disclosed
in Section 2.3 of the Reorganization Agreement or the Disclosure Schedule
with respect thereto;
5. In the Merger, shares of stock of the Company representing "CONTROL"
of the Company will be exchanged solely for shares of voting stock of Parent.
At the Effective Time of the Merger, there will exist no rights to acquire
the Company capital stock or to vote (or restrict or otherwise control the
vote of) shares of stock of the Company which, if exercised, would affect
Parent's acquisition and retention of control of the Company. For purposes
of this paragraph, shares of the stock of Company exchanged in the Merger for
cash and other property (including, without limitation, cash paid to
stockholders of the Company perfecting appraisal rights, if any, or in lieu
of fractional shares of Parent Common Stock) will be treated as shares of
stock of the Company outstanding on the date of the Merger but not exchanged
for shares of voting stock of Parent. As used in this letter, "CONTROL"
shall consist of direct ownership of shares of stock possessing at least
eighty percent (80%) of the total combined voting power of shares of all
classes of stock entitled to vote and at least eighty percent (80%) of the
total number of shares of all other classes of stock of the corporation. For
purposes of determining Control, a person shall not be considered to own
shares of voting stock if rights to vote such shares (or to restrict or
otherwise control the voting of such shares) are held by a third party
(including a voting trust) other than an agent of such person;
6. The total fair market value of all consideration other than shares
of Parent Common Stock received by stockholders of the Company in the Merger
(including, without limitation, cash paid to Company stockholders perfecting
appraisal rights or in lieu of fractional shares of Parent Common Stock) will
be less than ten percent (10%) of the aggregate fair market value of shares
of stock of the Company outstanding immediately prior to the Merger;
F-2
<PAGE>
7. The Company has no plan or intention to issue additional shares of
stock after the Merger, or take any other action, that would result in Parent
losing Control of the Company;
8. Except for transfers described in both Section 368(a)(2)(C) of the
Code and Treasury Regulation Section 1.368-2(j)(4), the Company has no plan
or intention to sell or otherwise dispose of any of its assets or of any of
the assets acquired from Merger Sub in the Merger except for dispositions
made in the ordinary course of business or to pay expenses incurred by the
Company pursuant to the Merger;
9. The Company intends to continue its historic business or use a
significant portion of its historic business assets in a business following
the Merger;
10. The liabilities of the Company have been incurred by the Company in
the ordinary course of its business;
11. The fair market value of the Company's assets will, on the
Effective Time of the Merger, exceed the aggregate liabilities of the Company
plus the amount of liabilities, if any, to which such assets are subject;
12. The Company is not and will not be on the Effective Time of the
Merger an "INVESTMENT COMPANY" within the meaning of Section
368(a)(2)(F)(iii) and (iv) of the Code;
13. The Company is not and will not be on the Effective Time of the
Merger under the jurisdiction of a court in a Title 11 or similar case within
the meaning of Section 368(a)(3)(A) of the Code;
14. The Company has made no extraordinary distributions within the
meaning of Temporary Federal Treasury Regulation Section 1.368-1T(e) with
respect to its stock, prior to and in connection with the Merger;
15. The Company has not redeemed and no "RELATED PERSON" with respect
to the Company, as such term is defined by Treasury Regulation Section
1.368-1(e)(3), (without regard to Section 1.368-1(e)(3)(i)(a)), has purchased
any Company capital stock prior to and in connection with the Merger;
16. Except with respect to (i) payments of cash to stockholders of the
Company in lieu of fractional shares of Parent Common Stock, and (ii)
payments of cash to stockholders of the Company perfecting appraisal rights,
one hundred percent (100%) of the shares of stock of the Company outstanding
immediately prior to the Merger will be exchanged solely for shares of Parent
Common Stock. Thus, except as set forth in the preceding sentence, the
Company intends that no consideration be paid or received (directly or
indirectly, actually or constructively) for shares of stock of the Company
other than shares of Parent Common Stock;
17. The fair market value of the shares of Parent Common Stock received
by each stockholder of the Company will be approximately equal to the fair
market value of the shares of stock of the Company surrendered in exchange
therefor and the aggregate consideration received by stockholders of the
Company in exchange for their shares of stock of the Company will be
F-3
<PAGE>
approximately equal to the fair market value of all of the outstanding shares
of stock of the Company immediately prior to the Merger;
18. Each of Merger Sub, Parent, the Company and each stockholder of the
Company will each pay separately his, her or its own expenses relating to the
Merger;
19. There is no intercorporate indebtedness existing between Parent and
the Company or between Merger Sub and the Company that was issued, acquired,
or will be settled at a discount as a result of the Merger; Parent will
assume no liabilities of the Company or any stockholder of the Company in
connection with the Merger;
20. The terms of the Reorganization Agreement and the other agreements
relating thereto are the product of arm's length negotiations;
21. None of the compensation received by any stockholder-employees of
the Company will be separate consideration for, or allocable to, any of their
shares of stock of the Company; none of the shares of Parent Common Stock
received by any stockholder-employees of the Company will be separate
consideration for, or allocable to, any employment agreement or any covenants
not to compete; and the compensation paid to any stockholder-employees of the
Company will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services;
22. With respect to each instance, if any, in which shares of stock of
the Company have been purchased by a stockholder of Parent (a "STOCKHOLDER")
during the Pre-Merger period (a "STOCK PURCHASE"): (i) to the best knowledge
of the Company, (A) the Stock Purchase was made by such Stockholder on its
own behalf, rather than as a representative, or for the benefit, of Parent,
(B) the Stock Purchase was entered into solely to satisfy the separate
interests of such Stockholder and the seller, and (C) the purchase price paid
by such Stockholder pursuant to the Stock Purchase was the product of arm's
length negotiations; and (ii) the Stock Purchase was not a formal or informal
condition to consummation of the Merger; and
23. The Company is authorized to make all of the representations set
forth herein.
The undersigned recognizes that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the
Agreements and documents related thereto, and (ii) your opinions will be
subject to certain limitations and qualifications including that they may not
be relied upon if any such representations are not accurate in all material
respects.
Notwithstanding anything herein to the contrary, the undersigned makes no
representations regarding any actions or conduct of the Company pursuant to
Parent's exercise of control over the Company after the Merger.
F-4
<PAGE>
The undersigned recognizes that your opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except
as expressly set forth in such opinions.
Very truly yours,
HORIZONS TECHNOLOGY, INC.,
a Delaware corporation
By:____________________________________
Title:_________________________________
F-5
<PAGE>
EXHIBIT G
ACKNOWLEDGMENT AND RELEASE
THIS ACKNOWLEDGMENT AND RELEASE ("Release") is being executed and
delivered as of ______________, 1998, by __________________________________
("Releasor") in favor of, and for the benefit of, HORIZONS TECHNOLOGY, INC., a
Delaware corporation (the "Corporation"), THE TITAN CORPORATION, a Delaware
corporation ("Parent"), and the other Releasees (as defined in Section 2).
RECITALS
A. Contemporaneously with the execution and delivery of this Release,
pursuant to an Agreement and Plan of Merger and Reorganization, dated as of
February ___, 1998, among the Corporation, Parent, Sunrise Acquisition Sub.,
Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger
Sub"), and certain other stockholders of the Corporation (the "Merger
Agreement"), Merger Sub is merging into the Corporation (the merger of Merger
Sub into the Corporation being referred to in this Release as the "Merger").
As a result of the Merger, the Corporation's stockholders are receiving shares
of common stock of Parent in exchange for their shares of common stock of the
Corporation, and the Corporation will survive as a wholly owned subsidiary of
Parent.
B. Parent has required, as a condition to consummating the Merger and
the other transactions contemplated by the Merger Agreement, that Releasor
execute and deliver this Release.
AGREEMENT
In order to induce Parent to consummate the transactions contemplated by
the Merger Agreement, and for other valuable consideration (the receipt and
sufficiency of which are hereby acknowledged by Releasor), Releasor hereby
covenants and agrees as follows:
1. RELEASE. Releasor, for himself and for each of his Associated
Parties (as defined in Section 2), hereby generally, irrevocably,
unconditionally and completely releases and forever discharges each of the
Releasees (as defined in Section 2) from, and hereby irrevocably,
unconditionally and completely waives and relinquishes, each of the Released
Claims (as defined in Section 2).
2. DEFINITIONS.
(a) The term "Associated Parties," when used herein with respect to
Releasor, shall mean and include: (i) Releasor's predecessors, successors,
executors, administrators, assigns, heirs and estate; and (ii) each entity of
which Releasor owns, at least 50% of the outstanding voting interests.
(b) The term "Releasees" shall mean and include: (i) Parent; (ii) the
Corporation; (iii) each of the subsidiaries of Parent; and (iv) the past and
present directors, officers,
G-1
<PAGE>
employees, agents, attorneys and representatives of the respective entities
identified or otherwise referred to in clauses "(i)" through "(iii)" of this
sentence, other than Releasor.
(c) The term "Released Claims" shall mean and include each and every
claim that has arisen or arises out of any circumstance, agreement, activity,
action, omission, event or matter occurring or existing on or prior to the date
of this Release PROVIDED, HOWEVER, that the Released Claims shall not include:
(i) Releasor's rights, if any, against Parent under the Merger
Agreement;
(ii) Releasor's rights against the Corporation under any other
agreement being entered into by Releasor and the Corporation contemporaneously
with the execution and delivery of this Release; or based upon obligations of
the Corporation to make payments under existing compensation or benefit plans
or as required under applicable law; or
(iii) any right of indemnification Releasor may have against the
Corporation under the Corporation's Certificate of Incorporation or otherwise
in his capacity as an officer or director of the Corporation as such rights
shall survive the Merger as expressly set forth in the Merger Agreement.
3. REPRESENTATIONS AND WARRANTIES. Releasor represents and warrants
that:
(a) Releasor has not assigned, transferred, conveyed or otherwise
disposed of any claim against any of the Releasees, or any direct or indirect
interest in any such claim, in whole or in part;
(b) to the best of Releasor's knowledge, no other person or entity has
any interest in any of the Released Claims;
(c) this Release has been duly and validly executed and delivered by
Releasor;
(d) this Release is a valid and binding obligation of Releasor and
Releasor's Associated Parties, and is enforceable against Releasor and each of
his Associated Parties 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 general
equity principles and to limitations on availability of equitable relief,
including specific performance;
(e) neither the execution and delivery of this Release nor the
performance hereof will result in any violation or breach of any agreement or
other instrument to which Releasor is a party or by which Releasor is bound;
4. NOTICES. Any notice or other communication required or permitted to
be delivered to Releasor, the Corporation or Parent under this Release 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 of the party to
receive the notice.
G-2
<PAGE>
5. SEVERABILITY. If any provision of this Release or any part of any
such provision is held under any circumstances to be invalid or unenforceable
in any jurisdiction, then (a) such provision or part thereof shall, with
respect to such circumstances and in such jurisdiction, be deemed amended to
conform to applicable laws so as to be valid and enforceable to the fullest
possible extent and (b) the invalidity or unenforceability of such provision or
part thereof shall not affect the validity or enforceability of the remainder
of such provision or the validity or enforceability of any other provision of
this Release. Each provision of this Release is separable from every other
provision of this Release, and each part of each provision of this Release is
separable from every other part of such provision.
6. GOVERNING LAW; WAIVER OF SECTION 1542 AND RELATED STATUTES. This
Release shall be construed in accordance with, and governed in all respects by,
the laws of the State of California (without giving effect to principles of
conflicts of laws). Notwithstanding the foregoing, Releasor expressly waives
and relinquishes all rights and benefits that may be afforded by Section 1542
of the Civil Code of the State of California and any similar statute applicable
to this Release (including, without limitation, any applicable statute, rule or
regulation of the State of Minnesota), and does so understanding and
acknowledging the significance of this specific waiver of such statute(s).
Section 1542 of the Civil Code of the State of California states as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected his settlement with the
debtor.
7. WAIVER. No failure on the part of any Releasee to exercise any
power, right, privilege or remedy under this Release, and no delay on the part
of any Releasee in exercising any power, right, privilege or remedy under this
Release, 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. No Releasee shall be deemed to have waived any
claim arising out of this Release, or any power, right, privilege or remedy
under this Release, 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 party; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
8. CAPTIONS. The captions contained in this Release are for convenience
of reference only, shall not be deemed to be a part of this Release and shall
not be referred to in connection with the construction or interpretation of
this Release.
9. ENTIRE AGREEMENT. This Release sets forth the entire understanding
of the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings between the parties relating to the subject
matter hereof.
10. AMENDMENTS. This Release may not be amended, modified, altered, or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of Releasor, Parent and the Corporation.
G-3
<PAGE>
11. BINDING NATURE. This Release will be binding upon Releasor and
Releasor's Associated Parties and will inure to the benefit of each of the
Releasees.
12. CONSTRUCTION.
(a) For purposes of this Release, whenever the context requires: the
singular number shall include the plural, and vice versa.
(b) As used in this Release, 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."
(c) Except as otherwise indicated, all references in this Release to
"Sections" are intended to refer to Sections of this Release.
Releasor has executed this Release as of the date first above written.
________________________________
[Releasor]
Name:___________________________
Address:________________________
________________________
G-4
<PAGE>
EXHIBIT H
SUBSTANTIVE PROVISIONS OF THE OPINION OF
JENKENS & GILCHRIST, P.C.
[Capitalized terms defined as in the Merger Agreement]
13. 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. 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.
14. The authorized capital stock of the Company consists (i) 12,000,000
shares of Common Stock, $.01 par value, of which [7,996,953] shares have been
issued and are outstanding as of the date hereof and (ii) 2,500,000 shares of
Preferred Stock (with par value $.01, all of which have been designated "Series
A Preferred Stock"), of which 500,000 shares have been issued and are
outstanding as of the date hereof. All of the outstanding shares of Company
Common Stock and Series A Preferred Stock have been duly authorized and validly
issued, and are fully paid and nonassessable. All of the outstanding shares of
capital stock or other securities of the Acquired Corporations have been duly
authorized and validly issued, are fully paid and nonassessable and are owned
by the Company.
15. 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.
16. The Company has the requisite corporate power and authority to
perform its obligations under the Merger Agreement and documents executed by
the Company in connection therewith (collectively, the "Agreements"). The
execution, delivery and performance of the Agreements by the Company have been
duly authorized by all necessary action on the part of the Company's
stockholders and board of directors. The Agreements have been duly and validly
executed and delivered by the Company. The Company Agreements constitute the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with their terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other
similar laws affecting creditors' rights, and subject to
H-1
<PAGE>
(i) general equity principles and limitations on availability of equitable
relief, including specific performance, and (ii) limitations on the
availability of indemnity under applicable laws.
17. 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 Certificate 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 governmental statute, rule or regulation applicable to the Company,
order, writ, injunction, decree or arbitration award applicable to the Company
or its assets, excluding in the case of 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.
18. 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.
19. 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.
20. 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 Certificate of Merger with the Secretary of State of the State of
Delaware as contemplated by the Merger Agreement, the Merger will have been
validly effected in accordance with Delaware Law.
H-2
<PAGE>
EXHIBIT I
_______________, 1998
Ladies and Gentlemen:
We have acted as counsel for The Titan Corporation, a Delaware corporation
("Parent"), in connection with the merger of Sunrise Acquisition Sub, Inc.
("Merger Sub"), a Delaware corporation and a wholly-owned subsidiary of Parent,
with and into Horizon Technology, Inc., a Delaware corporation (the "Company"),
pursuant to an Agreement and Plan of Merger and Reorganization, amended as of
February __, 1998 among Parent, Merger Sub and the Company (the "Merger
Agreement"). We are rendering this opinion pursuant to Section 8.5(f) 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 State of California and 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
I-1
<PAGE>
antitrust, trade regulation or unfair competition; or (iii) as to
the enforceability of any of the agreements attached as exhibits to the Merger
Agreement.
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.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. Each of Parent and Merger Sub is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware.
2. Each of Parent and Merger Sub 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 execution, delivery and performance of
the Merger Agreement by Merger Sub have been duly authorized by all necessary
action on the part of Merger Sub's sole director and stockholder. The Merger
Agreement has been duly and validly executed and delivered by each of Parent
and Merger Sub.
3. The Merger Agreement 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 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) limitations on the availability of indemnity under
applicable laws.
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
Certificate of Incorporation or Bylaws of Merger Sub, or (b) to our knowledge
violate any governmental statute, rule or regulation applicable to Parent,
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 effect 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.
I-2
<PAGE>
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
I-3
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
OF
SUNRISE ACQUISITION SUB, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes
hereinafter stated, under the provisions and subject to the requirements of
the laws of the State of Delaware (particularly Chapter 1, Title 9 of the
Delaware Code and the acts amendatory thereof and supplemental thereto, and
known identified and referred to as the "General Corporation Law of the State
of Delaware"), hereby certifies that:
FIRST: The name of the corporation (hereinafter the
"Corporation") is:
Sunrise Acquisition Sub, Inc.
SECOND: The address, including street, number, city and county,
of the registered office of the Corporation in the State of Delaware is 1013
Centre City Road, City of Wilmington, County of New Castle; and the name of
the registered agent of the Corporation in the State of Delaware is
Corporation Service Company.
THIRD: The nature of the business and of the purposes to be
conducted and promoted by the Corporation shall be to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of shares of stock which the
Corporation shall have authority to issue is One Thousand (1,000). The par
value of each such share is $0.01. All such shares are of one class and are
shares of Common Stock.
FIFTH: The name and mailing address of the incorporator are as
follows:
Cheryl L. Barr
3033 Science Park Road
San Diego, California 92130
SIXTH: The Corporation is to have perpetual existence.
<PAGE>
SEVENTH: The personal liability of the directors of the
Corporation is hereby eliminated to the fullest extent permitted by paragraph
(7) of subsection (b) of Section 102 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented.
EIGHTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all
of the expenses, liabilities or other matters referred to in or covered by
said section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under any By-Law, agreement, vote of stockholders or disinterested directors
or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of such person.
NINTH: From time to time any of the provisions of this
certificate of incorporation may be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in
force may be added or inserted in the manner and at the time prescribed by
said laws, and all rights at any time conferred upon the stockholders of the
Corporation by this certificate of incorporation are granted subject to the
provisions of this article NINTH.
Signed on January 21, 1998
_______________________________
Cheryl L. Barr
Incorporator
<PAGE>
EXHIBIT 3.4
BY-LAWS
OF
SUNRISE ACQUISITION SUB, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - OFFICES . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . 1
ARTICLE II - MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . 1
Section 1. Place of Meetings . . . . . . . . . . . . . . . 1
Section 2. Annual Meetings of Stockholders . . . . . . . . 1
Section 3. Quorum; Adjourned Meeting and Notice Thereof. . 1
Section 4. Voting. . . . . . . . . . . . . . . . . . . . . 1
Section 5. Proxies . . . . . . . . . . . . . . . . . . . . 1
Section 6. Special Meetings. . . . . . . . . . . . . . . . 2
Section 7. Notice of Stockholder's Meetings. . . . . . . . 2
Section 8. Maintenance and Inspection of Stockholder List. 2
Section 9. Stockholder Action by Written Consent Without a
Meeting. . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III - DIRECTORS . . . . . . . . . . . . . . . . . . . . . . 3
Section 1. The Number of Directors . . . . . . . . . . . . 3
Section 2. Vacancies . . . . . . . . . . . . . . . . . . . 3
Section 3. Powers. . . . . . . . . . . . . . . . . . . . . 3
Section 4. Place of Directors' Meetings. . . . . . . . . . 3
Section 5. Regular Meetings. . . . . . . . . . . . . . . . 3
Section 6. Special Meetings. . . . . . . . . . . . . . . . 3
Section 7. Quorum. . . . . . . . . . . . . . . . . . . . . 3
Section 8. Action Without Meeting. . . . . . . . . . . . . 4
Section 9. Telephone Meetings. . . . . . . . . . . . . . . 4
Section 10. Committees of Directors . . . . . . . . . . . . 4
Section 11. Minutes of Committee Meetings . . . . . . . . . 4
Section 12. Compensation of Directors . . . . . . . . . . . 4
Section 13. Indemnification . . . . . . . . . . . . . . . . 4
ARTICLE IV - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1. Officers. . . . . . . . . . . . . . . . . . . . 6
Section 2. Election of Officers. . . . . . . . . . . . . . 7
Section 3. Subordinate Officers. . . . . . . . . . . . . . 7
Section 4. Compensation of Officers. . . . . . . . . . . . 7
Section 5. Term of Office; Removal and Vacancies . . . . . 7
Section 6. Chairman of the Board . . . . . . . . . . . . . 7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7. President . . . . . . . . . . . . . . . . . . . 7
Section 8. Vice President. . . . . . . . . . . . . . . . . 7
Section 9. Secretary . . . . . . . . . . . . . . . . . . . 7
Section 10. Assistant Secretary . . . . . . . . . . . . . . 8
Section 11. Treasurer . . . . . . . . . . . . . . . . . . . 8
Section 12. Assistant Treasurer . . . . . . . . . . . . . . 8
ARTICLE V - CERTIFICATES OF STOCK . . . . . . . . . . . . . . . . . 8
Section 1. Certificates. . . . . . . . . . . . . . . . . . 8
Section 2. Signatures on Certificates. . . . . . . . . . . 8
Section 3. Statement of Stock Rights, Preferences,
Privileges. . . . . . . . . . . . . . . . . . . 8
Section 4. Lost Certificates . . . . . . . . . . . . . . . 9
Section 5. Transfers of Stock. . . . . . . . . . . . . . . 9
Section 6. Fixing Record Date. . . . . . . . . . . . . . . 9
Section 7. Registered Stockholders . . . . . . . . . . . . 9
ARTICLE VI - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . 9
Section 1. Dividends . . . . . . . . . . . . . . . . . . . 9
Section 2. Payment of Dividends; Directors' Duties . . . . 9
Section 3. Checks. . . . . . . . . . . . . . . . . . . . . 10
Section 4. Fiscal Year . . . . . . . . . . . . . . . . . . 10
Section 5. Corporate Seal. . . . . . . . . . . . . . . . . 10
Section 6. Manager of Giving Notice. . . . . . . . . . . . 10
Section 7. Waiver of Notice. . . . . . . . . . . . . . . . 10
Section 8. Annual Statements . . . . . . . . . . . . . . . 10
ARTICLE VII - AMENDMENTS
Section 1. Amendment by Directors or Stockholders. . . . . 11
</TABLE>
ii
<PAGE>
BY-LAWS
OF
TITAN DEFENSE SYSTEMS CORPORATION
ARTICLE I. OFFICES
SECTION 1. The Registered Office Shall be in the City of Dover,
County of Kent, State of Delaware
SECTION 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation
may require.
ARTICLE II. MEETINGS OF STOCKHOLDERS
SECTION 1. Meetings of stockholders may be held at any place
within or outside the State of Delaware designated by the Board of Directors.
In the absence of any such designation, stockholders meetings shall be held
at the principal executive office of the corporation.
SECTION 2. The annual meeting of stockholders shall be held each
year on a date and time designated by the Board of Directors. At each annual
meeting directors shall be elected and any other proper business may be
transacted.
SECTION 3. A majority of the stock issued and outstanding and
entitled to vote at any meeting of stockholders, the holders of which are
present in person or represented by proxy, shall constitute a quorum for the
transaction of business except as otherwise provided by law, by the
Certificate of Incorporation, or by these By-Laws. A quorum, once
established, shall not be broken by the withdrawal of enough votes to leave
less than a quorum and the votes present may continue to transact business
until adjournment. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, a majority of the voting
stock represented in person or by proxy may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might
have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote thereat.
1
<PAGE>
SECTION 4. When a quorum is present at any meeting, the vote of
the holders of majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which express provision of the statutes, or
Certificate of Incorporation, or these By-Laws, a different vote is required
in which case such express provision shall govern and control the decision in
question.
SECTION 5. At each meeting of the stockholders, each stockholder
having the right to vote may vote in person or may authorize another person
or persons to act for him by proxy appointed by an instrument in writing
prescribed by such stockholder and bearing a date not more than three years
prior to said meeting, unless such instrument provides for a longer period.
All proxies must be filed with the Secretary of the corporation at the
beginning of each meeting in order to be counted in any vote at the meeting.
Each stockholder shall have one vote for each share of stock having voting
power, registered in his name on the books of the corporation on the record
date set by the Board of Directors as provided in Article V, Section 6
hereof. All elections shall be had and all questions decided by a plurality
vote.
SECTION 6. Special meetings of the stockholders, for any purpose,
or purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the President and shall be called by the
President or the Secretary at the request in writing of a majority of the
Board of Directors, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the corporation issued and
outstanding, and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting. Business transacted at any special meeting
of stockholders shall be limited to the purposes stated in the notice.
SECTION 7. Whenever stockholders are required or permitted to take
any action at a meeting, a written notice of the meeting shall be given which
notice shall state the place, date and hour of the meeting, and, in the case
of a special meeting, the purpose or purposes for which the meeting is
called. The written notice of any meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than sixty days
before the meeting. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address as
it appears on the records of the corporation.
SECTION 8. The officer whom has the charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote
at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in
the notice of such meeting, or, if not so specified, at the place where the
meeting is to be
2
<PAGE>
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 9. Unless otherwise provided in the Certificate of
Incorporation, any action required to be taken at any annual or special
meeting of stockholders of the corporation, or any action which may be taken
at any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented
in writing.
ARTICLE III. DIRECTORS
SECTION 1. The number of directors which shall constitute the
whole Board shall be three (4). The directors need not be stockholders. The
directors shall be elected at the annual meeting of the stockholders, except
as provided in Section 2 of this Article, and each director shall hold office
until his successor is elected and qualified; provided, however, that unless
otherwise restricted by the Certificate of Incorporation or by law, any
director or the entire Board of Directors may be removed, either with or
without cause, from the Board of Directors at any meeting of the shareholders
by a majority of the stock represented and entitled to vote thereat.
SECTION 2. Vacancies on the Board of Directors by reason of death,
resignation, retirement, disqualification, removal from office, or otherwise,
and newly created directorships resulting from any increase in the authorized
number of directors may be filled by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. The
directors so chosen shall hold office until the next annual election of
directors and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. If, at
the time of the filing any vacancy or any newly created directorship, the
directors then in office shall constitute less than a majority of the whole
Board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the total number of shares at the time outstanding
having the right to vote for such directors, summarily order an election to
be held to fill any such vacancies or newly created directorships, or to
replace the directors chosen by the directors then in office.
3
<PAGE>
SECTION 3. The property and business of the corporation shall be
managed by or under the direction of the Board of Directors. In addition to
the powers and authorities by these By-Laws expressly conferred upon them,
the Board may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-laws directed or required to be exercised or
done by the stockholders.
SECTION 4. The directors may hold their meetings and have one or
more offices, and keep the books of the corporation outside the State of
Delaware.
SECTION 5. Regular meetings of the Board of Directors may be held
without notice at such time and place as shall from time to time be
determined by the Board.
SECTION 6. Special meetings of the Board of Directors may be
called by the President on forty-eight hours' notice to each director, either
personally or by mail or by telegram; special meetings shall be called by the
President or the Secretary in like manner and on like notice on the written
request of two directors unless the Board consist of only one director; in
which case special meetings shall be called by the President or Secretary in
like manner or on like notice on the written request of the sole director.
SECTION 7. At all meetings of the Board of Directors a majority of
the authorized number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of the
majority of the directors present at any meeting at which there is a quorum,
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation or by
these By-Laws. If a quorum shall not be present at any meeting of the Board
of Directors the directors present thereat may adjourn the meeting from time
to time, without notice other than the announcement at the meeting, until a
quorum shall be present. If only one director is authorized, such sole
director shall constitute a quorum.
SECTION 8. Unless otherwise restricted by the Certificate of
Incorporation, or by these By-Laws, any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of the Board or committee.
SECTION 9. Unless otherwise restricted by the Certificate of
Incorporation or by these By-Laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting
of the Board of Directors, or any committee, by means of conference telephone
or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at such meeting.
4
<PAGE>
SECTION 10. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each such
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more of the directors as alternate members of any
committee, who may replace any absent or disqualified member of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to
amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease, or exchange
of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the By-Laws of the Corporation; and,
unless the resolution or the Certificate of Incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
SECTION 11. Each Committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
SECTION 12. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, the Board of Directors shall have the
authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as a director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees
may be allowed like compensation for attending committee meetings.
SECTION 13(a). The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable
5
<PAGE>
cause to believe his conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no such
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only
to the extent that the Court of Chancery of Delaware or the court in which
such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of
the corporation shall be successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in paragraphs (a) and (b), or in
defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless
ordered by a court) shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in paragraphs (a) and (b). Such
determination shall be made (1) by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to such action, suit
or proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the Board of
Directors in the manner provided in paragraph (d) upon receipt of an
undertaking by or on behalf of the director, officer,
6
<PAGE>
employee or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized in this Section 13.
(f) The indemnification provided by this Section 13 shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
a person.
(g) The Board of Directors may authorize, by a vote of a majority
of a quorum of the Board of Directors, the corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under the provisions
of this Section 13.
(h) For the purposes of this Section 13, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence
had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
corporation" shall include service as a director, officer, employee or agent
of the corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the corporation"
as referred to in this section.
ARTICLE IV. OFFICERS
7
<PAGE>
SECTION 1. The officers of this corporation shall be chosen by the
Board of Directors and shall include a President, a Secretary, and a Chief
Financial Officer. The corporation may also have at the discretion of the
Board of Directors such other officers as are desired, including a Chairman
of the Board, one or more Vice Presidents, one or more Assistant Secretaries
and Assistant Treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 3 hereof. In the event there are
two or more Vice Presidents, then one or more may be designated as Executive
Vice President, Senior Vice President, or other similar or dissimilar title.
At the time of the election of officers, the directors may by resolution
determine the order of their rank. Any number of offices may be held by the
same person, unless the Certificate of Incorporation or these By-Laws
otherwise provide.
SECTION 2. The Board of Directors, at its first meeting after each
annual meeting of stockholders, shall choose the officers of the corporation.
SECTION 3. The Board of Directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
SECTION 4. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
SECTION 5. The officers of the corporation shall hold office until
their successors are chosen and qualify in their stead. Any officer elected
or appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. If the office of
any officer or officers becomes vacant for any reason, the vacancy shall be
filled by the Board of Directors.
SECTION 6. The Chairman of the Board, if such an officer be
elected, shall, if present, preside at all meetings of the Board of Directors
and exercise and perform such other powers and duties as may be from time to
time assigned to him by the Board of Directors or prescribed by these
By-Laws, If there is no President, the Chairman of the Board shall in
addition be the Chief Executive Officer of the corporation and shall have the
powers and duties prescribed in Section 7 of this Article IV.
SECTION 7. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of
the corporation. He shall preside at all meetings of the stockholders and, in
the absence of the Chairman of the Board, or if there be none, at all
meetings of the Board of Directors. He shall be an ex-officio member of all
committees and shall have the general powers and duties of management usually
vested in the office of President and
8
<PAGE>
Chief Executive Officer of corporations, and shall have such other powers and
duties as may be prescribed by the Board of Directors or these By-Laws.
SECTION 8. In the absence or disability of the President, the Vice
Presidents in order of their rank as fixed by the Board of Directors, or if
not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President, and when so acting shall have all
the powers of and be subject to all the restrictions upon the President. The
Vice Presidents shall have such other duties as from time to time may be
prescribed for them, respectively, by the Board of Directors.
SECTION 9. The Secretary shall attend all sessions of the Board of
Directors and all meetings of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required by the Board of
Directors. He shall give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors, and shall perform such other
duties as may be prescribed by the Board of Directors or these By-Laws. Be
shall keep in safe custody the seal of the corporation, and when authorized
by the Board, affix the same to any instrument requiring it, and when so
affixed it shall be attested by his signature or by the signature of an
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing
by his signature.
SECTION 10. The Assistant Secretary, or if there be more than one,
the Assistant Secretaries in the order determined by the Board of Directors,
or if there be no such determination, the Assistant Secretary designated by
the Board of Directors, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Directors may
from time to time prescribe.
SECTION 11. The Chief Financial Officer shall have the custody of
the corporate funds and securities and 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 depositories 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 to the Board of Directors, at its regular meetings, or when the
Board of Directors so requires an account of all his transactions as Chief
Financial Officer and of the financial condition of the corporation. If
required by the Board of Directors, he shall give the corporation a bond, in
such sum and with such surety or sureties as shall be satisfactory to the
Board of Directors, for the faithful performance of the duties of his office
and for the restoration to the corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or
under his control belonging to the corporation.
9
<PAGE>
SECTION 12. The Assistant Treasurer, or if there shall be more
than one, the Assistant Treasurers in the order determined by the Board of
Directors, or if there be no such determination, the Assistant Treasurer
designated by the Board of Directors, shall, in the absence or disability of
the Chief Financial Officer, perform the duties and exercise the powers of
the Chief Financial Officer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
ARTICLE V. CERTIFICATES OF STOCK
SECTION 1. Every holder of stock of the corporation shall be
entitled to have a certificate signed by, or in the name of the corporation
by, the Chairman or Vice Chairman of the Board of Directors, or the President
or a Vice President, and by the Secretary or an Assistant Secretary, or the
Chief Financial Officer or an Assistant Treasurer of the corporation,
certifying the number of shares represented by the certificate owned by such
stockholder in the corporation.
SECTION 2. Any or all of the signatures on the certificate may be
a facsimile. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer, transfer agent, or registrar at the date
of issue.
SECTION 3. If the corporation shall be authorized to issue more
than one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the
qualification, limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in section 202
of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock,
a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.
SECTION 4. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to
10
<PAGE>
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
SECTION 5. Upon surrender to the corporation, or the transfer
agent of the corporation, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 6. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of the
stockholders, or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix
a record date which shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 7. The corporation shall be entitled to treat the holder
of record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim or
interest in such share on the part of any other person, whether or not it
shall have express or other notice thereof, save as expressly provided by the
laws of the State of Delaware.
ARTICLE VI. GENERAL PROVISIONS
SECTION 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 2. Before payment of any dividend there may be set aside
out of any funds of the corporation available for dividends such sum or sums
as the directors from time to time, in their absolute discretion, think
proper as a reserve fund to meet contingencies, or for equalizing dividends,
or for repairing or maintaining any property of the corporation, or for such
other purpose as the directors shall think conducive to the interests of the
corporation, and the directors may abolish any such reserve.
11
<PAGE>
SECTION 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
SECTION 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SECTION 5. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 6. Whenever, under the provisions of the statutes or of
the Certificate of Incorporation or of these By-Laws, notice is required to
be given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed
to such director or stockholder, at his address as it appears on the records
of the corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram.
SECTION 7. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein,
shall be deemed to be equivalent.
SECTION 8. The Board of Directors shall present at each annual
meeting, and at any special meeting of the stockholders when called for by
vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
ARTICLE VII. AMENDMENTS
SECTION 1. These By-Laws may be altered, amended or repealed or
new By-Laws may be adopted by the stockholders or by the Board of Directors,
when such power is conferred upon the Board of Directors by the Certificate
of Incorporation, at any regular meeting of the stockholders or of the Board
of Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
By-Laws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal By-Laws is conferred upon the Board of Directors by
the Certificate of Incorporation it shall not divest or limit the power of
the stockholders to adopt, amend or repeal By-Laws.
12
<PAGE>
EXHIBIT 3.5
CERTIFICATE OF INCORPORATION
OF
HORIZONS TECHNOLOGY, INC.
FIRST: The name of the corporation (hereinafter called the
"Corporation") is Horizons Technology, Inc.
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware
19801. The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
THIRD: The Corporation's purpose is to engage in, promote and carry on
any lawful act or activity for which corporations may be organized under the
Delaware General Corporation Law.
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 11,000,000, consisting of
10,000,000 shares of common stock having a par value of one cent per share
("Common Stock") and of 1,000,000 shares of preferred stock having a par
value of one cent per share ("Preferred Stock").
PREFERRED STOCK
The designations, powers, preferences, rights, qualifications,
limitations and restrictions of the Preferred Stock are as follows:
The Preferred Stock may be issued in one or more series at such
time or times and for such consideration or considerations as the
Corporation's board of directors (the "Board of Directors") may
determine pursuant to a resolution or resolutions providing for such
issuance duly adopted by the Board of Directors (authority to do so
being hereby expressly vested in the Board of Directors) and such
resolution or resolutions shall also set forth, with respect to each
such series of Preferred Stock the following:
(1) The distinctive designation, stated value and number of
shares comprising such series, which number may (except
where otherwise provided by the Board of Directors in
creating such series) be increased or decreased (but not
below the number of shares then outstanding) from time to
time by action of the Board of Directors;
(2) The rate of dividend, if any, on the shares of that
series, whether dividends shall be cumulative and, if so,
from which date or dates, and the relative rights of
priority, if any, of payment of dividends on shares of
that series over shares of any other series;
(3) Whether the shares of that series shall be redeemable
and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they
shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different
conditions
1.
<PAGE>
and at different redemption dates, or the property or
rights, including securities of any other corporation,
payable in case of redemption;
(4) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series and, if
so, the terms and amounts payable into such sinking fund;
(5) The rights to which the holders of the shares of that
series shall be entitled in the event of voluntary or
involuntary liquidation, dissolution, distribution of
assets or winding-up of the Corporation, and the relative
rights of priority, if any, of payment of shares of that
series;
(6) Whether the shares of that series shall be convertible
into or exchangeable for shares of capital stock of any
class or any other series of Preferred Stock and, if so,
the terms and conditions of such conversion or exchange,
including the rate or rates of conversion or exchange,
the date or dates upon or after which they shall be
convertible or exchangeable, the duration for which they
shall be convertible or exchangeable, the event or events
upon or after which they shall be convertible or
exchangeable and at whose option they shall be
convertible or exchangeable, and the method of adjusting
the rates of conversion or exchange in the event of a
stock split, stock dividend, combination of shares or
similar event;
(7) Whether the shares of that series shall have voting
rights in addition to the voting rights provided by law
and, if so, the terms of such voting rights;
(8) Whether the issuance of any additional shares of such
series, or of any shares of any other series, shall be
subject to restrictions as to issuance, or as to the
powers, preferences or rights of any such other series;
and
(9) Any other preferences, privileges and powers, and
relative, participating, optional or other special
rights, and qualifications, limitations or restrictions
of such series, as the Board of Directors may deem
advisable and as shall not be inconsistent with the
provisions of this Certificate of Incorporation and to
the full extent now or hereafter permitted by the laws of
the State of Delaware.
COMMON STOCK
The shares of Common Stock shall be alike and equal in all
respects and shall have one vote per share on all matters submitted
for a vote of stockholders. After the requirements with respect to
preferential dividends, if any, on the Preferred Stock shall have
been met, and after the Corporation shall have complied with all
requirements, if any, with respect to setting aside sums in a sinking
fund for the purchase or redemption of shares of any series of
Preferred Stock, then, and not otherwise, dividends payable in cash
or in any other medium may be declared and paid on the shares of
Common Stock. After distribution in full of the preferential amount,
if any, to be distributed to the holders of Preferred
2.
<PAGE>
Stock in the event of voluntary or involuntary liquidation, dissolution,
distribution of assets or winding-up of the Corporation, the holders of
the Common Stock shall be entitled to receive all of the remaining
assets of the Corporation of whatever kind available for distribution to
stockholders ratably in proportion to the number of shares of Common
Stock held by them respectively.
FIFTH: The powers of the incorporator are to terminate upon the filing
Of this Certificate of Incorporation. The name and address of the
incorporator are Jeffrey E. Jordan, 1050 Connecticut Avenue, N. W.,
Washington D.C. 20036-5339.
SIXTH: Upon the termination of the powers of the incorporator in
accordance with Article FIFTH of this Certificate of Incorporation, the
following persons shall serve as the Corporation's directors until the first
annual meeting of stockholders or until their successors are duly elected and
shall qualify:
James T. Palmer
7830 Clairemont Mesa Blvd.
Suite A
San Diego, California 92111
J. Patrick Boyce
7830 Clairemont Mesa Blvd.
Suite A
San Diego, California 92111
Sandra A. Gualtieri
104 Ole Hickory Trail, N.
Carrollton, Georgia 30117
SEVENTH: The provisions for the regulation of the Corporation's
internal affairs are to be stated in the Corporation's by-laws as the same
may be amended from time to time. Election of the Corporation's directors are
not required to be made by written ballot unless the Corporation's by-laws
otherwise provide.
EIGHTH: In addition to the rights, powers, privileges and
discretionary authority expressly conferred by statute upon the Corporation's
board of directors, it is hereby authorized and empowered to adopt, amend or
repeal the Corporation's by-laws.
NINTH: A special meeting of the Corporation's stockholders may only be
called by the Corporation's Chairman of the Board, President or Secretary and
only upon the request of a majority of the Corporation's duly elected and
acting directors.
TENTH: Any action which may be taken at an annual or special meeting
of the Corporation's stockholders may be taken without a meeting, without
prior notice and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of two-thirds of the Corporation's
outstanding capital stock otherwise entitled to vote on such action.
3.
<PAGE>
ELEVENTH: The Corporation shall indemnify each person who may be
indemnified (the "Indemnitees") pursuant to Section 145 of the Delaware
General Corporation Law (or any successor provision thereto) to the full
extent permitted thereby. In each and every situation where the Corporation
may do so under such section, the Corporation hereby obligates itself to so
indemnify the Indemnitees, and in each case, if any, where the Corporation
must make certain investigations on a case-by-case basis prior to
indemnification, the Corporation shall pursue such investigations diligently,
it being the specific intention of this Article ELEVENTH to obligate the
Corporation to indemnify each person whom it may indemnify to the fullest
extent permitted by law at any time and from time to time. To the extent not
inconsistent with Article TWELFTH and not prohibited by Section 145 of the
Delaware General Corporation Law (or any other provision thereof), the
Indemnitees shall not be liable to the Corporation or its stockholders except
for their own individual willful misconduct or actions taken in bad faith.
TWELFTH: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the director
derived any improper personal benefit. If the Delaware General Corporation
Law hereafter is amended to further eliminate or limit the liability of a
director of a corporation, then a director of the Corporation, in addition to
the circumstances in which a director is not personally liable as set forth
in the preceding sentence, shall not be liable to the fullest extent
permitted by the Delaware General Corporation Law as so amended. Any repeal
or modification of the foregoing provisions of this Article TWELFTH by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification.
THIRTEENTH: This Certificate of Incorporation may only be amended by
the approval of holders of two-thirds of the Corporation's outstanding
capital stock entitled to vote on, or consent to, such amendment.
FOURTEENTH: Whenever a compromise or arrangement is proposed between
the Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of section 279 of Title 8 of
the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be
4.
<PAGE>
binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may
be, and also on the Corporation.
I, the undersigned, being the incorporator hereinabove named, for the
purpose of forming a corporation pursuant to the Delaware General Corporation
Law, do make this Certificate of Incorporation, hereby declaring and
certifying that this is my act and deed and the facts herein stated are true,
and accordingly have hereunto set my hand this 9 day of July, 1987.
/s/ JEFFREY E. JORDAN
-----------------------------------------
Jeffrey E. Jordan
5.
<PAGE>
EXHIBIT 3.6
BYLAWS
OF
HORIZONS TECHNOLOGY, INC.
ARTICLE I
OFFICES
The Corporation may have such office(s) at such place(s), both within and
without the State of Delaware, as the Board of Directors from time to time
determines or as business of the Corporation from time to time requires.
ARTICLE II
MEETINGS OF THE STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings of the stockholders shall
be held at one (1:00) p.m. on the last Tuesday in June beginning in 1988 if
not a legal holiday, or, if a legal holiday, then on the next secular day
following or at such other date and time during the month of June and at such
place (within or without the State of Delaware) as is designated from time to
time by the Board of Directors and stated in the notice of the meeting. At
each annual meeting the stockholders shall elect a Board of Directors and shall
transact such other business as may properly be brought before the meeting.
SECTION 2. SPECIAL MEETINGS. Unless otherwise prescribed by law,
special meetings of the stockholders for any purpose or purposes only may be
called by the Chairman of the Board, if any, the President or Secretary and
only upon the request of a majority of the Corporation's duly elected and
acting directors. Requests for special meetings shall be in writing and shall
state the purpose or purposes of the proposed meeting.
SECTION 3. NOTICES OF ANNUAL AND SPECIAL MEETINGS.
(a) Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, written notice of any annual or special meeting
of the stockholders shall state the place, date and time thereof and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, and shall be given to each stockholder of record entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days prior to the
meeting.
(b) Notice of any meeting of stockholders (whether annual or
special) to act upon an amendment of the Certificate of Incorporation, a
reduction of stated capital or a plan of merger, consolidation or sale of all
or substantially all of the Corporation's assets shall be given to each
stockholder of record entitled to vote at such meeting not less than ten (10)
nor more than sixty (60) days before the date of such meeting. Any such notice
shall be accompanied by a copy of the proposed amendment or plan of reduction,
merger, consolidation or sale.
1.
<PAGE>
SECTION 4. LIST OF STOCKHOLDERS. At least ten (10) days (but not more
than fifty (50) days) before any meeting of the stockholders, the officer or
transfer agent in charge of the stock transfer books of the Corporation shall
prepare and make a complete alphabetical list of the stockholders entitled to
vote at such meeting, which list shows the address of each stockholder and the
number of shares registered in the name of each stockholder. The list so
prepared shall be maintained at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held, and shall be
open to inspection by any stockholder, for any purpose germane to the meeting,
during ordinary business hours during a period of no less than ten (10) days
prior to the meeting. The list also shall be produced and kept open at the
meeting (during the entire duration thereof) and, except as otherwise provided
by law, may be inspected by any stockholder or proxy of a stockholder who is
present in person at such meeting.
SECTION 5. PRESIDING OFFICERS; ORDER OF BUSINESS.
(a) Meetings of the stockholders shall be presided over by the
Chairman of the Board, if any, or, if the Chairman is not present (or, if there
is none), by the President, or, if the President is not present, by a Vice
President, or, if a Vice President is not present, by such person who is chosen
by the Board of Directors, or, if none, by a chairperson to be chosen at the
meeting by stockholders present in person or by proxy who own a majority of the
shares of stock of the Corporation entitled to vote and represented at such
meeting. The secretary of meetings shall be the Secretary of the Corporation,
or, if the Secretary is not present, an Assistant Secretary, or, if an
Assistant Secretary is not present, such person as may be chosen by the Board
of Directors, or, if none, such person who is chosen by the Chairperson at the
meeting.
(b) The following order of business, unless otherwise ordered at the
meeting by the chairperson thereof, shall be observed as far as practicable and
consistent with the purposes of the meeting:
(1) Call of the meeting to order.
(2) Presentation of proof of mailing of notice of the meeting
and, if the meeting is a special meeting, the call thereof.
(3) Presentation of proxies.
(4) Determination and announcement that a quorum is present.
(5) Reading and approval (or waiver thereof) of the minutes of
the previous meeting.
(6) Reports, if any, of officers.
(7) Election of directors, if the meeting is an annual meeting
or a meeting called for such purpose.
(8) Consideration of the specific purpose or purposes for which
the meeting has been called (other than the election of directors).
2.
<PAGE>
(9) Transaction of such other business as may properly come
before the meeting.
(10) Adjournment.
SECTION 6. QUORUM; ADJOURNMENTS.
(a) The holders of a majority of the shares of stock of the
Corporation issued and outstanding and entitled to vote at any given meeting
present in person or by proxy shall be necessary to and shall constitute a
quorum for the transaction of business at all meetings of the stockholders,
except as otherwise provided by law or by the Certificate of Incorporation.
(b) If a quorum is not present in person or by proxy at any meeting
of stockholders, the stockholders entitled to vote thereat, present in person
or by proxy, shall have the power to adjourn the meeting from time to time,
without notice of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken, until a quorum is
present in person or by proxy.
(c) Even if a quorum is present in person or by proxy at any meeting
of the stockholders, the stockholders entitled to vote thereat present in
person or by proxy shall have the power to adjourn the meeting from time to
time for good cause, without notice of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken,
until a date which is not more than thirty (30} days after the date of the
original meeting.
(d) Any business which might have been transacted at a meeting as
originally called may be transacted at any meeting held after adjournment as
provided in this Section 6 at which reconvened meeting a quorum is present in
person or by proxy. Anything in paragraph (b) of this Section 6 to the
contrary notwithstanding, if an adjournment is for more than thirty (30) days,
or if after an adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat.
SECTION 7. VOTING.
(a) At any meeting of stockholders every stockholder having the
right to vote shall be entitled to vote in person or by proxy. Except as
otherwise provided by law or by the Certificate of Incorporation, each
stockholder of record shall be entitled to one vote (on each matter submitted
to a vote) for each share of stock entitled to vote registered in his, her or
its name on the books of the Corporation.
(b) All elections of directors, and except as otherwise provided by
law or by the Certificate of Incorporation, all other matters, shall be
determined by a vote of a majority of the shares present in person or
represented by proxy and voting on such other matters.
3.
<PAGE>
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS; NUMBER; TENURE. The business and affairs
of the Corporation shall be managed under the direction of its Board of
Directors, which may exercise all powers of the Corporation and perform or
authorize the performance of all lawful acts and things which are not by law,
the Certificate of Incorporation or these Bylaws directed or required to be
exercised or performed by the stockholders. The number of directors of the
Corporation shall be at least three (3) and no more than seven (7), such number
to be determined from time to time by resolution duly adopted by the Board of
Directors. The directors shall be elected at the annual meeting of the
stockholders (except as otherwise provided in Section 2 of this Article III),
and each director elected shall hold office until the next succeeding annual
meeting of the stockholders or until his successor has been elected and has
qualified. Directors need not be stockholders nor residents of the State of
Delaware.
SECTION 2. VACANCIES. Vacancies and newly created directorships may
be filled by a majority of the directors then in office, although less than a
quorum, or by the sole remaining director. When one or more directors shall
resign from the Board of Directors, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and each director so
chosen shall hold office until the next annual meeting of the stockholders or
until his successor has been elected and has qualified.
SECTION 3. REMOVAL; RESIGNATION.
(a) Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, at any meeting of the stockholders called
expressly for such purpose any director may be removed, with or without cause,
by a vote of stockholders holding a majority of the shares issued and
outstanding and entitled to vote at an election of directors.
(b) Any director may resign at any time by giving written notice to
the Board of Directors, the Chairman of the Board, the President, or the
Secretary of the Corporation. Unless otherwise specified in such written
notice, a resignation shall take effect upon delivery thereof to the Board of
Directors or the Secretary of the Corporation. A resignation need not be
accepted in order for it to be effective.
SECTION 4. PLACE OF MEETINGS. The Board of Directors may hold both
regular and special meetings either within or without the State of Delaware, at
such place as the Board from time to time deems advisable.
SECTION 5. ANNUAL MEETING. The annual meeting of each newly elected
Board of Directors shall be held as soon as is practicable (but in no event
more than ten (10) days following the annual meeting of stockholders, and no
notice to the newly elected directors of such meeting shall be necessary for
such meeting to be lawful, provided a quorum is present thereat.
4.
<PAGE>
SECTION 6. REGULAR MEETINGS. Additional regular meetings of the Board
of Directors may be held without notice, at such time and place as from time to
time may be determined by the Board of Directors.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or by the President or by
any two (2) directors upon one hour's notice to each director if such notice is
delivered personally or given by telephone, or upon four (4) days' notice if
sent by mail.
SECTION 8. QUORUM; ADJOURNMENTS. A majority of the number of
directors then in office shall constitute a quorum for the transaction of
business at each and every meeting of the Board of Directors, and the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors, except as may otherwise
specifically be provided by law, the Certificate of Incorporation or these
Bylaws. If a quorum is not present at any meeting of the Board of Directors,
the directors present may adjourn the meeting, from time to time, without
notice other than announcement at the meeting, until a quorum is present.
SECTION 9. COMPENSATION. Directors shall be entitled to such
compensation for their services as directors as from time to time may be fixed
by the Board of Directors and in any event shall be entitled to reimbursement
of all reasonable expenses incurred by them in attending directors' meetings.
Any director may waive compensation for any meeting. No director who receives
compensation as a director shall be barred from serving the Corporation in any
other capacity or from receiving compensation and reimbursement of reasonable
expenses for any or all such other services.
SECTION 10. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting
and without prior notice if a written Consent in lieu of such meeting which
sets forth the action so taken is signed either before or after such action by
all directors. All written consents shall be filed with the minutes of the
proceedings of the Board of Directors.
SECTION 11. MEETINGS BY TELEPHONE OR SIMILAR COMMUNICATIONS. The Board
of Directors may participate in meetings by means of conference telephone or
similar communications equipment, whereby all directors participating in the
meeting can hear each other a the same time, and participation in any such
meeting shall constitute presence in person by such director at such meeting.
A written record shall be made of all actions taken at any meeting conducted by
means of a conference telephone or similar communications equipment.
ARTICLE IV
COMMITTEES
SECTION 1. EXECUTIVE COMMITTEE.
(A) By resolution duly adopted by a majority of the directors then
in office, the Board of Directors may designate two or more directors to
constitute an Executive Committee. One of such directors shall be designated
as Chairman of the Executive Committee. Each member of the Executive Committee
shall continue as a member thereof until the
5.
<PAGE>
expiration of his term as a director, or until his earlier resignation from
the Executive Committee, in either case unless sooner removed as a member of
the Executive Committee or as a director by any means authorized by these
Bylaws.
(B) The Executive Committee shall have and may exercise all of the
rights, powers and authority of the Board of Directors, except as expressly
limited by the General Corporation Law of the State of Delaware, as amended
from time to time.
(C) The Executive Committee shall fix its own rules of procedure and
shall meet at such times and at such place or places as may be provided by its
rules. The Chairman, a member of the Executive Committee chosen by a majority
of the members present, shall preside at meetings of the Executive Committee,
and another member hereof chosen by the Executive Committee shall act as
Secretary. A majority of the Executive Committee shall constitute a quorum for
transaction of business, and the affirmative vote of a majority of the members
present at any meeting at which a quorum is present shall be required for any
action of the Executive Committee. The Executive Committee shall keep minutes
of its meetings and deliver such minutes to the Board of Directors
SECTION 2. OTHER COMMITTEES. The Board of Directors, by resolution
duly adopted by a majority of directors at a meeting at which a quorum is
present, may appoint such other committee or committees as it shall deem
advisalle the authority of such other committee or committees.
SECTION 3. OTHER PROVISIONS REGARDING COMMITTEES.
(A) The Board of Directors shall have the power at any time to fill
vacancies in, change the membership of, or discharge any committee,
(B) Members of any committee shall be entitled to such compensation
for their services as such as from time to time may be fixed by the Board of
Directors and in any event shall be entitled to reimbursement of all reasonable
expenses incurred in attending committee meetings. Any member of a committee
may waive compensation for any meeting. No committee member who receives
compensation as a member of any one or more committees shall be barred from
serving the Corporation in any other capacity or from receiving compensation
and reimbursement of reasonable expenses for any or all such other services.
(C) Unless prohibited by law, the provisions of Section 10 ("Action
by Consent") and Section 11 ("Meetings by Telephone or Similar Communications")
of Article III shall apply to all committees from time to time created by the
Board of Directors.
ARTICLE V
OFFICERS
SECTION 1. POSITIONS. The officers shall, at minimum, consist of a
President, one or more Vice Presidents and a Secretary. The senior officers of
the Corporation shall be elected by the Board of Directors. The Board of
Directors shall elect a President and may also elect a Chairman of the Board, a
Secretary, a Treasurer, and such other officers and/or agent as the
6.
<PAGE>
Board from time to time deems necessary or appropriate. All elected officers
of the corporation shall exercise such powers and perform such duties as from
time to time shall be determined by the Board of Directors. The Board of
Directors may appoint a Secretary, a Treasurer, Vice Presidents, Assistant
Vice Presidents, Assistant Secretaries, Assistant Treasurers or other such
officers of the corporation and determine their powers and duties. The Board
of Directors may delegate the authority to the President to appoint such
officers. The election or appointment of any officer of the corporation in
itself shall not create contract rights for any such officer. Any two or
more offices may be held by the same person except the offices of President
and Secretary and of President and Vice President.
SECTION 2. TERM OF OFFICE REMOVAL. Each officer of the Corporation
shall hold office at the pleasure of the Board and any officer may Be removed,
with or without cause, at any time by the affirmative vote of a majority of the
directors then in office, provided that any officer appointed by the Chairman
of the Board or the President pursuant to authority delegated to the Chairman
of the Board or the President by the Board of Directors may be removed, with or
without cause, at any time whenever the Chairman of the Board or the President
in his or her absolute discretion shall consider that the best interests of the
Corporation shall be served by such removal. Removal of an officer by the
Board, the Chairman of the Board or the President, as the case may be, shall
not prejudice the contract rights, if any, of the person so removed. Vacancies
(however caused) in any office may be filled for the unexpired portion of the
term by the Board of Directors (or by the Chairman of the Board or the
President in the case of a vacancy occurring in an office to which the Chairman
of the Board or the President has been delegated the authority to make
appointments).
SECTION 3. COMPENSATION. The salaries of all officers of the
Corporation shall be fixed from time to time by the Board of Directors, and no
officer shall be prevented from receiving a salary by reason of the fact that
he also receives from the Corporation compensation in any other capacity.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board (if the
Board of Directors so deems advisable and selects one) shall be an officer of
the Corporation and, subject to the direction of the Board of Directors, shall
perform such executive, supervisory and management functions and duties as from
time to time may be assigned to him or her by the Board. The Chairman of the
Board, if present, shall preside at all meetings of the stockholders and all
meetings of the Board of Directors.
SECTION 5. PRESIDENT. The President shall be the chief executive
officer of the Corporation and, subject to the direction of the Board of
Directors, shall have general charge of the business, affairs and property of
the Corporation and general supervision over its other officers and agents. In
general, the President shall perform all duties incident to the office of
President of a stock corporation and shall see that all orders and resolutions
of the Board of Directors are carried into effect. Unless otherwise prescribed
by the Board of Directors, the President shall have full power and authority on
behalf of the Corporation to attend, act and vote at any meeting of security
holders of other corporations in which the Corporation may hold securities. At
any such meeting the President shall possess and may exercise any and all
rights and powers incident to the ownership of such securities which the
Corporation possesses and has
7.
<PAGE>
the power to exercise. The Board of Directors from time to time may confer
like powers upon any other person or persons.
SECTION 6. VICE PRESIDENTS. Vice Presidents, if any, shall perform
such duties and exercise such powers as from time to time may be prescribed by
the Board of Directors.
SECTION 7. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and of the stockholders and shall record all votes and the
proceedings of all meetings in a book to be kept for such purposes. The Secre
tary also shall perform like duties for the Executive Committee or other
committees, if required by any such committee. The Secretary shall give (or
cause to be given) notice of all meetings of the stockholders and all special
meetings of the Board of Directors and shall perform such other duties as from
time to time may be prescribed by the Board of Directors, the Chairman of the
Board or the President. The Secretary shall have custody of the seal of the
Corporation, shall have authority (as shall any Assistant Secretary) to affix
the same to any instrument requiring it, and to attest the seal by his or her
signature. The Board of Directors may give general authority to officers other
than the Secretary or any Assistant Secretary to affix the seal of the Corpora
tion and to attest the affixing thereof by his or her signature.
SECTION 8. ASSISTANT SECRETARY. The Assistant secretary, if any (or
in the event there is more than one, the Assistant Secretaries in the order
designated, or in the absence of any designation, in the order of their
election), in the absence or disability of the Secretary, shall perform the
duties and exercise the powers of the Secretary. The Assistant Secretary(ies)
shall perform such other duties and have such other powers as from time to time
may be prescribed by the Board of Directors.
SECTION 9. TREASURER. The Treasurer shall have the custody of the
corporate funds, securities, other similar valuable effects, and evidences of
indebtedness, 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 depositories as from time to time may be designated by the
Board of Directors. The Treasurer shall disburse the funds of the Corporation
in such manner as may be ordered by the Board of Directors from time to time
and shall render to the Chairman of the Board, the President and the Board of
Directors, at regular meetings of the Board or whenever any of them may so
require, an account of all transactions and of the financial condition of the
Corporation.
SECTION 10. ASSISTANT TREASURER. The Assistant Treasurer, if any (or
in the event there is more than one, the Assistant Treasurers in the order
designated, or in the absence of any designation, in the order of their
election), fin the absence or disability of the Treasurer, shall perform the
duties and exercise the powers of the Treasurer. The Assistant Treasurer(s)
shall perform such other duties and have such other powers as from time to time
may be prescribed by the Board of Directors.
8.
<PAGE>
ARTICLE VI
NOTICES
SECTION 1. FORM; DELIVERY. Any notice required or permitted to be
given to any director, officer, stockholder or committee member shall be given
in writing, either personally or by first-class mail with postage prepaid, in
either case addressed to the recipient at his or her address as it appears in
the records of the Corporation. Personally delivered notices shall be deemed
to be given at the time they are delivered at the address of the named
recipient as it appears in the records of the Corporation, and mailed notices
shall be deemed to be given at the time they are deposited in the United States
mail. Notice to a director also may be given by telegram sent to his address
as it appears on the records of the Corporation and shall be deemed given at
the time delivered at such address.
SECTION 2. WAIVER; EFFECT OF ATTENDANCE. Whenever any notice is
required to be given by law, the Certificate of Incorporation or these Bylaws,
a written waiver thereof, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be the
equivalent of the giving of such notice. In addition, any stockholder who
attends a meeting of stockholders in person, or who is represented at such
meeting by a proxy, or any director or committee member who attends a meeting
of the Board of Directors or a committee thereof shall be deemed to have had
timely and proper notice of the meeting, unless such stockholder (or his or her
proxy) or director or committee member attends for the express purpose of
objecting to the transaction of any business on the grounds that the meeting is
not lawfully called or convened.
ARTICLE VII
TRANSACTIONS WITH AFFILIATED PERSONS
SECTION 1. COMMON OR INTERESTED OFFICERS AND DIRECTORS. The officers
and directors shall exercise their powers and duties in good faith and with a
view to the best interests of the Corporation. No contract or other
transaction between the Corporation and one or more of its officers or
directors, or between the Corporation and any corporation, firm, association,
or other entity in which one or more of the officers or directors of the
Corporation are officers or directors, or are pecuniarily or otherwise
interested, shall be either void or voidable because of such common
directorate, officership or interest, because such officers or directors are
present at the meeting of the Board of Directors or any committee thereof which
authorizes, approves or ratifies the contract or transaction, or because his,
her or their votes are counted for such purpose, if {unless otherwise
prohibited by law} any of the conditions specified in the following paragraphs
exist:
(A) the material facts of the common directorate or interest or
contract or transaction are disclosed or known to the Board of Directors or
committee thereof and the Board or committee authorizes or ratifies such
contract or transaction in good faith by the affirmative vote of a majority of
the disinterested directors, even though the number of such disinterested
directors may be less than a quorum; or
9.
<PAGE>
(B) the material facts of the common directorate or interest or
contract or transaction are disclosed or known to the stockholders entitled to
vote thereon and the contract or transaction is specifically approved in good
faith by vote of the stockholders; or
(C) the contract or transaction is fair and commercially reasonable
to the Corporation at the time it is authorized, approved or ratified by the
Board, a committee thereof, or the stockholders, as the case may be.
Common or interested directors may be counted in determining whether a
quorum is present at any meeting of the Board of Directors or committee thereof
which AUTHORIZES, approves or ratifies any contract or transaction, and may
vote thereat to authorize any contract or transaction with like force and
effect as if he, she or they were not such officers or directors of such other
corporation or were not so interested.
SECTION 2. CERTAIN REPORTS. Officers and directors, upon election or
appointment and thereafter prior to entering into any transaction or
relationship of the type described below, shall provide to the Board of
Directors in writing such description as the Board of Directors may reasonably
require as to such director's or officer's current or proposed transactions or
relationships with persons or entities that are engaged in businesses similar
to the Corporation's business or that otherwise reasonably may be deemed to
compete with the Corporation.
ARTICLE VIII
STOCK CERTIFICATES
SECTION 1. FORM; SIGNATURES. Each stockholder who has fully paid for
any stock of the Corporation shall be entitled to receive a certificate
representing such shares, and such certificate shall be signed by the Chairman
of the Board (if any) or the President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Corporation.
Signatures on the certificate may be facsimile, in the manner prescribed by
law. Each certificate shall exhibit on its face the number and class (and
series, if any) of the shares it represents. Each certificate also shall state
upon its face the name of the person to whom it is issued and that the
Corporation is organized under the laws of the State of Delaware. Each
certificate may (but need not) be sealed with the seal of the Corporation or
facsimile thereof. In the event any officer, transfer agent or registrar who
has signed or whose facsimile signature has been placed upon a certificate
ceases to be such officer, transfer agent or registrar before the certificate
is issued, the certificate nevertheless may be issued by the Corporation with
the same effect as if such person were such officer at the date of issue of the
certificate. All stock certificates representing shares of stock which are
subject to restrictions on transfer or to other restrictions may have imprinted
thereon a notation of such restriction.
SECTION 2. REGISTRATION OF TRANSFER. Upon surrender to the
Corporation or to any transfer agent of the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, the Corporation, or its transfer agent,
shall issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon the Corporation's books.
10.
<PAGE>
SECTION 3. REGISTERED STOCKHOLDERS. Except as otherwise provided by
law, the Corporation shall be entitled to recognize the exclusive right of a
person who is registered on its books as the owner of shares of its stock to
receive dividends or other distributions (to the extent otherwise distributable
or distributed), to vote (in the case of voting stock) as such owner, and to
hold liable for calls and assessments a person who is registered on its books
as the owner of shares of its stock. The Corporation shall not be bound to
recognize any equitable or legal claim to or interest in such shares on the
part of any other person. The Corporation (or its transfer agent) shall not be
required to send notices or dividends to a name or address other than the name
or address of the stockholders appearing on the stock ledger maintained by the
Corporation (or by the transfer agent or registrar, if any), unless any such
stockholder shall have notified the Corporation (or the transfer agent or
registrar, if any), in writing, of another name or address at least ten (10)
days prior to the mailing of such notice or dividend.
SECTION 4. RECORD DATE. In order that the Corpora-the stockholders of
record who are entitled (i) to notice of or vote at any meeting of stockholders
or any adjournment thereof, (ii) to express written consent to corporate action
in lieu of a meeting, (iii) to receive payment of any dividend or other
distribution, or allotment of any rights, or (iv) to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors, in advance, may fix a date as
the record date for any such determination. Such date shall not be more than
fifty (50) days nor less than ten (10) days before the date of such meeting,
nor more than fifty (50) days prior to the date of any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of the stockholders shall apply to any adjournment of the meeting taken
pursuant to Section 6 of Article II; PROVIDED, HOWEVER, that the Board of
Directors, in its discretion, may fix a new record date for the adjourned
meeting.
SECTION 5. LOST, STOLEN OR DESTROYED CERTIFICATE. The Board of
Directors may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation which is claimed to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed. When authorizing
such issue of a new certificate, the Board of Directors, in its discretion, may
require as a condition precedent to issuance that the owner of such lost,
stolen or destroyed certificate, or his or her legal representative, advertise
the same in such manner as the Board shall require and/or to give the
Corporation a bond in such sum, or other security in such form, as the Board
may direct, as indemnity against any claim that may be made against the
Corporation with respect to the certificate claimed to have been lost, stolen
or destroyed.
ARTICLE IX
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the General Corporation Law of the
State of Delaware and to any provisions of the Certificate of Incorporation
relating to dividends, dividends upon the outstanding stock of the Corporation
may be declared by the Board of Directors at any annual, regular or special
meeting and may be paid in cash, in property or in shares of the Corporation's
stock.
11.
<PAGE>
SECTION 2. RESERVES. The Board of Directors, in its sole discretion,
may fix a sum which may be set aside or reserved over and above the paid-in
capital of the Corporation for working capital or as a reserve for any proper
purpose, and from time to time may increase, diminish or vary such fund or
funds.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
as determined from time to time by the Board of Directors.
SECTION 4. SEAL. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "State of Delaware."
SECTION 5. AMENDMENT OF THE BYLAWS. To the extent not prohibited by
law, the Board of Directors shall have the power to make, alter and repeal
these Bylaws, and to adopt new bylaws, in all cases by an affirmative vote of a
majority of the directors then in office, provided that notice of the proposal
to make, alter or repeal these Bylaws, or to. adopt new bylaws, is included in
the notice of the meeting of the Board of Directors at which such action takes
place.
12.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD]
March 9, 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 3,149,350 shares of the
Company's Common Stock, $.01 par value (the "Shares") in connection with the
merger of Sunrise Acquisition Sub, Inc., a wholly-owned subsidiary of the
Company, with and into Horizons Systems, Inc. ("Horizons") whereupon Horizons
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>
[LETTER HEAD]
March 9, 1998
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121
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 as of February 26, 1998
(the "Reorganization Agreement") by and among The Titan Corporation, a Delaware
corporation ("Parent"), Sunrise Acquisition Sub, Inc., a Delaware corporation
and wholly owned subsidiary of Parent ("Merger Sub"), Horizons Technology, Inc.,
a Delaware corporation (the "Company"), and certain stockholders of 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 March 9, 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"); and
(c) 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:
<PAGE>
The Titan Corporation
March 9, 1998
Page 2
(a) 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;
(b) All representations, warranties and statements made or agreed to by
Parent, Merger Sub and the Company, their managements, employees, officers,
directors and stockholders 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;
(c) 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; and
(d) Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification.
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, for federal income tax purposes, 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, insofar as it relates to statements of law and legal
conclusions, is correct in all material respects.
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. Furthermore, this opinion only
relates to the holders of Company capital stock who hold such stock as a capital
asset. No opinion is expressed as to the federal income tax treatment that may
be relevant to a particular investor in light of personal circumstances or to
certain types of investors subject to special treatment under the federal
<PAGE>
The Titan Corporation
March 9, 1998
Page 3
income tax laws (for example, life insurance companies, dealers in securities,
taxpayers subject to the alternative minimum tax, banks, tax-exempt
organizations, non-United States persons, and stockholders who acquired their
shares of Company capital stock pursuant to the exercise of options or otherwise
as compensation or who hold their Company capital stock as part of a straddle or
risk reduction transaction). Further, no opinion is expressed as to the federal
income tax treatment with respect to holders of warrants for Company capital
stock.
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 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 solely in connection with the Registration
Statement. It is intended for the benefit of Parent and Merger Sub 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,
/s/ Susan Cooper Philpot
<PAGE>
March 9, 1998
Horizons Technology, Inc.
3990 Ruffin Road
San Diego, CA 92123-1826
RE: FEDERAL INCOME TAX OPINION REQUIRED UNDER SECTION 9.3(b) OF THAT CERTAIN
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (THE "REORGANIZATION
AGREEMENT") DATED FEBRUARY 26, 1998, BY AND AMONG THE TITAN CORPORATION, A
DELAWARE CORPORATION ("PARENT"), Sunrise Acquisition Sub, Inc., a Delaware
corporation ("Merger Sub"), Horizons Technology, Inc., a Delaware
corporation (the "Company"), and certain stockholders of the Company.
Gentlemen:
Parent filed on March 9, 1998 with the Securities and Exchange
Commission (the "Commission") a Registration Statement (the "Registration
Statement") on Form S-4 under the Securities Act of 1933, as amended (the
"Securities Act"). The Registration Statement was filed in connection with
issuance of 3,270,000 shares of the common stock of Parent pursuant to the
merger of the Merger Sub with and into the Company (the "Merger"). Except as
otherwise indicated, capitalized terms used herein shall have the meanings
assigned to them in the Registration Statement.
Jenkins & Gilchrist, a Professional Corporation (the "Firm"), has acted as
counsel to the Company in connection with the Merger. You have requested the
opinions set forth in Section I hereof regarding certain of the material federal
income tax consequences to the stockholders of the Company anticipated to result
from the Merger. Section I of this letter (the "Opinion Letter") contains the
Firm's opinion. Section II of this Opinion Letter contains limitations on the
opinion.
<PAGE>
I. OPINION
Based upon our analysis of the applicable authorities and subject to the
limitations set forth in Section II, the Firm is of the opinion that for federal
income tax purposes, the Merger will be a reorganization within the meaning of
section 368(a) 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, insofar as it relates to statements of
law and legal conclusions, is correct in all material respects.
II. LIMITATIONS
1. Except as otherwise indicated, the opinions set forth in Section I are
based upon the Code and its legislative history, the regulations promulgated
thereunder, judicial decisions and current administrative rulings and practices
of the Internal revenue Service, all as in effect on the date of this Opinion
Letter. These authorities may be amended or revoked at any time. Any such
changes may or may not be retroactive with respect to transactions entered into
or contemplated prior to such changes and could significantly alter the
conclusions reached in this Opinion Letter. There is no assurance that
legislative, judicial or administrative changes will not occur in the future.
The Firm assumes no obligation to update or modify this Opinion Letter to
reflect any developments that may occur after the date of this Opinion Letter.
2. The opinions set forth in Section I are not binding on the Internal
Revenue Service or the courts. Additionally, the Firm's opinions set forth
herein are dependent upon the accuracy of the representations contained in the
Certificates signed by officers of Parent, Merger Sub and the Company and
attached hereto as Exhibit "A". The Firm has relied upon those representations
and any inaccuracy in the representations could adversely affect the opinions
stated in Section I.
3. In connection with this Opinion Letter, the Firm has examined and is
familiar with originals or copies, certified or otherwise identified, of such
documents and records and such statues, regulations and other instruments as it
deemed necessary or advisable for the purposes of the opinions set forth herein,
including (i) the Registration Statement and (ii) the Reorganization Agreement.
The Firm has assumed that all signatures on all documents presented to it are
genuine, that all documents submitted to it as originals are accurate originals
thereof, that all information submitted to it was accurate and complete, and
that all persons executing and delivering originals or copies of documents
examined by it were competent to execute and deliver such documents.
4. The Firm is expressing its opinions only as to those matters expressly
set forth in Section I. No opinion should be inferred as to any other matters.
In addition, no opinion is expressed as to any other transaction, including the
Merger, if any of the transactions described in the Reorganization Agreement are
not consummated in accordance with the terms of the
<PAGE>
Reorganization Agreement and without waiver of any material provision thereof.
To the extent that any of the representations, warranties, statements and
assumptions material to the Firm's opinion and upon which the Firm has relied
are not accurate and complete in all material respects at all relevant times,
the Firm's opinion would be adversely affected and should not be relied upon.
5. 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. Furthermore, this opinion only
relates to the holders of Company capital stock who hold such stock as a capital
asset. No opinion is expressed as to the federal income tax treatment that may
be relevant to a particular investor in light of personal circumstances or to
certain types of investors subject to special treatment under the federal income
tax laws (for example, life insurance companies, dealers in securities,
taxpayers subject to the alternative minimum tax, banks, tax-exempt
organizations, non-United States persons, and stockholders who acquired their
shares of company capital stock pursuant to the exercise of options or otherwise
as compensation or who hold their Company capital stock as part of straddle or
risk reduction transaction). Further, no opinion is expressed as to the federal
income tax treatment with respect to holders of warrants for Company capital
stock.
6. This Opinion Letter is issued for your benefit and the stockholders of
the Company and no other person or entity may rely hereon without the express
written consent of the Firm. This Opinion Letter may be filed as an exhibit to
the Registration Statement. Consent also is given to the reference to this firm
under the caption "Legal Opinions" in the Registration statement as having
rendered the opinion in the "U.S. Federal Income Tax Matters" section of such
Registration Statement. In giving this consent, the Firm does not thereby admit
that it comes into the category of persons whose consent is required under
section 7 of the Securities Act or the rules and regulations of the Commission
promulgated thereunder.
Respectfully submitted,
Jenkens & Gilchrist,
A Professional Corporation
By: /s/ Patrick R. Mitchell
------------------------------------
Patrick R. Mitchell, for the Firm
<PAGE>
EXHIBIT 10.32
STANDARD INDUSTRIAL LEASE--NET
AMERICAL INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES. This Lease, dated, for reference purposes only, July 22,
1994 is made by and between Ruffin Tech Center, Ltd., a California limited
partnership (herein called "Lessor") and Horizon's Technology, Inc., a
Delaware corporation (herein called "Lessee").
1.2 PREMISES. That certain real property, including all improvements,
located in the County of San Diego, State of California and described as:
Lot 7 of COLLINS BUSINESS PARK, in the City of San Diego, County of San
Diego, State of California, according to Map thereof No. 9245, filed in
the Office of the County Recorder of Said County, June 8, 1979.
Commonly known as a 45,634 square foot 2-story building located at 3990
Ruffin Road, San Diego, California (See Paragraph 2 for further provisions).
1.3 TERM. Eighty-nine (89) months ("Original Term") commencing January
1, 1995 ("Commencement Date") and ending May 1, 2002 ("Expiration Date").
(See Paragraph 3 for further provisions).
1.4 BASE RENT. _____________________________________________ per month
("Base Rent"), payable on the first day of each month commencing January 1,
1995. (See Paragraph 4 for further provisions).
/X/ If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.5 PERMITTED USE: general office and R&D or any other purpose permitted
under applicable zoning regulations. (See Paragraph 6 for further provisions).
1.6 INSURING PARTY. Lessee is "Insuring Party" unless otherwise stated
herein. (See Paragraph 8 for further provisions).
1.7 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs ____ through ____ all of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
1.
<PAGE>
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, fire sprinkler system, lighting, air conditioning, heating
and loading doors, if any, in the Premises, other than those constructed by
Lessee, shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
six (6) months following the Commencement Date, correction of that non-
compliance shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 ACCEPTANCE OF PREMISES. This section intentionally deleted.
2.4 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on or
before the day on which it is due under the terms of this Lease. Base Rent and
all other rent and charges for any period during the term hereof which is for
less than one (1) full calendar month shall be prorated based upon the actual
number of days of the calendar month involved. Payment of Base Rent and other
charges shall be made to Lessor at its address stated herein or to such other
persons or at such other addresses as Lessor may from time to time designate in
writing to Lessee.
4.2 BASE RENT ADJUSTMENTS. Commencing on the 12th month and each period
thereafter, the rent shall be adjusted upward only based on the Consumer Price
Index all items - "All Urban Consumers" (the "Index") Los Angeles/Long
Beach/Anaheim published in the Monthly Labor Review by the Bureau of Labor
Statistics, U.S. Department of Labor, (1967=100). Not to exceed a maximum of
seven (7%) percent or a minimum of three (3%) percent per annum.
4.3 OPTION TO LEASE: Lessee shall have the right to two (2) five year
options, with the annual rental to be based on the then prevailing market
rental rates. Except for the annual rental, all of the terms and conditions
herein contained shall apply during the renewal periods. Should a dispute
arise, the market rental rate shall be subject to arbitration in accordance
with the commercial rules of the American Arbitration Association. The
decision of the arbitrator shall be binding on the parties and shall be
enforceable in any court of competent jurisdiction. In no case shall the rent
be lower than the previous month's rental, nor shall any rental abatement be
2.
<PAGE>
extended during the option period. The option shall be exercised only by
written notice delivered to Lessor at least 180 days before the expiration of
the lease term. If Lessee fails to deliver to Lessor written notice of the
exercise of an option within the prescribed time period, such option shall
lapse, and there shall be no further right to extend the lease term.
5. SECURITY DEPOSIT. This section intentionally deleted.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.5, or any other use which is comparable thereto, and
for no other purposes. Lessee shall not use or permit the use of the Premises
in a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 HAZARDOUS SUBSTANCES.
(A) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, material
or waste whose presence, nature, quantity, and/or intensity of existence,
use, manufacture, disposal, transportation, spill, release or effect, either
by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety
or welfare, the environment or the Premises, (ii) regulated or monitored by
any governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in, on or about the
Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (as Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 6.3). "Reportable Use" shall mean
(i) the installation or use of any above or below ground storage tank, (ii)
the generation, possession, storage, use, transportation or disposal of
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but in compliance with all Applicable Law, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of Lessee's business permitted on the Premises, so long as such use is
not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor
to any liability therefor. In addition, Lessor may (but without any
obligation to do so) condition its consent to the use or presence of any
Hazardous substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurance as Lessor, in its reasonable discretion,
deems necessary to protect itself, the public, the Premises and the
environment against damage, contamination or injury and/or liability
therefrom or therefor, including, but not limited to, the installation (and
removal on or before Lease expiration or earlier termination) or reasonably
necessary protective
3.
<PAGE>
modifications to the Premises (such as concrete encasements) and/or the
deposit of an additional Security Deposit under Paragraph 5 hereof.
(B) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consented to by Lessor, Lessee shall immediately give
written notice of such fact to Lessor. Lessee shall also immediately give
Lessor a copy of any statement, report, notice, registration, application,
permit, business plan, license, claim, action or proceeding given to, or
received from, any governmental authority or private party, or persons entering
or occupying the Premises, concerning the presence, spill, release, discharge
of, or exposure to, any Hazardous Substance or contamination in, on, or about
the Premises, including but not limited to all such documents as may be
involved in any Reportable Uses involving the Premises.
(C) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and
the Premises, harmless from and against any and all loss of rents and/or
damages, liabilities, judgements, costs, claims, liens, expenses, penalties,
permits and attorney's and consultant's fees arising out of or involving any
Hazardous Substance or storage tank brought onto the Premises by or for
Lessee or under Lessee's control. Lessee's obligations under this Paragraph
6 shall include, but not be limited to, the effects of any contamination or
injury to person, property or the environment created or suffered by Lessee,
and the cost of investigation (including consultant's and attorney's fees and
testing), removal, remediation, restoration and/or abatement thereof, or of
any contamination therein involved, and shall survive the expiration or
earlier termination of this Lease. No termination, cancellation or release
agreement entered into by Lessor and Lessee shall release Lessee from its
obligations under this Lease with respect to Hazardous Substances or storage
tanks, unless specifically so agreed by Lessor in writing at the time of such
agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently
and in a timely manner, comply with all "Applicable Law," which term is used
in this Lease to include all laws, rules, regulations, ordinances,
directives, covenants, easements and restrictions of record, permits, the
requirements of any applicable fire insurance underwriter or rating bureau,
and the recommendations of Lessor's engineers and/or consultants, relating in
any manner to the Premises (including but not limited to matters pertaining
to (i) industrial hygiene, (ii) environmental conditions on, in, under or
about the Premises, including soil and groundwater conditions, and (iii) the
use, generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or
storage tank), now in effect or which may hereafter come into effect, and
whether or not reflecting a change in policy from any previously existing
policy. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information,
including, but not limited to, permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with
any Applicable Law specified by Lessor, and shall immediately upon receipt,
notify Lessor in writing (with copies of any documents involved) of any
threatened or actual claim, notice, citation, warning, complaint or report
pertaining to or involving failure by Lessee or the Premises to comply with
any Applicable Law.
4.
<PAGE>
6.4 INSPECTION; COMPLIANCE. Lessor and lessor's Lender(s) (as defined
in Paragraph 8.3(a) shall have the right to enter the Premises at any time,
in the case of an emergency, and otherwise at reasonable times, subject to
industrial security regulations, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Lessee with this Lease and
all Applicable Laws (as defined in Paragraph 6.3), and to employ experts
and/or consultants in connection therewith and/or to advise Lessor with
respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to
exist or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent
violation or contamination. In any such case, Lessee shall upon request
reimburse Lessor or Lessor's Lender, as the case may be, for the costs and
expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(A) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty
as to condition), 2.3 (Lessor's warranty as to compliance with covenants,
etc.), 7.2 (Lessor's obligations to repair), 9 (damage and destruction), and
14 (condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repair, or the means of repairing the same, are reasonably
or readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements of the age of
such portion of the Premises), including, without limiting the generality of
the foregoing, all equipment or facilities serving the Premises, such as
plumbing, heating, air conditioning, ventilating, electrical lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing system, inducing
fire alarm and/or smoke detection systems and equipment, fire hydrants,
fixtures, walls (interior and exterior), foundations, ceilings, roofs,
floors, windows, doors, plate glass skylights, landscaping, driveways,
parking lots, fences, retaining walls, signs, sidewalks and parkways located
in, on, about or adjacent to the Premises. Lessee shall not cause or permit
any Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of, the Premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed to by Lessee or
pertaining to or involving any Hazardous Substance and/or storage tank
brought onto the Premises by or for Lessee or under this control. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises
and all improvements thereon or a part thereof in good order, condition and
state of repair.
5.
<PAGE>
(B) Lessee shall, at Lessee's sold cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance
for, and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire
sprinkler and/or standpipe and hose or other automatic fire extinguishing
systems, including fire alarm and/or smoke detection, (iv) landscaping and
irrigation systems, (v) roof covering and drain maintenance and (vi) asphalt
and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises),
2.3 (relating to compliance with covenants, restrictions and building code),
9 (relating to destruction of the Premises), and 14 (relating to condemnation
of the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises,
the improvements located thereon, or the equipment therein, whether
structural or non structural, all of which obligations are intended to be
that of the Lessee under Paragraph 7.1 hereof. It is the intention of the
Parties that the terms of this Lease govern the respective obligations of the
Parties as to maintenance and repair of the Premises. Lessee and Lessor
expressly waive the benefit of any statute now or hereafter in effect to the
extent it is inconsistent with the terms of this Lease with respect to, or
which affords Lessee the right to make repairs at the expense of Lessor or to
terminate this Lease by reason of, any needed repairs.
7.3 UTILITY INSTALLATION; TRADE FIXTURES; ALTERATIONS.
(A) DEFINITIONS; CONSENT REQUIRED. The term "Utility
Installations" is used in this Lease to refer to all carpeting, window
coverings, air lines, power panels, electrical distribution, security, fire
protection systems, communication systems, lighting fixtures, heating,
ventilating, and air conditioning equipment, plumbing, and fencing in, on or
about the Premises. The term "Trade Fixtures" shall mean Lessee's machinery
and equipment that can be removed without doing material damage to the
Premises. The term "Alterations" shall mean any modification of the
improvements on the Premises from that which are provided by Lessor under the
terms of this Lease, other than Utility Installations or Trade fixtures,
whether by addition or deletion. "Lessee Owned Alterations and/or Utility
Installations" are defined as Alterations and/or Utility Installations made
by Lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a).
Lessee shall not make any Alterations or Utility Installations in, on, under
or about the Premises without Lessor's prior written consent. Lessee may,
however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof), as long as they are not visible from the
outside, do not involve puncturing, relocating or removing the roof or any
existing walls, and the cumulative cost thereof during any twelve (12) month
period of this Lease as extended does not exceed $10,000.
(B) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All
consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by
subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's
acquiring all applicable permits required by governmental authorities, (ii)
the furnishing of copies of such permits together with a copy of the plans
and specifications for the Alteration or
6.
<PAGE>
Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a
prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specification for structural changes.
(C) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises; which claims are or may be secured by
any mechanics' or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days notice prior to
commencement of any work in excess of $10,000, on or about the Premises, and
Lessor shall have the right to post notices of non-responsibility in or on
the Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same
and shall pay and satisfy any such adverse judgement that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises.
If Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to the amount of such contested
lien claim or demand, indemnifying Lessor against liability for the same, as
required by law for the holding of the Premises free from the effect of such
lien or claim. In addition, Lessor may reasonably require Lessee to any
Lessor's attorney's fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(A) OWNERSHIP. Subject to Lessor's right to require their removal
or become the owner thereof as hereinafter provided in this Paragraph 7.4,
all Alterations and Utility Additions made to the Premises by Lessee shall be
the property of and owned by Lessee, but considered a part of the Premises.
Lessor may, at any time and at its option, elect in writing to Lessee to be
the owner of all or any specified part of the Lessee Owned alterations and
Utility Installations which shall, at the expiration or earlier termination
of this Lease, become the property of Lessor and remain upon and be
surrendered by Lessee with the Premises.
(B) REMOVAL. Lessor may require the removal at any time of all or
any part of any Lessee Owned Alterations or Utility Installations made
without the required consent of Lessor.
(C) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date,
with all of the improvements, parts and surfaces thereof clean and free of
debris and in good operating order, condition and state of repair, ordinary
wear and tear excepted. "Ordinary Wear and Tear" shall not include any damage
or deterioration that would have been prevented by good maintenance practice
or by Lessee performing all of its obligations under this Lease. Except as
otherwise agreed or specified in writing by Lessor, the Premises, as
surrendered, shall include the Utility Installations. The obligation of
Lessee shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment,
and Alterations and/or Utility Installations, as well as the removal of any
storage tank installed by or
7.
<PAGE>
for Lessee, and the removal, replacement, or remediation of any soil,
material or ground water contaminated by Lessee, all as may then be required
by Applicable Law and/or good practice. Lessee's Trade Fixtures shall remain
the property of Lessee and shall be removed by Lessee subject to its
obligations to repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee
is the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor in excess of $2,000,000 per occurrence. Premiums
for policy periods commencing prior to or extending beyond the Lease term
shall be prorated to correspond to the Lease term. Payment shall be made by
Lessee to Lessor within ten (10) days following receipt of an invoice for any
amount due.
8.2 LIABILITY INSURANCE.
(A) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee and Lessor (as an additional insured) against
claims for bodily injury, personal injury and property damage based upon,
involving or arising out of the ownership, use, occupancy or maintenance of
the Premises and all areas appurtenant thereto. Such insurance shall be on
an occurrence basis providing single limit coverage in an amount not less
than $1,000,000 per occurrence with an "Additional Insured-Managers or
Lessors of Premises" endorsement and contain the "Amendment of the Pollution
Exclusion" for damage caused by heat, smoke or fumes from a hostile fire.
The policy shall not contain any intra-insured exclusions as between insured
persons or organization as, but shall include coverage for liability assumed
under this Lease as an "insured contract" for the performance of Lessee's
indemnity obligations under this Lease. The limits of said insurance
required by this Lease or as carried by Lessee shall not, however, limit the
liability of Lessee nor relieve Lessor of any obligation hereunder. All
insurance to be carried by Lessee shall be primary to and not contributory
with any similar insurance carried by Lessor, whose insurance shall be
considered excess insurance only.
(B) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE-BUILDING IMPROVEMENTS AND RENTAL VALUE.
(A) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force during the term of this Lease a policy or policies in the
name of Lessor, with loss payable to Lessor and to the holders of any
mortgages, deeds of trust or ground leases on the Premises ("Lender(s)"),
insuring loss or damage to the Premises. The amount of such insurance shall
be equal to the full replacement cost of the Premises, as the same shall
exist from time to time, which replacement value now $4,500,000, or the
amount required by lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than
full
8.
<PAGE>
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under
paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered cause of
loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver or subrogation, and
inflation guard protection causing an increase in the annual property
insurance coverage amount by a factor of not less than the adjusted U.S.
Department of Labor Consumer Price Index for All Urban Consumers for the city
nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $10,000 per
occurrence, and Lessee shall be liable for such deductible amount in the
event of an Insured Loss, as defined in Paragraph 9.1(c).
(B) RENTAL VALUE. The Insurance Party shall, in addition, obtain
and keep in force during the term of this Lease a policy or policies in the
name of Lessor, with loss payable to Lessor and Lender(s), insuring the loss
of the full rental and other charges payable by Lessee to Lessor under this
Lease for one (1) year (including all real estate taxes, insurance costs, and
any scheduled rental increases). Said insurance shall provide that in the
event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the
completion of repairs or replacement of the Premises, to provide for one full
year's loss of rental revenues from the date of any such loss. Said
insurance shall contain an agreed valuation provision in lieu of any
coinsurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income, property taxes, insurance premium costs
and other expenses, if any, otherwise payable by Lessee, for the next twelve
(12) month period. Lessee shall be liable for any deductible amount in the
event of such loss.
(C) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party,
the Lessor shall not be required to insure Lessee Owned Alterations and
Utility Installations unless the item in question has become the property of
Lessor under the terms of this Lease. If Lessee is the Insuring Party, the
policy carried by Lessee under this paragraph 8.3 shall insure Lessee Owned
Alterations and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
paragraph 8.5, Lessee at its costs shall either by separate policy or by
endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be
full replacement cost coverage with a deductible of not to exceed $10,000 per
occurrence. The proceeds from any one such insurance shall be used by Lessee
for the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party
with respect to the insurance required by this Paragraph 8.4 and shall
provide Lessor with written evidence that such insurance is in force.
9.
<PAGE>
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least an A, or such other rating as may be reasonably required
by a Lender having a lien on the Premises, as set forth in the most current
issues of "Best's Insurance Guide." Lessee shall not do or permit to be done
anything which shall invalidate the Insurance policies referred to in this
Paragraph 8. If lessee is the Insuring Party, Lessee shall cause to be
delivered to Lessor certified copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with the
insured and loss payable clauses as required by this Lease. No such policy
shall be cancelable or subject to modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders' evidencing renewal thereof, or Lessor may
order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee to Lessor upon demand. If the Insuring Party
shall fail to procure and maintain the insurance required to be carried by
the Insuring Party under this Paragraph 8, the other party may, but shall not
be required to, procure and maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("Waiving Party") each hereby release an relieve
the other, and waiver their entire right to recover damages (whether in
contract or in tort) against the other, for loss of or damage to the Waiving
Party's property arising out of or incident to the perils required to be
insured against under Paragraph 8. The effect of such releases and waivers
of the right to recover damages shall not be limited by the amount of
insurance carried or acquired, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its Agents, Lessor's master or ground lessor, partners
and lenders, from and against any and all claims, loss of rents and/or
damages, costs, liens, judgements, penalties, permits, attorney's and
consultants' fees, expenses and/or liabilities arising out of, involving, or
in dealing with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by
Lessee in the performance in a timely manner of any obligation on Lessee's
part to be performed under this Lease. The foregoing shall include, but not
be limited to, the defense or pursuit of any claim or any action or
proceeding involved therein, and whether or not (in the case of claims made
against Lessor) litigated and/or reduced to judgement, and whether well
founded or not. In case any action or proceeding be brought against Lessor
by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory
to lessor and Lessor shall cooperate with Lessee in such defense. Lessor need
not have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by
or results from fire, steam, electricity, gas, water or rain, or from he
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances plumbing, air conditioning or lighting fixtures, or from
any other cause, whether the
10.
<PAGE>
said injury or damage results from conditions arising upon the Premises or
upon other portions of the building of which the Premises are a part, or from
other sources or places, and regardless of whether the cause of such damage
or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any
other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to
Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS
(A) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alternation and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to
such damage or destruction, excluding from such calculation the value of the
land and Lessee Owned Alterations and Utility Installations.
(B) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee Owned Alterations and Utility
Installations the repair cost of which damage or destruction is 50% or more
of the Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned alterations and Utility Installations.
(C) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible
amounts or coverage limits involved.
(D) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(E) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE-INSURED LOSS. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessees' Trade fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; provided, however, that Lessee shall, at
Lessor's election, make the repair of any damage or destruction that total
cost to repair of which is $10,000 or less, and, in such event, Lessor shall
make the insurance proceeds available to Lessee on a reasonable basis for
that purpose. Notwithstanding the foregoing, if the required insurance was
not in force or the insurance proceeds are not sufficient to effect such
repair, the Insurance Party shall promptly contribute the shortage in
proceeds (except as to the deductible
11.
<PAGE>
which is Lessee's responsibility) as and when required to complete said
repairs. In the event, however, the shortage in proceeds was due to the fact
that, by reason of the unique nature of the improvements, full replacement
costs insurance coverage was not commercially reasonable and available,
Lessor shall have no obligation to pay for the shortage in insurance proceeds
or to fully restore the unique aspects of the Premises unless Lessee provides
Lessor with the funds to cover same, or adequate assurance thereof, within
ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, the party responsible for making the repairs
shall complete them as soon as reasonably possible and this Lease shall
remain in full force and effect. If Lessor does not receive such funds or
assurance within said period, Lessor may nevertheless elect by written notice
to Lessee within ten (10) days thereafter to make such restoration and repair
as is commercially reasonable with Lessor paying any shortage in proceeds, in
which case this Lease shall remain in full force and effect. If in such case
Lessor does not so elect, then this Lease shall terminate sixty (60) days
following the occurrence of the damage or destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor
for any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to
Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be
some insurance coverage, but the net proceeds of any such insurance shall be
made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under paragraph 13), Lessor may at Lessor's option, either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which
event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate
this Lease as of the date sixty (60) days following the giving of such
notice. In the event Lessor elects to give such notice of Lessor's intention
to terminate this Lease, Lessee shall have the right within ten (10) days
after the receipt of such notice to give written notice to Lessor of Lessee's
commitment to pay for the repair of such damage totally at Lessee's expense
and without reimbursement from Lessor. Lessee shall provide Lessor with the
required funds or satisfactory assurance thereof within thirty (30) days
following Lessee's said commitment. In such event this Lease shall continue
in full force and effect, and Lessor shall proceed to make such repairs as
soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the funds or assurance thereof within
the time specified above, this Lease shall terminate of the date specified in
Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
a Premises Total Destruction occurs (including any destruction required by
any authorized public authority), this lease shall terminate fifteen (15)
days following the date of such Premises Total Destruction, whether or not
the damage or destruction is an Insurance Loss or was caused by a negligent
or willful act of Lessee. In the event, however, that the damage or
destruction was caused by Lessee, Lessor shall have the right to recover
Lessor's damages from Lessee except as released and waived in Paragraph 8.6.
Lessor and Lessee shall have no further rights obligations or liabilities
hereunder.
12.
<PAGE>
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor
may, at Lessor's option, terminate this Lease effective sixty (60) days
following the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within thirty (30) days after the date
of occurrence of such damage. Provided, however, if Lessee at that time has
an exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease, by within twenty (20) days following the
occurrence of the damage, or before the expiration of the time provided in
such option for its exercise, whichever is earlier ("EXERCISE PERIOD") (i)
exercising such option and (ii) providing Lessor with any shortage in
insurance proceeds (or adequate assurance thereof) needed to make the
repairs. If Lessee duly exercises such option during said Exercise Period
and provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such
damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option and provide such
funds or assurance during said Exercise period, then Lessor may at Lessor's
option terminate this Lease as of the expiration of the said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in
the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(A) In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, Insurance
Premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(B) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises
within thirty (30) days after such obligation shall accrue, Lessee may, at
any time prior to the commencement of such repair or restoration, give
written to Lessor and to any Lenders of which Lessee has actual notice of
Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice to
Lessor and such Lenders and such repair or restoration is not commenced
within thirty (30) days after receipt of such notice, the Lease shall
terminate as of the date specified in said notice. If Lessor or a Lender
commences the repair or restoration of the Premises within thirty (30) days
after receipt of such notice, this Lease shall continue in full force and
effect. "COMMENCE" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
13.
<PAGE>
9.7 WAIVE STATUTES. This section intentionally deleted.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes,
as defined in Paragraph 10.2 applicable to the Premises during the term of
this Lease. Subject to Paragraph 10.1(b), all such payments shall be made
prior to the delinquency date of the applicable installment. Lessee shall
furnish Lessor with satisfactory evidence that such taxes have been paid
within 5 days of receipt of notice from Lessor. If any such taxes to be paid
by Lessee shall cover any period of time prior to or after the expiration or
earlier termination of the term hereof, Lessee's share of such taxes shall be
equitably prorated to cover only the period of time within the tax fiscal
year this lease is in effect, and Lessor shall reimburse Lessee for any
overpayment after such proration. If Lessee shall fail to pay any Real
Property Taxes required by this Lease to be paid by Lessee, Lessor shall have
the right to pay the same, and Lessee shall reimburse Lessor therefor upon
demand. Lessee shall have the right to contest real property taxes
applicable to the Premises and, Lessor agrees to cooperate with Lessee in
connection therewith.
(B) ADVANCE PAYMENT. This section intentionally deleted.
10.2 DEFINITION OF "REAL PROPERTY TAXES". As used herein, the term
"REAL PROPERTY" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond, or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or
federal, government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, Lessor's right to rent or other income therefrom,
and/or Lessor's business of leasing the Premises. The term "REAL PROPERTY
TAXES" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring, or changes in
applicable law taking effect, during the term of this Lease, including but
not limited to a change in the ownership of the Premises or in the
improvements thereof, the executing of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
10.3 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal
property of the Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause its Trade Fixtures, furnishings, equipment and
all other personal property to be assessed and billed separately from the
real property of Lessor. If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written
statement setting forth the taxes applicable to Lessee's property or, at
Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon.
14.
<PAGE>
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily assign,
transfer, mortgage, sublet, or otherwise transfer or encumber all or any part
of Lessee's interest in this Lease or in the Premises, without Lessor's prior
written consent, which Lessor shall not unreasonably withhold. Lessor shall
respond to Lessee's request for consent hereunder in a timely manner no more
than ten (10) business days from receipt thereof and any attempted
assignment, transfer, mortgage, encumbrance or subletting without such
consent shall be void, and shall constitute a breach of this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provision of paragraph 12.1
hereof, Lessee may assign or sublet the Premises or any portion thereof,
without Lessors consent, to any corporation which control is controlled by or
is under common control with Lessee, or to any corporation resulting form
merger or consolidation with Lessee, or to any person or entity which
acquires all the assets of Lessee as a going concern of the business that is
being conducted on the Premises, provided that said assignee assumes, in
full, the obligations of Lessee under this Lease. Any such assignment shall
not in any way, affect or limit the liability of Lessee under the terms of
this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms hereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignee of Lessee without
notifying Lessee, or any successor of Lessee, and without obtaining its or
their consent thereof and such action shall not relieve Lessee of liability
under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall or sublet the Premises
or request the consent of Lessor to any assignment or subletting or if Lessee
shall request the consent of Lessor for any act Lessee proposes to do then
Lessee shall pay Lessor reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by lessor in connection with a lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default and that Lessor may include the cost of such services and costs in
said notice as rent due and payable to cure said Default. A "Default" is
defined as a failure by the Lessee to observe, comply with or perform any of
the terms, covenants, conditions, or rules applicable to Lessee under this
Lease. A "Breach" is defined as the occurrence of any one or
15.
<PAGE>
more of the following Defaults, and where a grace period for cure after
notice is specified herein, the failure by Lessee to cure such Default prior
to the expiration of the applicable grace period, and shall entitle Lessor to
pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(A) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary
payment required to be made by Lessee hereunder, whether to Lessor or to a
third party, as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of three (3) days following written notice thereof by or on behalf of
Lessor to Lessee.
(B) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with applicable law
per Paragraph 6.3, (ii) the inspection, maintenance and service contracts
required under Paragraph 7.1(b), (iii) the rescission of an unauthorized
assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per
Paragraphs 16, (v) the subordination or non-subordination of this Lease per
Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations
under this Lease if required under Paragraphs 1.11, (vii) the execution of
any document reasonably requested under Paragraph 42 easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this Lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(C) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than
those described in subparagraphs (a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or
on behalf of Lessor to Lessee; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably
required for its cure, then it shall not be deemed to be a Breach of this
Lease by Lessee if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(D) The occurrence of any of the following events: (i) the making
by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days; (iii) the
appointment of a trustee or receiver to take possession of substantially all
of the Lessee's assets located at the Premises or of Lessee's interest in
this Lease, where possession is not restored to Lessee within thirty (30)
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of lessee's
interest in this Lease, where such seizure is not discharged within thirty
(30) days; provided, however, in the event that any provision of this
subparagraph (e) is contrary to any applicable law, such provision shall be
of no force or effect, and not affect the validity of the remaining
provisions.
16.
<PAGE>
(E) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false if knowingly provided by Lessee.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within thirty (30) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check
given to Lessor by Lessee shall not be honored by the bank upon which it is
drawn, Lessor, at its option, may require all future payments to be made
under this Lease by Lessee to be made only by cashier's check. In the event
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, with ten
(10) day notice and without limiting Lessor in the exercise of any right or
remedy which Lessor may have by reason of such Breach, Lessor may:
(A) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor.
In such event Lessor shall be entitled to recover from Lessee: (i) the worth
at the time of the award of the unpaid rent which had been earned at the time
of termination; (ii) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that the Lessee proves could
have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's
fees, and that portion of the leasing commission paid by Lessor applicable to
the unexpired term of this Lease. The worth at the time of award of the
amount referred to in provision (iii) of the prior sentence shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank
of San Francisco at the time of award plus one percent. Efforts by Lessor to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph. If termination
of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding the
unpaid rent and damages as are recoverable therein, or Lessor may reserve
therein the right to recover all or a part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay
rent or quit, or to perform quit, as the case may be given to lessee under
any statue authorizing the forfeiture of leases for unlawful detainer shall
also constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period
under subparagraphs 113.1(b), (c) or (d) and under the unlawful detainer
statute shall run concurrently after one such statutory notice, and the
failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both
17.
<PAGE>
an unlawful detainer and a Breach of this Lease entitling Lessor to the
remedies provided for in this Lease and/or by said statute.
(B) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's
Breach and abandonment and recover the rent as it becomes due, provided
Lessee has the right to sublet or assign, subject only to reasonable
limitations. See Paragraphs 12 and 36 for the limitations on assignment and
subletting which limitations Lessee and Lessor agree are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under the Lease,
shall not constitute a termination of the Lessee's right to possession.
(C) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(D) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's
occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for
the giving or paying by Lessor to or for Lessee of any cash or any cash or
other bonus, inducement or consideration for Lessee's entering into this
Lease, all of which concessions are hereinafter referred to as "Inducement
Provisions," shall be deemed conditioned upon Lessee's full and faithful
performance of all of the terms, covenants and conditions of this Lease to be
performed or observed by Lessee during the term hereof as the same may be
extended. Upon the occurrence of a Breach of this Lese by Lessee, as defined
in Paragraph 13.1 and provided such breach remains uncured for a period of
120 days following notice form Lessor to Lessee of such breach, any such
Inducement Provision shall automatically be deemed deleted form this Lease
and of no further force or effect, and any rent, other charge, bonus,
inducement or consideration theretofore abated, given or paid by Lessor under
such an Inducement Provision shall be immediately due and payable by Lessee
to Lessor, and recoverable by Lessor of rent or the cure of the Breach which
initiated the this Paragraph shall not be deemed a waiver by Lessor of the
provisions of this Paragraph unless specifically so stated in writing by
Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited
to, processing and accounting charges, the late charges which may be imposed
upon Lessor by the terms of any such ground lease, mortgage or trust deed
covering the Premises. Accordingly, if any installment of rent or any other
sum due from Lessee shall not be received by lessor or Lessor's designee
within ten (10) days after such amount shall be due, upon notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such
overdue amount, nor prevent Lessor from exercising any of the other rights
and remedies
18.
<PAGE>
granted hereunder. In the event that a late charge is payable hereunder,
whether or not collected, of three (3) consecutive installments of Base Rent,
then notwithstanding Paragraph 4.1 or any other provision of this Lease to
the contrary, Base Rent shall, at Lessor's option, become due and payable
quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails to perform an obligation required to be performed
by Lessor within thirty (30) days after notice from Lessee specifying such
obligation, provided, however, that if the nature of Lessor's obligation is
such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this
Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
14. CONDEMNATION. If the premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than ten percent
(10%) of the floor area of the Premises, or more than twenty-five percent
(25%) of the land area not occupied by any building, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing
within thirty (30) days after Lessor shall have given Lessee thirty (30) days
written notice of such taking terminate this Lease as of the date the
condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease as of the date the
condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
Base Rent shall be reduced in the same proportion as the rentable floor area
of the Premises taken bears to the total rentable floor area of the building
located on the Premises. No reduction of Base Rent shall occur if the only
portion of the Premises taken is land on which there is no building. Any
award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of
the fee or as severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to
the Premises caused by such condemnation, except to the extent that Lessee
has been reimbursed therefor by the condemning authority.
15. BROKERS FEE. This section intentionally deleted.
16. TENANCY STATEMENT.
16.1 Each Party (as "Responding Party") shall within twenty (20) days
after written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in
form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
19.
<PAGE>
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee shall
deliver to any potential lender or purchaser designated by lessor such
financial statements of Lessee as may be reasonably required by such lender or
purchaser, including but not limited to Lessee's financial statements for the
past three (3) years. All such financial statements shall be received by
Lessor and such lender or purchaser in confidence and shall be used only for
the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or,
if this is a sublease, of the lessee's interest in the prior lease. In the
event of a transfer of Lessor's title or interest in the Premises or in this
Lease, Lessor shall deliver to the transferee or assignee (in cash or be
credit) any unused Security Deposit held by Lessor at the time of such
transfer of assignment. Upon such transfer or assignment and delivery of the
Security Deposit, as aforesaid, the prior Lessor shall be relieved of all
liability with respect to the obligations and/or covenants under this Lease
thereafter to be performed by the Lessor. Subject to the foregoing, the
obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the transferee or assignee.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but
not exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains
all agreements between the Parties with respect to any matter mentioned
herein, and no other prior or contemporaneous agreement or understanding
shall be effective.
23. NOTICES.
23.1 All notices required or permitted by this lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service)
or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The address noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notice purposes.
Either Party may by written notice to the other specify a different address
for notice purposes, except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for the purpose of
mailing or delivering notices to Lessee. A copy of all notices required or
permitted to be given
20.
<PAGE>
to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate
by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by
regular mail the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours
after delivery of the same to the United States Postal Service or courier.
If any notice is transmitted by facsimile transmission or similar means, the
same shall be deemed served or delivered upon telephone confirmation or
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Sunday or legal holiday, it
shall be deemed received on the next business day.
24. WAIVERS. No waiver by either party of the Default or Breach of any
term, covenant or condition hereof by the other party, shall be deemed a
waiver of any other term, covenant or condition hereof, or of any subsequent
Default or Breach by the other party of the same or of any other term,
covenant or condition hereof, Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent
to, or approval of, any subsequent or similar act by Lessee, or be construed
as the basis of an estoppel to enforce the provision or provisions of this
Lease requiring such consent. Regardless of Lessor's knowledge of a Default
or Breach at the time of accepting rent, the acceptance of rent by Lessor
shall not be a waiver of any preceding Default or Breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent
so accepted. Any payment given Lessor by Lessee may be accepted by lessor on
account of moneys or damages due Lessor, notwithstanding any qualifying
statements or conditions made by Lessee in connection therewith, which such
statements and/or conditions shall be of no force or effect whatsoever unless
specifically agreed to in writing by Lessor at or before the time of deposit
of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has not right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed
or performed by Lessee and Lessor are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representative, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initialed in the county in which the Premises are located.
21.
<PAGE>
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease mortgage, deed of trust or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all
renewals, modifications, obligations, replacement and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor
under this Lease, but that in the event of Lessor's default with respect to
any such obligation, Lessee will give any Lender whose name and address have
been furnished Lessee in writing for such purpose notice of Lessors default
and allow such Lender thirty (30) days following receipt of such notice for
the cure of said default before invoking any remedies Lessee may have by
reason thereof. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall
given written notice thereof to lessee, this Lease and such Option shall be
deemed prior to such Security Device, notwithstanding the relative date of
the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device,
and that in the event of such foreclosure, such new owner shall not: (i) be
liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets
or defenses which Lessee might have against any prior lessor, or (iii) be
bound by prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving assurance (a "non-disturbance agreement")
from the Lender that Lessee's possession and this Lease, including any
options to extend the term hereof, will not be disturbed so long as Lessee is
not in Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection
with a sale, financing or refinancing of the Premises, Lessee and Lessor
shall execute such further writing as may be reasonably required to
separately document any such subordination or non-subordination, attornment
and/or non-disturbance agreement as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding
to enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) or Broker in any such proceeding, action, or appeal
thereon, shall be entitled to reasonable attorney's fees. Such fees may be
awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term,
"Prevailing Party" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be,
whether by compromise, settlement, judgment, or the abandonment by the other
Party or Broker of its claim or defense. The attorney's fee award shall not
be entitled to attorney's fees, costs and expenses incurred in the
preparation and service of notices
22.
<PAGE>
of Default and consultations in connection therewith, whether or not a legal
action is subsequently commenced in connection with such Default or resulting
Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises subject to industrial security
regulations at any time, in the case of an emergency, and otherwise at
reasonable times subject to industrial security regulations, for the purpose
of showing the same to prospective purchasers, lenders, or lessees, and
making such alterations, repairs, improvements or additions to the Premises
or to the building of which they are a part, as Lessor may reasonably deem
necessary. Lessor may at any time place on or about the premises or building
any ordinary "For Sale" signs and Lessor may at any time during the last one
hundred twenty (120) days of the term hereof place on or about the Premises
any ordinary "For Lease" signs. All such activities of Lessor shall be
without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, any auction upon the Premises
without first having obtained Lessor's prior written consent.
Notwithstanding anything to the contrary in this Lease, Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether
to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the
roof) such signs as are reasonably required to advertise Lessee's own
business. The installation of any sign on the Premises by or for Lessee
shall be subject to the provisions of Paragraph 7 (Maintenance, Repairs,
Utility Installations, Trade Fixtures and Alterations).
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one
or all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by
written notice to the holder of any such lesser interest, shall constitute
Lessor's election to have such event constitute the termination of such
interest.
36. CONSENTS.
(A) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act
by or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of
a Hazardous Substance, practice or storage tanks, shall be paid by Lessee to
Lessor upon receipt of an invoice and supporting documentation therefor
subject to Paragraph 12.2(e) (applicable to assignment or subletting), Lessor
may, as a condition to considering any such request by Lessor, require that
Lessee deposit with Lessor an amount of money (in addition to the Security
Deposit held under Paragraph 5) reasonably calculated by
23.
<PAGE>
Lessor to represent the cost Lessor will incur in considering and responding
to Lessee's request. Except as otherwise provided, any unused portion of
said deposit shall be refunded to Lessee without interest. Lessor's consent
to any act, assignment of this Lease or subletting of the Premises by Lessee
shall not constitute an acknowledgment that no Default or Breach by Lessee of
this Lease exists, nor shall such consent be deemed a waiver of any then
existing Default or Breach, except as may be otherwise specifically stated in
writing by Lessor at the time of such consent.
37. GUARANTOR. This section intentionally deleted.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises
and the observance and performance of all covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS. This section intentionally deleted.
40. MULTIPLE BUILDINGS. This section intentionally deleted.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of
third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time,
to grants, without the consent or joinder of Lessee, such easements, rights
and dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of
such entity represents and warrants that he or she is duly authorized to
execute and deliver this Lease on its behalf. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after request by
Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority.
24.
<PAGE>
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor's agent and submission of
same to Lessee shall not be deemed an offer to lease to Lessee. This Lease
is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee,
the obligation of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT
THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL, FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE
THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS,
STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION
IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH
IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT
PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE
STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates above
to their respective signatures.
Executed in San Diego, California on this 25th day of July, 1994.
25.
<PAGE>
LESSOR:
/s/ PETER A. ZARCADES
- -------------------------------------------
Signature Date
PETER A. ZARCADES
- -------------------------------------------
Name Typed or Printed
Address: 5080 Shoreham Place, Suite 100
San Diego, CA 92122
LESSEE:
/s/ DEBORAH K. FRITCSH
- -------------------------------------------
Signature Date
DEBORAH K. FRITCSH
- -------------------------------------------
Name Typed or Printed
3990 RUFFIN ROAD
- -------------------------------------------
Address
SAN DIEGO, CA 92123-1826
- -------------------------------------------
City & State
26.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE TITAN CORPORATION
1. The Titan Corporation
2. Diversified Control Systems, Inc.
3. Eldyne, Inc.
4. Federal Services, Inc.
5. Pulse Sciences, Inc.
6. Titan Environmental Corporation
7. Linkabit Wireless, Inc.
8. Tomotherapeutics, Inc.
9. Unidyne Corporation
10. ServNow NetTechnologies, Inc.
11. Titan Broadband Communications Corporation
12. Titan Software Systems Corporation
13. Linkabit Wireless Limited
14. Titan Technologies and Information Systems Corporation
15. Titan Purification, Inc.
16. DBA Systems, Inc.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
San Diego, California
March 9, 1998
<PAGE>
EXHIBIT 23.2
[LETTERHEAD]
March 4, 1998
Mr. Donald M. Barnes
Jenkins & Gilchrist
1919 Pennsylvania Avenue, NW
Suite 600
Washington, D.C. 20006-3404
Dear Mr. Barnes:
Please reference our opinion letter dated February 26, 1998 to The Board of
Directors of Horizons Technology, Inc. The purpose of that opinion was to
determine the fair market value of the Series A Preferred Sharesminority of
Horizons Technology, Inc. as of February 26, 19984/20/95. It is our
understanding that the Board of Directors of Horizons Technology, Inc. will
use this appraisal in connection with a proposed merger between Horizons
Technology, Inc. and the Titan Corporation ("the Merger").
In that opinion we expressly restricted its use in the section titled
"STATEMENT OF LIMITING CONDITIONS" with the following language: "Neither all
nor any part of the contents of this opinion letter shall be conveyed to the
public through advertising, public relations, news, sales, mail, direct
transmittal, or other media without the prior written consent and approval of
THE SLAVITT ELLINGTON GROUP."
We hereby consent, however, to the inclusion of the above referenced opinion
as an exhibit to any proxy statement distributed in connection with the
Merger. Additionally, we consent to the use of our corporate name in the
proxy statement distributed in connection with the Merger.
Very truly yours,
THE SLAVITT ELLINGTON GROUP
Michael T. Ellington
Managing Director
<PAGE>
COMMON STOCK
HORIZONS TECHNOLOGY, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 31, 1998
The undersigned hereby appoints Earl A. Pontius, James T. Palmer and J.P.
(Pat) Boyce, 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 Horizons
Technology, Inc. which the undersigned may be entitled to vote at a Special
Meeting of Stockholders of Horizons Technology, Inc. ("Horizons") to be held at
the office of Jenkens & Gilchrist, P.C., located at 1919 Pennsylvania Avenue,
N.W., Ste. 600, Washington, D.C. on Tuesday, March 31, 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/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; AND FAILURE TO
DO SO WILL BE DEEMED APPROVAL OF PROPOSAL 2.
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
February 26, 1998,
among Horizons, The
Titan Corporation, a
Delaware corporation
("Titan"), Sunrise
Acquisition Sub, Inc.
("Titan Sub"), a newly
formed, wholly owned
Delaware subsidiary of
Titan, and certain
stockholders of
Horizons, which is
attached as Appendix A
to the
Prospectus/Proxy
Statement that has
been transmitted in
connection with the
Special Meeting, and
(ii) approve and
consent to the merger
of Titan Sub with and
into Horizons,
pursuant to which,
among other things,
Titan Sub will cease
to exist and Horizons
will survive as a
wholly owned
subsidiary of Titan,
all as described in
said Prospectus/ Proxy
Statement.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
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/Proxy Statement dated March 11, 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.
DO NOT SEND IN YOUR STOCK CERTIFICATE WITH THIS PROXY. CERTIFICATES SHOULD NOT
BE SURRENDERED BY THE HOLDERS OF HORIZONS COMMON STOCK OR HORIZONS SERIES A
PREFERRED STOCK UNLESS THE MERGER IS APPROVED AND SUCH HOLDERS RECEIVE THE
LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT, AND THEN ONLY IN ACCORDANCE WITH
THE TERMS OF SUCH LETTER OR TRANSMITTAL.
<PAGE>
PREFERRED STOCK
HORIZONS TECHNOLOGY, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 31, 1998
The undersigned hereby appoints Earl A. Pontius, James T. Palmer and J.P.
(Pat) Boyce, 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 Horizons
Technology, Inc. which the undersigned may be entitled to vote at a Special
Meeting of Stockholders of Horizons Technology, Inc. ("Horizons") to be held at
the office of Jenkens & Gilchrist, P.C., located at 1919 Pennsylvania Avenue,
N.W., Ste. 600, Washington, D.C. on Tuesday, March 31, 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/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; AND FAILURE TO
DO SO WILL BE DEEMED APPROVAL OF PROPOSAL 2.
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
February 26, 1998,
among Horizons, The
Titan Corporation, a
Delaware corporation
("Titan"), Sunrise
Acquisition Sub, Inc.
("Titan Sub"), a newly
formed, wholly owned
Delaware subsidiary of
Titan, and certain
stockholders of
Horizons, which is
attached as Appendix A
to the
Prospectus/Proxy
Statement that has
been transmitted in
connection with the
Special Meeting, and
(ii) approve and
consent to the merger
of Titan Sub with and
into Horizons,
pursuant to which,
among other things,
Titan Sub will cease
to exist and Horizons
will survive as a
wholly owned
subsidiary of Titan,
all as described in
said Prospectus/ Proxy
Statement.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
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/Proxy Statement dated March 11, 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.
DO NOT SEND IN YOUR STOCK CERTIFICATE WITH THIS PROXY. CERTIFICATES SHOULD NOT
BE SURRENDERED BY THE HOLDERS OF HORIZONS COMMON STOCK OR HORIZONS SERIES A
PREFERRED STOCK UNLESS THE MERGER IS APPROVED AND SUCH HOLDERS RECEIVE THE
LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT, AND THEN ONLY IN ACCORDANCE WITH
THE TERMS OF SUCH LETTER OR TRANSMITTAL.
<PAGE>
HORIZONS TECHNOLOGY, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 31, 1998
Beneficial owners of shares of Common Stock (the "Horizons Common Stock") of
Horizons Technology, Inc. ("Horizons") held by Horizons' Employee Stock
Ownership Plan (the "ESOP") must submit an executed and completed proxy to the
North American Trust Company (the "Trustees") appointed herein as attorney and
proxy of the undersigned, in order to direct the Trustees as to the manner in
which the shares of Horizons Common Stock that they beneficially own will be
voted. IF INSTRUCTIONS ARE NOT RECEIVED BY THE TRUSTEES WITH RESPECT TO ANY
ALLOCATED SHARES OF HORIZONS COMMON STOCK PRIOR TO THREE (3) BUSINESS DAYS
BEFORE THE HORIZONS MEETING, THE TRUSTEES SHALL VOTE SUCH SHARES IN THE SAME
PROPORTIONS AS THE TRUSTEES ARE INSTRUCTED TO VOTE WITH RESPECT TO THE ALLOCATED
SHARES OF HORIZONS COMMON STOCK FOR WHICH INSTRUCTIONS ARE RECEIVED.
The undersigned hereby appoints the North American Trust Company as attorney
and proxy of the undersigned, with full power of substitution, to vote all of
the shares of stock of Horizons which the undersigned may be entitled to vote at
a Special Meeting of Stockholders of Horizons to be held at the office of
Jenkens & Gilchrist, P.C., located at 1919 Pennsylvania Avenue, N.W., Ste. 600,
Washington, D.C. on Tuesday, March 31, 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/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; AND FAILURE TO
DO SO WILL BE DEEMED APPROVAL OF PROPOSAL 2.
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
February 26, 1998,
among Horizons, The
Titan Corporation, a
Delaware corporation
("Titan"), Sunrise
Acquisition Sub, Inc.
("Titan Sub"), a newly
formed, wholly owned
Delaware subsidiary of
Titan, and certain
stockholders of
Horizons, which is
attached as Appendix A
to the
Prospectus/Proxy
Statement that has
been transmitted in
connection with the
Special Meeting, and
(ii) approve and
consent to the merger
of Titan Sub with and
into Horizons,
pursuant to which,
among other things,
Titan Sub will cease
to exist and Horizons
will survive as a
wholly owned
subsidiary of Titan,
all as described in
said Prospectus/ Proxy
Statement.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
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/Proxy Statement dated March 11, 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.
DO NOT SEND IN YOUR STOCK CERTIFICATE WITH THIS PROXY. CERTIFICATES SHOULD NOT
BE SURRENDERED BY THE HOLDERS OF HORIZONS COMMON STOCK OR HORIZONS SERIES A
PREFERRED STOCK UNLESS THE MERGER IS APPROVED AND SUCH HOLDERS RECEIVE THE
LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT, AND THEN ONLY IN ACCORDANCE WITH
THE TERMS OF SUCH LETTER OF TRANSMITTAL.
